ASSET PURCHASE AGREEMENT

EXHIBIT 2.6

 

 

ASSET PURCHASE AGREEMENT

GLOBAL WATER RESOURCES, LLC

and

PHOENIX CAPITAL PARTNERS, LLC

DATED AS OF JANUARY 23, 2004

 

 

TABLE OF CONTENTS

				Page
ARTICLE 1 — DEFINITIONS					1
ARTICLE 2 — SALE AND PURCHASE OF THE ASSETS; CLOSING					7
2.1		Sale and Purchase of Assets			7
2.2		Place and Date			7
2.3		Purchase Price			7
2.4		Feasibility Period			9
2.5		Instruments of Conveyance			10
2.6		Adjustment to Working Capital			11
2.7		Satisfaction of Section 5.1.7 Liquidity			11
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES					11
3.1.		Authorization, etc.			11
3.2		Status of Companies			11
3.3		No Conflicts, Etc.			12
3.4		Financial Statements			12
3.5		Solvency			12
3.6		Absence of Undisclosed Liabilities			12
3.7		Taxes			13
3.8		Operation of Business			13
3.9		Litigation			13
3.10		Ownership			14
3.11		Material Contracts			14
3.12		Absence of Certain Business Practices			15
3.13		Insurance			15
3.14		Real and Personal Property			15
3.15		Water Rights			16
3.16		Permits			16
3.17		Environmental Matters			17
3.18		Compliance with Applicable Law			17
3.19		No Guarantees			18
3.20		Companies’ Records			18
3.21		Receivables			18

TABLE OF CONTENTS
(continued)

				Page
3.22		Accounts Payable			18
3.23		Intellectual Property			18
3.24		Employees			18
3.25		No Class A Utility			19
3.26		Brokers, Finders, etc.			19
3.27		Absence of Changes			19
3.28		Accuracy of Representations			20
3.29		Modification of Representations and Warranties			20
3.30		All Assets			21
3.31		No Contractual Interference			21
3.32		No Contact with the Purchaser			21
ARTICLE 4 — COVENANTS					21
4.1		Covenants of Seller			21
		4.1.1     Conduct of Business			21
		4.1.2     Conduct of Business Prior to Closing			22
		4.1.3     Material Adverse Change			23
		4.1.4     Employees			23
		4.1.5     Non-Competition, Non-Opposition			23
		4.1.6     No Solicitation			23
		4.1.7     Further Actions			24
4.2		Covenants of Purchaser			24
		4.2.1     Further Actions			24
		4.2.2     Further Assurances			25
4.3		Cooperation On Tax Matters			25
		4.3.1     Certain Taxes and Fees			26
ARTICLE 5 — CONDITIONS PRECEDENT					26
5.1		Conditions to Obligations of Purchaser			26
		5.1.1     Representations, Performance			26
		5.1.2     Consents			26
		5.1.3     No Material Adverse Effect			26
		5.1.4     Other Documents			26

TABLE OF CONTENTS
(continued)

				Page
		5.1.5     Satisfaction of Liabilities; Discharge of Liens		27
		5.1.6     Satisfaction with Due Diligence Results			27
		5.1.7     Companies’ Liquidity			27
5.2		Conditions to Obligations of Seller			27
		5.2.1     Representations, Performance			27
		5.2.2     Consents			27
		5.2.3     Other Documents			27
ARTICLE 6 — TERMINATION					28
6.1		Termination			28
6.2		Effect of Termination			28
ARTICLE 7 — INDEMNIFICATION; PRE-CLOSING DEFAULT					28
7.1		Indemnification By Seller			28
7.2		Indemnification by Purchaser			29
7.3		Threshold and Limitations on Indemnification Amounts			30
7.4		Timing of Indemnification Claims			30
		7.4.1     Time Limitations on Purchaser Indemnitee Claims			30
		7.4.2     Time Limitations on Seller Indemnitee Claims			30
7.5		Exclusive Remedy			30
7.6		Indemnification Procedures			30
7.7		Pre-Closing Default			31
		7.7.1     By Seller			31
		7.7.2     By Purchaser			32
7.8		Survival			32
ARTICLE 8 — [Reserved]					32
ARTICLE 9 — MISCELLANEOUS					32
9.1		Expenses			32
9.2		Severability			33
9.3		Notices			33
9.4		Headings; Interpretation			34
9.5		Entire Agreement			34
9.6		Counterparts			34

TABLE OF CONTENTS
(continued)

				Page
9.7		Governing Law, etc.			34
9.8		Binding Effect			34
9.9		Assignment			34
9.10		No Third Party Beneficiaries			34
9.11		Amendment; Waivers, etc.			35

ASSET PURCHASE AGREEMENT

     This Asset Purchase Agreement (this “ Agreement ”), dated as of January ______, 2004, is made by and between PHOENIX CAPITAL PARTNERS, LLC, an Arizona limited liability company (“ Seller ”), and GLOBAL WATER RESOURCES, LLC, a Delaware limited liability company (“ Purchaser ”).

WITNESSETH:

      WHEREAS, Seller is the legal and beneficial owner of certain Assets (as defined in Section 2.1 ); and

      WHEREAS , Seller desires to sell, and Purchaser desires to purchase, the Assets for the consideration and on the terms set forth in this Agreement;

      NOW, THEREFORE , in consideration of the mutual promises, representations, and warranties herein contained, and on the terms and subject to the conditions herein set forth, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

     The terms defined in this Article 1 , whenever used in this Agreement (including in the Schedules), shall have the respective meanings indicated below for all purposes of this Agreement. All references herein to a Section, Article or Schedule are to a Section, Article or Schedule of or to this Agreement, unless otherwise indicated.

      A.A. C.: means the Arizona Administrative Code.

      A CC: means the Arizona Corporation Commission.

      Accounts Receivable: means all notes and accounts receivable held by the Seller and/or Companies or of which Seller and/or the Companies are the beneficial holders and all notes, bonds, and other evidences of indebtedness of and rights to receive payments from any Person.

      ADEQ: means the Arizona Department of Environmental Quality.

      Adjusted Costs: as defined in Section 2.6.

      ADWR: means the Arizona Department of Water Resources.

      Affiliate: of a Person means a Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first Person. For purposes of this definition, “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.

      Affiliated Group: means any affiliated group within Code §1504(a) or any similar group defined under a similar provision of any other Applicable Law.

      Agreement: means this Agreement, including the Schedules and Exhibits hereto, as amended from time to time.

      Applicable Law: means, with respect to any Person, any constitution, treaty, statute, law (including common law), rule, regulation, ordinance, code, Governmental Approval, or any order, decision, injunction, judgment, award, decree or agreement of or with any Governmental Authority, in any such case to the extent applicable to such Person or any of its Affiliates or any of their respective assets and/or businesses.

      Assets: as defined in Section 2.1 .

      Audit: as defined in Section 2.6 .

      Business: means the water utility business of the Companies, including all of the business operations which have been conducted by the Companies involving generally water sourcing and distribution and wastewater collection, treatment and reclamation.

      Business Day: means any day other than a Saturday, Sunday or other day on which banks in Phoenix, Arizona, are permitted or required to close.

      CC&N’s: means the Certificates of Convenience and Necessity issued to the Companies by the ACC.

      Closing: as defined in Section 2.2 .

      Closing Date: as defined in Section 2.2 .

      Code: means the Internal Revenue Code of 1986, as amended.

      Companies: as defined in Section 2.1 .

      Companies’ Service Area: means the geographic certificated area covered by the Companies’ CC&N’s.

      Consent: means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.

      Effective Date: as defined in Section 2.2 .

      Effective Date Balance Sheet: means the balance sheet prepared by Seller in respect of the Companies in accordance with GAAP reflecting the assets and liabilities of the Companies as at 12:01 a.m. on the Effective Date and reflecting the best estimate, in the opinion of Seller, acting reasonably, for those current assets and liabilities of the Companies that are not capable of actual determination as of the Effective Date.

      Environmental Claim: means any civil, administrative, regulatory, judicial or quasi-judicial action, lawsuit, demand, directive, claim, Lien, investigation, proceeding or notice of noncompliance or violation (written or oral) by any Person alleging actual or potential liability (including liability for enforcement, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from: (i) the presence, or release into the environment, of any Hazardous Substance at any location, whether or not owned by the Companies, (ii) circumstances forming the basis of any violation or alleged violation, of any Environmental Law, or (iii) any claim by any Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of any Hazardous Substance.

      Environmental Laws: mean all Applicable Laws, regulations, standards, requirements, ordinances, policies, guidelines, orders, approvals, notices, permits or directives, or parts thereof, pertaining to environmental or occupational health and safety matters, in effect as at the date hereof, including laws and regulations relating to Releases or threatened Releases of Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances.

      Escrow Agent: as defined in Section 2.3(a).

      Facilities: means the plant and equipment (including but not limited to infrastructure) used by the Companies to operate and conduct their Business.

      Financial Statements: as defined in Section 3.4.

      GAAP: means generally accepted accounting principles as in effect in the United States of America as determined by the Financial Accounting Standards Board from time to time applied on a consistent basis as of the date of any application thereof.

      Governmental Approval: means any Consent of, with, or from any Governmental Authority.

      Governmental Authority: means any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States or any political subdivision thereof, and any tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory organization.

      Hazardous Substance: means any substance that: (i) is or contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or related materials, (ii) requires investigation, removal or remediation or for which there are restrictions pursuant to any Environmental Law regarding its use or disposal, under any Environmental Law, or is defined, listed or identified as a “hazardous waste,” “toxic substance,” “toxic material,” “pollutant,” or “hazardous substance” thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious, radiologically contaminated,

carcinogenic, mutagenic, or otherwise hazardous and is regulated by any Governmental Authority or Environmental Law.

      Holdback Funds: as defined in Section 2.3(c).

      Indemnified Party: as defined in Section 7.6 .

      Indemnifying Party: as defined in Section 7.6 .

      IRS: means the Internal Revenue Service.

      Knowledge of Seller: means the actual knowledge, after reasonable and meaningful due inquiry, of those directors, officers and employees of Seller whose responsibilities have included the management of the affairs of the Companies or Seller, as appropriate to the matter to which such knowledge pertains.

      Leased Real Property: means all real property interests leased pursuant to the Leases.

      Leases: means the real property leases, subleases, licenses and occupancy agreements pursuant to which either of the Companies is the lessor, lessee, sublessor, sublessee, licensor, licensee or occupant and which are described on Schedule 3.14 .

      Liabilities: as defined in Section 2.1 .

      Lien: means any mortgage, pledge, hypothecation, right of others, claim, security interest, encumbrance, lease, sublease, license, occupancy agreement, adverse claim or interest, easement, covenant, encroachment, burden, title defect, title retention agreement, voting trust agreement, interest, equity, option, lien, right of first refusal, charge or other restrictions or limitations of any nature whatsoever, including such as may arise under any Material Contracts.

      Line Extension Agreement: means a line extension agreement, main extension agreement, collection main extension agreement, plant expansion agreement, water service agreement, wastewater service agreement or any other similar agreement that is subject to A.A.C. R14-2-406 or A.A.C. R14-2-606 as amended from time to time, and any amendments, modifications or addenda thereto.

      Losses: as defined in Section 7.1 .

      Material Adverse Effect: with regard to the Seller, the Companies, or the Assets, means any event, occurrence, fact, condition, change or effect that individually or in the aggregate with similar events, occurrences, facts, conditions, changes or effects will or could reasonably be expected to result in a cost, expense, charge, liability, loss of revenue or diminution in value of the Assets (including but not limited to the Membership Interests) equal to or greater than $50,000.

      Material Contracts: as defined in Section 3.11 .

      Membership Interests: means ownership interests in a limited liability company.

      Minimum Damage Requirement: as defined in Section 7.3 .

      New Customer: means a new service connection within the Companies’ Service Area to either water or wastewater services, or both, of the Companies (i) by a single residential dwelling unit, or (ii) in the case of connection to such water or wastewater services, or both, by a multi—unit residential building or complex, each individual residential dwelling unit within such building or complex that is serviced through such connection and in respect of which the Companies are entitled to charge for such service (either individually or in the aggregate with the other units serviced by such building or complex connection). Each New Customer will be accounted for at the time of actual connection and initial billing by the Companies.

      Operational Status: means, as to the Waste Water Treatment Plant, that the plant has been set-to-work, commissioned, trialed and accepted by PVUC, and is biologically and hydraulically capable of treating a minimum of 1.0 MGD (average flow) with a 2.5 MGD peak hour flow to a minimum standard of Class A+ effluent (as defined in the AAC R18-11-303) on a continuous basis; and as to the other Facilities, that such Facilities are complete and fully operational in the manner required to permit the Companies to conduct their Business. Operational Status will be deemed to have been achieved when the Facilities meet three (3) consecutive laboratory samples within a thirty (30) day period which meet the Class A+ standard for effluent as defined in the ACC R18-11-303.

      Owned Real Property: means, collectively, the real property interests, including real property held in fee simple and any easements, owned by the Companies, each of which is described by legal description and, if appropriate, civic address, on Schedule 3.14(b ).

      Permit: means, with respect to any Person, any license, permit, registration, consent, certificate, order, approval or other authorization required by any Governmental Authority for such Person to lawfully (i) own or lease a particular asset, (ii) occupy, access or use particular real property, or (iii) conduct a particular business or other activity.

      Permitted Liens: as defined in Section 3.14(a).

      Person: means any natural person, firm, partnership, association, corporation, company, limited liability company, partnership, trust, business trust, Governmental Authority, or other unincorporated entity or organization.

      Phoenix Utility: as defined in Section 2.1 .

      Phoenix Utility Transaction: as defined in Section 2.3(e) .

      Post Closing Balance Sheet: means the balance sheet mutually prepared by the parties in respect of the Companies in accordance with GAAP reflecting the assets and liabilities of the Companies as of 12:01 a.m. on the Effective Date and incorporating the actual determination of any current assets and liabilities of the Companies which were estimated for the purpose of the Effective Date Balance Sheet.

      Pre-Closing Tax Period: means, collectively, (i) all taxable periods ending on or before December 31, 2003.

      Purchase Price: as defined in Section 2.3.

      Purchaser Indemnitees: as defined in Section 7.1 .

      PVUC: as defined in Section 2.1.

      Release: means any release, spill, emission, emptying, leaking, injection, deposit, disposal, discharge, dispersal, leaching, pumping, pouring, or migration into the atmosphere, soil, surface water, groundwater or property.

      SCWC: as defined in Section 2.1 .

      Seller Indemnitees: as defined in Section 7.2 .

      Tax: means any federal, state, provincial, local, foreign or other income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, privilege, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental (including taxes under Section 59A of the Code), real property, personal property, transfer, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers’ compensation, payroll, health care, registration, withholding, estimated or other similar tax, duty or other governmental charge or assessment or deficiencies thereof (including all interest and penalties thereon and additions thereto whether disputed or not).

      Tax Return: means any return, report, declaration, form, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

      Transaction Expenses: as defined in Section 9.1 .

      Treasury Regulations: means the Treasury Regulations promulgated under the Code, and Treasury Regulation followed by a particular § number reference means that particular section or subsection of the Treasury Regulations.

      Treatment Facility: means the Companies’ waste water treatment facility located at Maricopa, Arizona.

      Waste Water Treatment Plant: means that new waste water treatment plant currently under construction at the northwest comer of Section 13, Township 4 South, Range 3 East, Pinal County, Arizona.

      Water Rights: means any and all rights or interests in rights, claims, permits, applications, and/or certificates under which the Companies are or will be entitled to the use of water within the Companies’ Service Area as it currently exists or may be expanded in the future.

      Working Capital: means the amount by which the consolidated assets of the Companies as of 12:01 a.m. on the Effective Date that are treated under GAAP and applied by the

Companies in the preparation of its financial statements as current assets exceed the consolidated liabilities of the Companies as of 12:01 a.m. on the Effective Date that are treated under GAAP and applied by the Companies in the preparation of their financial statements as current liabilities (exclusive of any current portions of the Indebtedness). Notwithstanding anything contained in the preceding sentence, the calculation of Working Capital shall include (i) as a current asset, any account receivable for services rendered by the Companies before the Effective Date where no invoice for such services has been issued before the Effective Date, and (ii) as a current liability, any amount payable by the Companies on or after the Effective Date in respect of goods or services supplied to the Companies before the Effective Date where no invoice for such amount has been received by the Companies before the Effective Date.

ARTICLE 2
SALE AND PURCHASE OF THE ASSETS; CLOSING

      2.1 Sale and Purchase of Assets . Subject to the terms and conditions of this Agreement and except for those assets specifically set out on Exhibit A , attached hereto and by this reference incorporated herein, as exempt from this transaction, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, all of the Seller’s assets, both tangible and intangible, including but not limited to (a) all Membership Interests in, (b) all rights to distributions of, and (c) the right to exercise all of the rights, privileges, powers and remedies of Seller as a member of (i) Santa Cruz Water Company, L.L.C., an Arizona limited liability company (“ SCWC ”), and (ii) Palo Verde Utilities Company, LLC, an Arizona limited liability company (“ PVUC ”); (collectively, the “ Assets ”); provided, however, that the Assets expressly exclude Seller’s cash, Seller’s interest in Orbitel and that certain Electric Service Agreement, dated June 11, 2001, between SRM-ENCO Arizona I, LLC, a Delaware limited liability company, and Seller (the “ Excluded Assets ”). Seller expressly acknowledges and agrees, that Purchaser is not acquiring Seller or any of Seller’s liabilities, whether existing or contingent, known or unknown (the “ Liabilities " ), for which Seller shall remain solely, completely and unconditionally responsible. As of the date of this Agreement and as of the Closing, the Membership Interests are ninety-nine percent (99%) of all of the issued and outstanding membership interests of SCWC (and the assets thereof, inclusive of all tanks, surface water treatment equipment, pump stations, wells, water rights, water distribution systems, vehicles and all real and personal property assets, inventory and equipment currently used to conduct the operation by SCWC of its business) and ninety-nine percent (99%) of all of the issued and outstanding membership interests of PVUC (and the assets thereof, inclusive of all waste water collection infrastructure, waste water treatment facilities, water reclamation facilities and all ancillary and auxiliary equipment vehicles and all real and personal property assets, inventory and equipment currently used for PVUC to conduct its business). In addition to the representations and warranties described in Article 3 below, Seller represents and warrants to Purchaser that Seller, together with Phoenix Utility Management, LLC, an Arizona limited liability company (“ Phoenix Utility ”), owns one hundred percent (100%) of the issued and outstanding membership interests of SCWC and PVUC. Either of SCWC and PVUC may be referred to individually as a “Company” or collectively herein as the “ Companies .”

      2.2 Place and Date . The closing of the sale and purchase of the Assets as provided herein (the “ Closing ”) will take place at 10:00 A.M. local time on January 29, 2004 (the “Closing Date”), at the offices of the Escrow Agent as set forth in Section 2.3(a) , or at such other

time and place as the parties may agree; provided, however, that in the event the conditions set forth in Section 2.4 are not satisfied by such date, Purchaser solely, and in its sole and absolute election may (but it is in no manner obligated to do so) extend the Closing on a day-to-day basis until such conditions have been satisfied by Seller or waived by Purchaser. Notwithstanding the Closing Date, the Effective Date of this transaction for all purposes shall be deemed to be January 1,2004.

      2.3 Purchase Price . In consideration for the Assets, Purchaser will pay to Seller an aggregate purchase price in the amount of Thirty Four Million Seven Hundred Eighty Thousand and No/100 Dollars ($34,780,000.00) (the “ Purchase Price ”) comprised of the following:

           (a) Earnest Money Deposit . $125,000.00, as an earnest money deposit (the “ Deposit ”), previously deposited in escrow (the “ Escrow ”) with First American Title Insurance Company (“ Escrow Agent ”), 4801 East Washington Street, Suite 110, Phoenix, Arizona 85034 (Attention: Carol Peterson), and being held by the Escrow Agent in an interest bearing account; and

           (b) Balance of the Purchase Price . The balance of the Purchase Price, subject to adjustment to reflect closing costs, prorations and other adjustments described in this Agreement, shall be paid by Purchaser at the Closing in cash, cashier’s check or other immediately available funds. Such prorations and adjustments shall include such reasonable and legally permissible adjustments as may be necessary to assure that the actual financial condition of the Companies conforms to the balance sheet forecasts attached to this Agreement as Schedules 3.4(a) and 3.4(b) , as the same may be adjusted by mutual agreement as of the date that is ten (10) days prior to the Closing, with any additional final adjustments or corrections to be mutually agreed upon within ninety (90) days following the Closing.

           (c) Escrow Holdback . At the Closing, there shall be withheld from the proceeds of the Purchase Price payable to the Seller and to the seller under the Phoenix Utility Transaction (as defined in paragraph 2.4(e) below) and maintained in Escrow for a period of twenty-four (24) months from the Closing, the sum of Three Million Five Hundred Thousand and No/1 00 Dollars ($3,500,000.00) (the “ Holdback Funds ”). Purchaser shall be entitled to draw upon the Holdback Funds to compensate Purchaser for: (1) any loss or damage in excess of Fifty Thousand and No/100 Dollars ($50,000.00) suffered as a result of: (a) the breach by the Seller of the representations and warranties set forth in this Agreement; or (b) any variance between: (i) the financial condition of SCWC at the Closing from the financial condition represented on the balance sheet forecast (as the same may be adjusted pursuant to paragraph 2.3(b) above) attached to this Agreement as Schedule 3.4(a) ; or (ii) the financial condition of PVUC at the Closing from the financial condition represented on the balance sheet forecast (as the same may be adjusted pursuant to paragraph 2.3(b) above) attached to this Agreement as Schedule 3.4(b) or (iii) the presence of off-balance sheet liabilities or lease obligations not disclosed on the Schedule of Liabilities and Lease Obligations attached to this Agreement as Schedule 3.11 ; (2) any loss or damage suffered as a result of a failure of the Facilities to have achieved Operational Status up to a maximum of $750,000 and only until the Facilities have achieved Operational Status; or (3) to pay the Adjusted Costs. Any Holdback Funds remaining in Escrow at the expiration of the twenty four (24) month period following the Closing (unless there is then a claim pending by Purchaser against such Holdback Funds) shall be disbursed by the Escrow Agent to the Seller and/or the seller under the Phoenix Utility Transaction. At the Closing, Purchaser, Seller and the

seller under the Phoenix Utility Transaction, shall execute and deliver escrow holdback instructions in the form attached hereto as Exhibit “C ” and that are also acceptable to Escrow Agent. The amount of the Escrow Holdback established pursuant to this paragraph 2.3(c) except for the representations and warranties of Seller set forth in paragraphs 3.1, 3.6, 3.7, 3.9 and 3.30 of this Agreement (the “ Excluded Representations ”) constitutes a limitation on the damages available to Purchaser for the matters relating to this transaction and the Phoenix Utility Transaction. Notwithstanding the provisions of this paragraph 2.3(c) to the contrary, the amount of the Escrow Holdback established pursuant to this paragraph 2.3(c) is not a limitation on the damages available to Purchaser in the event of a breach of the Excluded Representations.

      2.4 Feasibility Period . Purchaser shall be entitled to a “ Feasibility Period ” within which to conduct the due diligence and feasibility studies more particularly described in paragraph 5 below. The Feasibility Period shall commence as of the execution of this Agreement and shall end at 5:00 p.m., local time, on Friday, January 23, 2004.

           (a) Review During Feasibility Period . Purchaser intends to use the Feasibility Period to study, among other factors, the assets of Seller, the assets of SCWC, the assets of PVUC, the assets of Phoenix Utility, environmental concerns, deferred maintenance issues, if any, the condition of title to real and personal property, entitlements, service agreements and other contracts executed by Seller, SCWC, PVUC, Phoenix Utility, and the various markets affecting Seller, SCWC, PVUC, or Phoenix Utility. Phoenix Utility agrees that Purchaser may, at its expense, assess these factors, as well as any other factors Purchaser deems relevant, in its sole, absolute and unfettered discretion during the Feasibility Period.

           (b) Due Diligence Checklist . During the Feasibility Period, Purchaser shall have the right to review, and Seller shall make available to Purchaser for inspection and/or copying, promptly following the execution of this Agreement, the information, documentation and other company items deemed relevant by Purchaser, including but not limited to the items set forth on the Due Diligence Checklist attached to this Agreement as Exhibit “B” .

           (c) Additional Feasibility Studies . Purchaser may conduct various additional feasibility studies with respect to the real and personal property assets of Seller (if any), such as physical inspections, zoning, marketability and economic feasibility studies. Upon prior written notice, Seller shall afford Purchaser and/or its consultants access to the real and personal property assets of Seller (if any) at any reasonable time for the purposes of making such inspections and studies. Purchaser shall indemnify Seller for, from and against any claims relating to such inspections.

           (d) Satisfaction and Contingencies . Purchaser’s acquisition of the Assets is contingent upon Purchaser’s approval, in its sole and absolute discretion, of the matters revealed by its due diligence and feasibility studies. At any time prior to the expiration of the Feasibility Period, Purchaser may elect to terminate this transaction, in which event Purchaser shall be entitled to the return of the earnest money deposit, together with any interest earnings thereon. Purchaser’s acquisition of the Assets is also contingent upon the approval by Purchaser of the service agreements described in paragraph 2.4(f) below, all of which shall be in a form and content acceptable to Purchaser in Purchaser’s sole discretion. If the service agreements are not delivered and/or are not in a form and content acceptable to Purchaser in Purchaser’s sole discretion, at any time prior to Closing, Purchaser may elect to terminate this transaction, in

which event Purchaser shall be entitled to the return of its earnest money deposit, together with interest earnings thereon.

           (e) Phoenix Utility Transaction. Purchaser’s acquisition of the Membership Interests is also contingent upon the simultaneous acquisition by Purchaser of all of the assets of whatsoever nature of Phoenix Utility upon such terms and conditions as are acceptable to Purchaser in its sole discretion (the “ Phoenix Utility Transaction ”). The election by Purchaser to terminate this transaction pursuant to the provisions of paragraph 2.4(d) above shall constitute a concurrent and simultaneous termination of the Phoenix Utility Transaction.

           (f) Service Agreements. Prior to Closing, Seller shall use commercially reasonable efforts to negotiate and execute service agreements with all non-related property owners contemplating potential connection of new properties within the existing CC&Ns held by SCWC and/or PVUC as listed on Schedule 2.4(f) ; said agreements to be in a form satisfactory to Purchaser in Purchaser’s sole discretion, and in a form suitable for recordation in the records of Maricopa County, Arizona (including notarial acknowledgments) at the Closing; except, however, such agreements executed in the form of “ Builder’s Certificates ” shall not be recorded at the Closing.

           (g) Agreements with Related Parties. Purchaser shall have negotiated and executed service (or similar) agreements with all related parties listed on Schedule 2.4(g) , said agreements to be in a form satisfactory to Purchaser in Purchaser’s sole discretion, and in a form suitable for recordation in the records of Maricopa County, Arizona (including notarial acknowledgments) at the Closing; except, however, such agreements executed in the form of “ Builder’s Certificates ” shall not be recorded at the Closing.

           (h) Decker-Reinbold Interest. Mike T. Decker-Reinbold shall not hold, directly or indirectly, any interest in Seller.

      2.5 Instruments of Conveyance. At the Closing, the Seller shall execute, have acknowledged and delivered to Escrow Agent for the account of Purchaser: (a) assignments of all of Seller’s Membership Interests in SCWC and PVUC, conveying to Purchaser all of the Seller’s right, title and interest in such Membership Interests, which assignments shall be sufficient to transfer such Membership Interests, shall contain the warranty of the Seller that the Seller has and Purchaser is acquiring good title to such Membership Interests, free and clear of all liens, encumbrances, claims, rights and options of any kind or character whatsoever and otherwise in a form reasonably satisfactory to Purchaser; (b) assignments, bills of sale or other appropriate documents transferring all of the line extension agreements, capital agreements, or similar agreements, between Seller and the parties to such extension agreements, free and clear of all liens, encumbrances, claims, rights and options of any kind or character whatsoever and otherwise in a form reasonably satisfactory to Purchaser; and (c) a bill of sale conveying to Purchaser any and all of the remaining Assets of whatever nature, which bill of sale shall be sufficient transfer the Assets, shall contain the warranty of Seller that Seller has and Purchaser is acquiring good title to the Assets, free and clear of all liens, encumbrances, claims, rights and options of any kind or character whatsoever and otherwise in a form reasonably satisfactory to Purchaser. Purchaser shall promptly cause to be filed with the Arizona Corporation Commission any necessary amendments to the Articles of Organization of in SCWC and PVUC to reflect the acquisition by Purchaser of the Membership Interests. Additionally, Seller shall

obtain, execute, acknowledge (if required) and deliver to Purchaser all third-party consents and other documents and instruments as may be reasonably necessary to fully convey to Purchaser all of the rights in and to the Assets (including the Membership Interests) and to consummate the transactions contemplated herein.

      2.6 Adjustment to Working Capital. On or about April 10, 2004, or as soon thereafter as practicable, Seller and Purchaser shall confirm the Working Capital of the Companies (the “ Audit ”). The costs of the Audit shall be borne equally by Seller and Purchaser. The Audit shall result in a determination of “ Adjusted Costs ” by all costs and expenses incurred by the Companies prior to the Effective Date being charged to Seller and all costs and expenses incurred subsequent to the Effective Date being charged to Purchaser. Purchaser shall be entitled to offset for the Adjusted Costs against the Holdback Funds, if the Adjusted Costs reflect a credit due Purchaser which is not paid by Seller upon demand by Purchaser. Further, if the Adjusted Costs reflect a credit due Seller, Purchaser shall immediately pay Seller the amount of such credit in cash.

      2.7 Satisfaction of Section 5.1.7 Liquidity. At the Closing, Escrow Agent shall wire $4,125,000.00 from the Seller’s proceeds to an account established by Purchaser for PVUC, and additionally shall wire $4,000,000.00 from the Seller’s proceeds to an account established by Purchaser for SCWC, to secure compliance with Seller’s obligations pursuant to Section 5.1.7 of this Agreement.

ARTICLE 3 — REPRESENTATIONS AND WARRANTIES

      Representations and Warranties of Seller. Seller represents and warrants to Purchaser as of the date hereof and as of the Closing Date as follows:

      3.1. Authorization, etc. Seller has duly executed and delivered this Agreement. This Agreement and any agreements executed by Seller in connection herewith constitute the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer and conveyance, receivership, moratorium, and similar laws affecting creditors’ rights generally, and to the availability of equitable remedies (whether asserted at law or in equity).

      3.2 Status of Companies.

          (a) The Companies are limited liability companies duly organized, validly existing, and in good standing under the laws of Arizona with full power and authority to carry on their businesses and to own, lease and operate their properties as and in the places where such business is conducted and such properties are owned, leased, or operated.

          (b) The Companies are duly qualified or licensed to do business and are in good standing in Arizona, which is the only jurisdiction in which the Companies’ operations or the character of the properties owned, leased, or operated by them makes such qualification or licensing necessary.

          (c) Seller has delivered to Purchaser complete and correct copies of the Companies’ articles of organization, as amended and in effect on the date hereof. The

Companies are not in violation of any of the provisions of its articles of organization or other organizational documents.

      3.3. No Conflicts, Etc. The execution, delivery, and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with or result in a violation of or a default under (with or without the giving of notice or the lapse of time or both) (i) any Applicable Law applicable to Seller, the Companies, or any Affiliate of Seller or the Companies, or any of the properties or assets of the Companies, (ii) the articles of organization or operating agreement or other organizational documents of the Companies, (iii) the CC&Ns, or (iv) any Material Contract to which Seller or the Companies are a party or by which Seller or the Companies or any of their respective properties or assets, may be bound or affected (including any contract or agreement between Seller, the Companies or any Affiliate thereof). No Governmental Approval or other consent is required to be obtained by Seller or the Companies in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and no notice to any Governmental Authority is required to be given by Seller, Purchaser or the Companies before the Closing Date in connection with the transactions contemplated hereby.

      3.4 Financial Statements. Seller has delivered to Purchaser unaudited financial statements of the Companies for the period ended December 31, 2003 (collectively, the “ Financial Statements ”), attached to this Agreement as Schedules 3.4(a) and 3.4(b) , including in each case a balance sheet, a statement of income and retained earnings, and a statement of cash flows. The Financial Statements are complete and correct in all material respects, accurately reflect the assets, liabilities, and results of operations and financial condition of the Companies as of their respective dates. The Companies do not owe any obligation and are not subject to any liability to Seller or any of Seller’s Affiliates other than obligations and liabilities (i) that are expressly stated in this Agreement, or (ii) that have been or will be taken into account in the calculation of the Working Capital.

      3.5 Solvency. Neither Seller nor the Companies are insolvent, nor has Seller or the Companies committed an act of bankruptcy, proposed a compromise or arrangement to its creditors generally, had any petition in bankruptcy filed against it, filed a petition or undertaken any action proceeding to be declared bankrupt, to liquidate its assets or to be dissolved. The transactions contemplated by this Agreement will not cause Seller or the Companies to become insolvent or to be unable to satisfy and pay its (or their) debts and obligations generally as they come due.

      3.6 Absence of Undisclosed Liabilities. The Companies have no liabilities or obligations of any nature, whether known or unknown, absolute, accrued, contingent, or otherwise and whether due or to become due, arising out of or relating to the Companies, except (i) as set forth on Schedule 3.6 and (ii) as and to the extent disclosed or reserved against in the Financial Statements or taken into account in the calculation of the Working Capital. Without limiting the foregoing, except to the extent specifically disclosed on Schedule 3.6 :

          (a) no overcharges to customers have been collected by Companies;

          (b) there are no unapproved Line Extension Agreements for which approval is necessary;

          (c) there are no due and unpaid refunds on any Line Extension Agreement or any advances in aid of construction;

          (d) there are no due and unrefunded security deposits; and

          (e) there are no due and unrefunded meter deposits.

          (a) Seller has delivered to Purchaser complete and correct copies of all Tax Returns filed by or with respect to the Companies, their assets or operations since January 1, 2001. The Companies have filed all Tax Returns that the Companies were required to file prior to the date hereof. To the Knowledge of Seller, and in its reasonable belief, all such Tax Returns were correct and complete in all material respects. All Taxes owed by or attributable to the Companies (whether or not shown on any Tax Return) with respect to Tax Returns the due date of which (as extended, if applicable) preceded the date hereof have been paid.

          (b) With respect to each taxable period for the Companies ending prior to the date hereof:

               (i) there is no action, lawsuit, taxing authority proceeding or audit or claim for refund now in progress, pending or threatened against or with respect to the Companies regarding Taxes;

               (ii) there are no Liens on the assets of the Companies or on any of the Membership Interests relating or attributable to Taxes (other than Liens on assets of the Companies for sales, use and payroll Taxes not yet due and payable) and Seller has no knowledge of any reasonable basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on any asset of the Companies or on any of the Membership Interests;

               (iii) the Companies have withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other Person;

      3.8 Operation of Business. Since September 30, 2003, the Companies have conducted their business only in the ordinary course consistent with prior practice.

      3.9 Litigation. Except as set forth on Schedule 3.9 , (i) there is no action, claim, demand, lawsuit, proceeding, arbitration, grievance, citation, summons, subpoena, inquiry, or investigation of any nature, civil, criminal, regulatory (including any ACC complaint proceeding), or otherwise, in law or in equity, pending or, to the Knowledge of Seller, overtly threatened against Seller or the Companies or in any way affecting Seller or the Companies, their assets or their business or relating to the transactions contemplated by this Agreement, and there is no valid basis for the same, (ii) the Companies (and their assets) are not a party to, subject to or bound by, any decree, order, injunction, settlement agreement or arbitration decision or award (or agreement entered into in any administrative, judicial or arbitration proceeding with any Governmental Authority) with respect to or affecting the properties, assets, personnel or business

activities of the Companies, including but not limited to any claim, action or proceeding by the Oregon Public Employees’ Retirement Board and/or the Oregon Public Employees’ Retirement Fund; and (iii) no citation, fee, or penalty has been levied or asserted against Seller or the Companies under any Environmental Law or by the ACC or any other Governmental Authority.

      3.10 Ownership. Seller owns all legal and beneficial right, title and interest in and to its Membership Interests, free and clear of any and all Liens. Except for this Agreement, there are no outstanding agreements or commitments (contingent or otherwise) obligating Seller to sell or transfer any of the Membership Interests. There are no ownership transfer restrictions or member agreements in effect other than those set out in the operating agreement of the Companies.

      3.11 Material Contracts.

          (a) Schedule 3.11 contains an accurate description of all agreements, contracts, commitments, and other instruments and arrangements (whether written or oral) of the types described below (i) by which the Companies or any of their assets, businesses, or operations receive benefits, or (ii) to which the Companies are a party or by which the Companies are bound, other than insignificant contracts entered into in the ordinary course of business consistent with past practice (the “ Material Contracts ”):

               (i) leases, licenses, permits, franchises, insurance policies, warranties, guarantees, Governmental Approvals, and other contracts concerning or relating to the Companies’ real property,

               (ii) contracts for capital expenditures in excess of $50,000 each;

               (iii) performance bonds, completion bonds, bid bonds, suretyship agreements and similar instruments;

               (iv) joint venture, partnership, and similar contracts involving a sharing of profits and/or expenses;

               (v) agreements providing for the leasing to or by the Companies of personal property;

               (vi) Line Extension Agreements; and

               (vii) agreements or instruments under which the Companies have acquired or hold their Water Rights; and

          (b) Seller has delivered to Purchaser complete and correct copies of all written Material Contracts, together with all amendments thereto.

          (c) All Material Contracts are in full force and effect and enforceable against each party thereto. To the Knowledge of Seller, except for an existing subcontractors claim and existing mechanics lien in the approximate amount of $107,000.00, there does not exist under any Material Contract any event of default or event or condition that, after notice or lapse of time or both, would constitute a violation, breach, or event of default thereunder on the part of the

Companies or any other party thereto. No consent of any third party is required under any Material Contract as a result of or in connection with, and the enforceability of any Material Contract will not be affected in any manner by, the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.

      3.12 Absence of Certain Business Practices. Neither the Companies nor any manager, member, employee, or agent of the Companies, or any other Person acting on their behalf, have, directly or indirectly, within the past two (2) years, given or agreed to give any gift, bribe, rebate, or kickback or otherwise provided any similar benefit to any customer, Governmental Authority employee or other Person who is or may be in a position to help or hinder the Companies (or assist the Companies in connection with any actual or proposed transaction) (i) which subjected or might have subjected the Companies to any damage or penalty in any civil, criminal, or governmental litigation or proceeding, (ii) which if not given in the past, or if not continued in the future, may adversely affect the Companies or its business or subject the Companies to legal action, fine or penalty in any private or governmental litigation or proceeding, (iii) for any of the purposes described in Section 162(9) of the Code, or (iv) for the purpose of establishing or maintaining any concealed fund or concealed bank account. To the knowledge of Seller, the Companies have complied with all applicable tariffs in providing service to their customers.

      3.13 Insurance. Schedule 3.13 contains a complete and correct list and summary description of all insurance policies maintained by or for the benefit of the Companies. Seller has delivered to Purchaser complete and correct copies of all such policies together with all riders and amendments thereto. Such policies are in full force and effect, and all premiums due thereon have been paid. The Companies have complied in all material respects with the terms and provisions of such policies. In the opinion of Seller reasonably formed and held, there is no basis on which a claim should or could be made under any such policy.

      3.14 Real and Personal Property.

          (a) The Companies have good, clear, record, marketable or insurable title to their assets and properties, including real property, free and clear of any and all Liens, other than (i) statutory Liens for Taxes not yet due, (ii) Liens incurred or deposits made in the ordinary course of the Business in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return of money bonds and similar obligations, and those Liens described on Schedule 3.14 (a) (collectively, the “ Permitted Liens ”). The real and personal property of the Companies constitute all of the assets necessary for the continued conduct of the Business after the Closing in substantially the same manner as presently being conducted.

          (b) Schedule 3.14(b) contains a complete and accurate list of all owned real property. To the Knowledge of Seller, there are no unrecorded or oral leases, arrangements, agreements, understandings, options, contracts or rights of first refusal affecting or relating to any of the real property other than the “Orbitel Lease”. Permanent, legal access is available to the real property from a dedicated public right-of-way.

          (c) Neither Seller nor the Companies have received, and Seller is not aware of, any notification, restriction, or stipulation from a Governmental Authority requiring any work to be undertaken on any real property or threatening the use of any real property. There are no pending or, to the Knowledge of Seller, threatened condemnation proceedings affecting any portion of any real property. The Companies’ use of their real property for the various purposes for which such real property is used is permitted under all applicable zoning requirements and is not subject to any permitted nonconforming use or structure classification.

          (d) There is no tax assessment (in addition to the normal, annual general real estate tax assessment) pending or, to the Knowledge of Seller, threatened with respect to any owned real property. There is no challenge or appeal brought by the Companies that is pending regarding the amount of real estate taxes on, or the assessed valuation of, any real property for which the Companies are responsible for the payment of taxes in respect thereof, and there has been no special arrangement or agreement entered into by the Companies with any Governmental Authority with respect thereto.

          (e) The facilities, plants, machinery and equipment of the Companies are, in the aggregate, in good working order and condition, ordinary wear and tear excepted, and have been maintained generally in accordance with prescribed operating instructions (if any) necessary to ensure the effectiveness of equipment warranties and/or service plans.

          (f) To the Knowledge of Seller, there are no historical or archeological materials or artifacts of any kind or any Indian ruins of any kind located on any part of the real property.

          (g) To the Knowledge of Seller, no part of the real property is “critical habitat” as defined in the Federal Endangered Species Act, 16 U.S.C. §§ 1531 et seq., as amended, or in regulations promulgated thereunder, nor are any “endangered species” or “threatened species” located on the real property, as defined therein.

          (h) Except as expressly disclosed on the Companies’ most recent property tax statement, no part of the Owned Real Property is located within any water conservation, irrigation, soft conservation, weed or insect abatement, or other similar district, or any special improvement district. No part of the Owned Real Property is within a flood plain, flood way or flood control district.

      3.15 Water Rights . The only Water Rights claimed by the Companies as a basis to withdraw and deliver water to existing and future customers of the Companies are (i) the Companies’ service area rights (as “service area” is defined in paragraph 31 of A.R.S. § 45-402 (2002 edition), (ii) the Companies’ rights to withdraw ground water, (iii) the CAP Allocation, and (iv) the rights set forth on the CC&N. See Schedule 3.15.

      3.16 Permits . The Companies possess all Permits which are required in order for the Companies to lawfully own their properties and assets and conduct their business as presently conducted. All Permits issued to the Companies are described on Schedule 3.16(a) and copies thereof, including copies of all related, material correspondence with the issuing or administering Governmental Authorities, have been delivered to Purchaser. The Companies are in full compliance with the provisions of each Permit. No Permit will be terminated, cancelled or

revoked or become terminable, cancelable or revocable or otherwise impaired in any respect as a result of the execution and delivery by the parties hereto of this Agreement or the consummation of the transaction contemplated hereby. Any notice, other filing or other registration required to be made by the Companies, Seller or Purchaser with any Governmental Authority in connection with Purchaser’s acquisition of the Assets in order to protect and maintain the effectiveness of any Permit is described on Schedule 3.16(b).

      3.17 Environmental Matters.

          (a) To the Knowledge of Seller, the Companies have complied and are in compliance in all material respects with all applicable Environmental Laws pertaining to their real property, the ownership and operation of their equipment and the conduct of their business. The Companies have not received any written communication alleging that the Companies currently are not in compliance with any applicable Environmental Law. There is no Environmental Claim pending or, to the Knowledge of Seller, threatened, against the Companies. No real property owned by the Companies are currently listed on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA) or any comparable state list.

          (b) To the Knowledge of Seller, neither the Seller, the Companies or any other Person acting under their direction or on their behalf, has caused or taken any action or is aware of any action that could reasonably result in, and the Companies are not subject to, any material liability or obligation relating to (i) the environmental conditions on, under, or about any of their real property at the present time or in the past, including the air, soil, and ground water conditions of such properties, or (ii) the past or present use, management, handling, transport, treatment, generation, storage, disposal or release of any Hazardous Substance.

          (c) Seller has made available to Purchaser all (and not withheld firm Purchaser any) information, including all studies, analyses, and test results, in the possession, custody, or control of or otherwise known to Seller or the Companies relating to (i) the environmental conditions on, under, or about any real property, or other properties or assets owned, leased, operated, or used by the Companies or any predecessor in interest thereto at the present time or in the past (ii) environmental conditions or requirements relating to the operation of the Business at the present time or in the past; and (iii) any Hazardous Substances used, managed, handled, transported, treated, generated, stored, disposed of, or released by the Companies or any other Person on, under, about, or from its real property, or otherwise in connection with the use or operation of any of the properties and assets of the Companies, or its business. There are no above-ground or underground storage tanks, located on any real property presently owned, leased, operated or used by the Companies.

      3.18 Compliance with Applicable Law . To the knowledge of Seller, the Companies and their business are in material compliance with all applicable laws governing, affecting or relating to the Companies, its properties and assets, its personnel and its business, including federal, state and/or local laws, statutes and regulations relating to equal employment opportunities, fair employment practices, occupational health and safety, wages and hours, and discrimination. Without limiting the generality of the foregoing, the Companies have satisfied all of their obligations to date with respect to the filing of annual reports with the ACC and ADWR.

      3.19 No Guarantees . None of the obligations or liabilities of the Companies are guaranteed by or subject to a similar contingent obligation of any other person, and the Companies have not guaranteed and are not subject to any similar contingent obligation in respect of the obligations or liabilities of any other person. There are no outstanding letters of credit, surety bonds, or similar instruments of the Companies.

      3.20 Companies’ Records . The books and records of the Companies are complete and correct in all material respects. There are no false or fictitious entries on the books and records of the Companies.

      3.21 Receivables . All accounts receivable have arisen only from bona fide transactions in the ordinary course of business. A current summary of the accounts receivable has been delivered to Purchaser. To the Knowledge of Seller, there are no facts or circumstances (other than general economic conditions) which would result in any material increase in the uncollectability of such receivables in excess of the reserves therefor set forth in the Financial Statements in Schedules 3.21, 3.21(a), 3.21(b), 3.21(c), 3.21(d), 3.21(e), and 3.21(f).

      3.22 Accounts Payable . The Companies have satisfied, paid and discharged their accounts payable and other current liabilities and obligations in a timely manner, except (i) for current liabilities included in the calculation of the working capital, and (ii) liabilities that are the subject of a bona fide dispute. Any and all such bona fide disputes that are currently unresolved are described on Schedules 3.22, 3.22(a), 3.22(b), 3.22(c), 3.22(d), 3.22(e), and 3.22(f).

      3.23 Intellectual Property . To the Knowledge of Seller, the Companies have no intellectual property rights, other than properly acquired licenses of off the shelf “shrink-wrap” software products. To the Knowledge of Seller, the Companies have not used, sold or supplied any goods or services in any manner that would constitute an infringement of the intellectual property rights of any other person. Neither the Companies nor Seller have received any notification, warning, threat of legal action or proceeding or other written notice that the Companies have violated or is violating the intellectual property rights of any person.

      3.24 Employees .

          (a) Seller has provided to Purchaser a detailed list of the current employees of the Companies, containing at least the following details for each such employee: (i) name; (ii) part-time or full-time status, (iii) title and/or job description, (iv) employment commencement date, (v) salary or wage, (vi) available bonus or other contingent compensation; (vii) accrued and unused vacation days; (viii) accrued and unused sick days, and (ix) details of any disciplinary problems.

          (b) With respect to the Companies’ employees, there is not presently pending or existing, and there is not overtly threatened (i) any strike, slowdown, picketing, work stoppage, lookout or employee grievance process; (ii) any material charge, grievance proceeding or other claim against or affecting the Companies (or any officer or employee thereof) relating to the alleged violation of any law pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission or any comparable Governmental Authority; (iii) any union or other employee association organizational activity or other labor or

employment dispute against or affecting the Companies, or (iv) any application for certification of a collective bargaining agent.

          (c) The employment of each employee of the Companies can be terminated by the Companies upon not more than thirty (30) days’ notice without severance, penalty or premium, other than payment of accrued salaries, wages and vacation benefits.

          (d) All salaries, wages and other compensation and benefits payable to each employee of the Companies have been accrued and paid by the Companies when due for all periods through the date hereof, and, as of the Closing Date, will have been paid by the Companies when due for all periods through the Closing Date, other than with respect to any stub period existing between the Closing Date and the last scheduled payday immediately preceding the Closing Date.

      3.25 No Class A Utility. None of Seller, the Companies or any Affiliate acting on the Companies’ behalf has ever consented to the Companies being a Class A Utility (as that term is defined in A.A.C.R14-2-I03). Neither Seller nor the Companies, nor to the Knowledge of Seller, any Affiliate has received notice from any Person that the Companies are a Class A Utility. To the Knowledge of Seller, the Companies have never satisfied the requirements in effect at any applicable time for file Companies to be a Class A Utility.

      3.26 Brokers, Finders, etc. Seller has not engaged, contracted or dealt with any person that is or would be entitled to a broker’s commission, finder’s fee, investment banker’s fee, expense reimbursement or similar payment from Purchaser or the Companies for brokering or otherwise arranging the transaction contemplated hereby or introducing the parties to each other.

      3.27 Absence of Changes. Except as set forth on Schedule 3.27 , since September 30, 2003, the Companies have conducted their business only in the ordinary course consistent with prior practice and have not:

          (a) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except (i) the Indebtedness and any interest thereon, and (ii) current liabilities for trade or business obligations incurred in the ordinary course of business consistent with prior practice;

          (b) discharged or satisfied any Lien other than those then required to be discharged or satisfied, or paid any obligation or liability, absolute, accrued, contingent, or otherwise, whether due or to become due, other than current liabilities shown on the Financial Statements and current liabilities incurred since the date thereof in the ordinary course of business consistent with prior practice;

          (c) mortgaged, pledged or subjected to Lien, any property or assets, tangible or intangible;

          (d) sold, transferred, leased to others, or otherwise disposed of any assets, except in the ordinary course of business consistent with prior practice, or canceled or compromised any debt or claim, or waived or released any right of substantial value;

          (e) received any notice of termination of any Material Contract or suffered any damage, destruction, or loss (whether or not covered by insurance) in excess of $10,000;

          (f) made any material change in the rate of compensation, commission, bonus, or other direct or indirect remuneration payable, or paid or agreed or orally promised to pay, conditionally or otherwise, any bonus, incentive, retention, or other compensation, retirement, welfare, fringe, or severance benefit or vacation pay, to or in respect of any director, officer, employee, consultant, Affiliate, or agent of the Companies;

          (g) instituted, settled, or agreed to settle any litigation, action, or proceeding before any court or Governmental Authority;

          (h) entered into any transaction, contract, or commitment other than in the ordinary course of business or paid or agreed to pay any legal, accounting, brokerage, finder’s fee, Taxes or other expenses in connection with, or incurred any severance pay obligations by reason of, this Agreement or the transactions contemplated hereby, other than such fees or other expenses or Taxes which are payable solely by Seller and as to which neither the Companies nor Purchaser will have any liability or obligation;

          (i) written up the carrying value of any of the Companies’ assets;

          (j) suffered any material loss of customers or received any notice of any pending material loss of customers;

          (k) entered into or assumed any obligations under any material employment, compensation or consulting agreement or any collective bargaining agreement with any Person or group, or modified or amended in any material respect the terms of any such existing agreement;

          (1) materially amended, modified, or terminated, or agreed to amend, modify, or terminate, any existing Material Contract;

          (m) amended its articles of organization or other constituent Companies documents of the Companies;

          (n) made any change or modification in the Companies’ accounting practices, policies, or procedures; or

          (o) taken any action or omitted to take any action that would result in the occurrence of any of the foregoing within ninety (90) days after the Closing Date.

      3.28 Accuracy of Representations. No representation, warranty, statement, schedule or information furnished by Seller to Purchaser in connection with this Agreement contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading.

      3.29 Modification of Representations and Warranties. Each of the foregoing representations and warranties shall be deemed modified by any matter expressly set forth or expressly disclosed herein or in the Schedules hereto. Certain information set forth in the

Schedules may be included solely for informational purposes and may not be required to be disclosed pursuant to this Agreement. The disclosure of any information shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the representations and warranties made by Seller in this Agreement or that it is material, nor shall such information be deemed to establish a standard of materiality.

      3.30 All Assets. Except as set forth on Schedule 3.30 , the assets of the Companies include all assets, rights, properties and contracts, the use of which is necessary or appropriate for the continued conduct by the Companies of its business substantially in the manner as it was conducted prior to the Closing, including the service of all utility customers in substantially the same manner and substantially the same service levels as provided by the Companies on the date hereof.

      3.31 No Contractual Interference. At no time in the course of the discussions of the transactions contemplated by this Agreement did Purchaser induce Seller or the Companies to impair or terminate any contractual relationship to which the Seller or the Companies are a party or to deprive any Person of any prospective economic benefit.

      3.32 No Contact with the Purchaser. At no time prior to November 3, 2003, did the Purchaser solicit the purchase and sale of Seller’s business or the Assets or have any contract with Seller of any nature whatsoever, either oral or written.

ARTICLE 4
COVENANTS

      4.1 Covenants of Seller.

           4.1.1 Conduct of Business. From the date hereof to the Closing Date (and thereafter with respect to any covenant or agreement extending beyond the Closing Date), except as expressly permitted or required by this Agreement or as otherwise consented to by Purchaser in writing, Seller will, and will cause the Companies to (as applicable):

               (a) carry on the Business in, and only in, the ordinary course, in substantially the same manner as heretofore conducted, and use reasonable efforts to preserve intact their present business organization, maintain their properties in good operating condition and repair, keep available the services of their present officers and substantially all of their employees, and preserve their relationship with substantially all of their customers and others having business dealings with the Companies, with the goal and intent that their goodwill and ongoing business shall be in all material respects unimpaired on and following the Closing Date;

               (b) pay all accounts payable and other obligations of the Companies when they become due and payable in the ordinary course of business consistent with prior practice;

               (c) perform in all material respects all of its obligations under all Material Contracts and other agreements and instruments and comply in all material respects with all Applicable Laws applicable to it;

               (d) not enter into or assume any material agreement, contract, or instrument, or enter into or permit any material amendment, supplement, waiver, or other modification with respect to any Material Contract;

               (e) not make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to the Companies, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Companies or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of the Companies for any period ending after the Closing Date or decreasing any Tax attribute of the Companies existing on the Closing Date;

               (f) not increase the salary, wages or other compensation of any employee (including any officer) of the Companies or enter into any agreement or make any commitment to do so, and not modify any other terms of employment of any employee (including any officer) of the Companies;

               (g) not sell or transfer to any Person (including any Affiliate) or otherwise dispose of any material property or asset of the Companies, other than dispositions of property or assets made in the ordinary course of business consistent with prior practice;

               (h) not cause or permit any Lien to be placed on any property or asset of the Companies where such Lien did not exist on the date hereof;

               (i) not take any action or knowingly omit to take any action, which action or omission would result in a breach of any of the representations and warranties set forth in Article 3; and

               (j) confirm the conveyance (or cause to be conveyed) to the applicable Company of the parcels of (or interests in) real property listed and legally described on Schedule 3.14(b) , free and clear of all liens, claims or encumbrances except those approved in writing and in its sole and absolute discretion by Purchaser during the Feasibility Period. Seller further shall cause Escrow Agent to issue policies of title insurance to the applicable Companies with respect to such parcels (or interests) at the Closing and in amounts mutually determined and approved in writing by the parties during the Feasibility Period.

           4.1.2 Conduct of Business Prior to Closing. Until the earlier of the Closing or the termination of this transaction, Seller shall cause the Companies to operate their businesses in the ordinary course of business, consistent with past practices. During such time, Seller shall not permit the Companies to enter into any contract providing for payments in excess of Five Thousand and No/100 Dollars ($5,000.00) or that is not terminable on thirty (30) days notice or less without the prior written consent of Purchaser. Further, Seller shall not permit the Companies to make any distributions to its respective members, pay any bonuses, incur liabilities or take any other actions which would cause, (a) the financial condition of SCWC to be inconsistent with the balance sheet forecast attached to this Agreement as Schedule 3.4(a) , or (b)

the financial condition of PVUC to be inconsistent with the balance sheet forecast attached to this Agreement as Schedule 3 . 4(b) .

           4.1.3 Material Adverse Change. Purchaser and Seller acknowledge and agree that Purchaser is acquiring operating entities and that from and after the execution of this Agreement and continuing until the earlier of the Closing or the termination of this transaction, Seller shall cause the Companies to operate in the normal course and in accordance with past practices and all operating cash, working capital and similar assets will remain the property of Seller, SCWC or PVUC, as the case may be. Notwithstanding the provisions of the immediately preceding sentence, except for such liabilities as are disclosed on the balance sheet forecasts attached to this Agreement as Schedules 3.4(a) and 3.4(b) and except for the off balance sheet liabilities and lease expenses disclosed on Schedule 3.11 , Seller shall cause all other liabilities of SCWC and PVUC to be released in full as of the Closing.

           4.1.4 Employees. Without the prior consent of Purchaser, from the date of this Agreement until the earlier of the Closing or the termination of the transaction contemplated by this Agreement, Seller shall not permit SCWC and/or PVUC to hire any additional employees prior to the Closing, or dismiss any existing employees without the prior reasonable consent of Purchaser. In addition, Seller shall encourage the existing employees of the Companies, except for Mike T. Decker-Reinbold, to maintain their employment with the Companies. All employee related obligations and liabilities (including vacation and sick pay) shall be prorated at the Closing.

           4.1.5 Non-Competition, Non-Opposition. The Seller shall not solicit any party to an agreement with Seller, Phoenix Utility, SCWC or PVUC to terminate its agreement with Seller, Phoenix Utility, SCWC or PVUC. In addition, for a period commencing with the execution of this Agreement and continuing until ten (10) years after the Closing, neither the Seller nor any member of Seller or Affiliate of such member, shall seek to form or attempt to form a utility company to provide sewer and/or water service to any property located within ten (10) miles of the boundary of the service areas established by the existing CC&Ns held by SCWC and PVUC. The provisions of the immediately preceding sentence shall not, however, be applicable in the event Seller, or any member of Seller or Affiliate of such member, requests SCWC and/or PVUC to render service to a property owned by Seller and SCWC or PVUC are unable provide service to such property. Further, commencing with the execution of this Agreement and continuing until ten (10) years following the Closing, neither Seller nor any member of Seller or Affiliate of such member shall oppose any effort by Purchaser, PVUC, or SCWC, to expand the service areas established by the CC&Ns held by SCWC and/or PVUC and/or efforts to obtain additional CC&Ns.

           4.1.6 No Solicitation. Prior to the Closing Date or, in the event of the earlier termination of this Agreement, neither Seller nor any Affiliate of Seller (including the Companies), nor any Person acting on any of such parties’ behalf, shall solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, (i) the sale by Seller of the Assets, (ii) the issuance by the Companies of any Membership Interests, (iii) any merger transaction or other transaction involving the acquisition of control of the Companies by any Person other than Purchaser, or (iv) the sale by the Companies of all or substantially all of their properties and assets.

           4.1.7 Further Actions.

          (a) Seller agrees to use reasonable efforts to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated hereby by the Closing Date.

          (b) Seller will, as promptly as practicable, file or supply, or cause to be filed or supplied with all relevant Governmental Authorities and other Persons, all applications, notifications and information required to be filed or supplied by it pursuant to Applicable Law in connection with this Agreement and the consummation of the transactions contemplated hereby.

          (c) Seller, as promptly as practicable, will use reasonable efforts to obtain, or cause to be obtained, all Consents (including all Governmental Approvals and any Consents required under any Material Contract) necessary to be obtained by it under Applicable Law or pursuant to any Material Contract or Permit in connection with the transactions contemplated thereby.

          (d) Seller will, and will cause its Affiliates to, coordinate and cooperate with Purchaser in exchanging such information and supplying such assistance as may be reasonably requested by Purchaser in connection with the filings and other actions contemplated by this Agreement.

          (e) At all times prior to the Closing Date, Seller shall promptly notify Purchaser in writing of any fact, condition, event, or occurrence which becomes known to Seller that will or may result in the failure of any of the conditions contained in Sections 5.1 and 5.2 to be satisfied.

          (f) Following the Closing Date, Seller shall, and shall cause its Affiliates to, from time to time, execute and deliver such additional instruments, documents, conveyances, or assurances and take such other actions as shall be necessary, or otherwise reasonably requested by Purchaser, to render effective the consummation of the transactions contemplated hereby.

          (g) Following the Closing Date, Seller shall, and shall cause its Affiliates to, timely make all necessary filings with the ACC for the prior period.

      4.2 Covenants of Purchaser.

           4.2.1 Further Actions.

               (a) Purchaser agrees to use reasonable efforts to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated hereby by the Closing Date.

               (b) Purchaser will, as promptly as practicable, file or supply, or cause to be filed or supplied, with all relevant Governmental Authorities and other Persons, all applications, notifications and information required to be filed or supplied by it pursuant to Applicable Law in connection with this Agreement and the consummation of the transactions contemplated hereby.

               (c) Purchaser will coordinate and cooperate with Seller in exchanging such information and supplying such assistance as may be reasonably requested by Seller in connection with the filings and other actions contemplated by this Agreement.

               (d) Purchaser will, as promptly as practicable, file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by it pursuant to Applicable Law in connection with this Agreement and the consummation of the transactions contemplated hereby.

           4.2.2 Further Assurances. Following the Closing Date, Purchaser shall, and shall cause all of its Affiliates to, from time to time, execute and deliver such additional instruments, documents, conveyances, or assurances and take such other actions as shall be necessary, or otherwise reasonably requested by Seller, to render effective the consummation of the transactions contemplated thereby.

      4.3 Cooperation on Tax Matters. Seller and Purchaser shall cooperate reasonably, as and to the extent requested by any other such party, in connection with the filing of Tax Returns pursuant to this Section 4.3 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and, upon any such other party’s request, the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding, and the making available of employees on a mutually convenient basis to provide additional information and explanation of any material or information provided hereunder. Seller shall and prior to Closing Seller shall cause the Companies to, and after the Closing Purchaser shall cause the Companies to, (i) retain all books and records with respect to Tax matters pertinent to the Companies relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent reasonably requested by Seller or Purchaser, any extension thereof) for the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) give each other such party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if any such other party so requests, Seller or Purchaser, as the case may be, shall allow such other party to take possession or to make copies of such books and records. Seller and Purchaser (for themselves and on behalf of the Companies) further agree, upon request:

          (a) to use reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed on such party or the Companies (including with respect to the transactions contemplated hereby); and

          (b) to provi