AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

 

 

Interests in their respective Subsidiaries, and (vi) otherwise amend the Credit Agreement and the other Loan Documents on the terms set forth herein.

 

D.            The Administrative Agent, acting with the consent of the Required Lenders pursuant to Section 10.01 of the Credit Agreement, has agreed to waive the Anticipated Defaults and to otherwise amend the Credit Agreement and the other Loan Documents on the terms set forth in this Amendment.

 

NOW, THEREFORE, Borrower and Administrative Agent, acting with the consent of the Required Lenders pursuant to Section 10.01 of the Credit Agreement, agree as follows:

 

1.             Representations and Warranties .  Borrower represents and warrants to Administrative Agent and the Lenders that:

 

(a)           based on the financial data currently available to Borrower, to the best knowledge of Borrower, Borrower’s Total Capitalization Ratio did not exceed 65.5% as of December 31, 2008;

 

(b)           based on the financial data currently available to Borrower, to the best knowledge of Borrower, Borrower’s Total Capitalization Ratio did not exceed 67.5% as of March 31, 2009;

 

(c)           after giving effect to this Amendment, no Default or Event of Default has occurred and remains continuing except for the Defaults or Events of Default which arise directly from the correction and restatement of the Subject Financial Statements (as defined in the Waiver Agreement);

 

(d)           after giving effect to this Amendment, except for representations or warranties which are inaccurate as a direct result of the correction and restatement of the Subject Financial Statements, and except as set forth in the Schedules to the Credit Agreement, each of the representations and warranties set forth in Article V of the Credit Agreement are true and correct as of the date of this Agreement (other than those representations which relate solely to a prior date, each of which was true as of that date), provided that Schedules 5.06 and 5.09 are updated in the manner attached to this Amendment;

 

(e)           neither Borrower nor any of its Subsidiaries is in default of any indenture, loan or credit or similar agreement governing Indebtedness in a principal amount which exceeds $1,000,000 in any manner which entitles the holder of such Indebtedness, or which would entitle the holder of such Indebtedness with the giving of any notice, the passage of time (including any cure period), or both, to require the payment of any such Indebtedness prior to the date upon which such Indebtedness would otherwise be due and payable; and

 

(f)            as of the date of this Amendment, (i) Borrower has no Subsidiaries other than those specifically disclosed in Schedule B to this Amendment, (ii) Suburban Water Systems, Water Suppliers Mobile Communication Service, North County Water Reclamation, Inc., SouthWest Water Alabama Onsite System Services, LLC, Monarch Utilities, Inc., Midway Water Utilities, Inc., Texas Water Services Group, LLC, Monarch Utilities I, LP, and TWC Utility Company, LLC are Regulated Subsidiaries, and (iii) SWWC Enterprises, Inc., SWWC Utilities, Inc., CDC Maintenance, Inc., Operations Technologies, Inc., ECO Resources, Inc., SWWC Services, Inc., Metro-H2O, Ltd., Metro-H2O Utilities, Inc., and New Mexico Utilities, Inc. are Unregulated Subsidiaries.

 

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2.             Waiver .  Subject to the final two sentences of this Section, in reliance upon the agreements, representations and warranties set forth in this Amendment, the Lenders hereby waive the Anticipated Defaults.  The Lenders’ waiver of the Anticipated Defaults constitutes a one-time waiver of the specific Anticipated Defaults described in this Amendment and shall not constitute a waiver of any other or future Defaults or Events of Default, whether or not similar to the Anticipated Defaults.  The waivers set forth in this Section 2 are subject to the conditions that the Borrower’s Total Capitalization Ratio was not in excess of 65.5% as of December 31, 2008, and 67.5% as of March 31, 2009.  To the extent the Borrower’s Total Capitalization Ratio was in excess of 65.5% as of December 31, 2008, or in excess of 67.5% as of March 31, 2009, this Section 2 and the waivers provided herein shall be voidable at the Required Lenders request.

 

3.             Amendment to Definition of Aggregate Commitments .  The Aggregate Commitments under the Credit Agreement are hereby reduced to $110,000,000.  In furtherance of the foregoing, the definition of “Aggregate Commitments” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“Aggregate Commitments” means the Commitments of all Lenders.  As of May 29, 2009, the aggregate principal amount of the Aggregate Commitments is $110,000,000.

 

The reduction of the Aggregate Commitments pursuant to this Section 3 shall be applied to the Commitment of each Lender according to its Applicable Percentage.  If the Total Outstandings as of the effective date of this Amendment exceed the Aggregate Commitments (as reduced by this Amendment), Borrower shall immediately prepay Loans in an aggregate amount equal to such excess.

 

4.             Amendment to Definition of Applicable Rate .  The definition of “Applicable Rate” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as set forth below.  The Borrower and the Lenders acknowledge and agree that the percentages set forth below opposite Pricing Level III shall apply until the Administrative Agent receives a Compliance Certificate for the Fiscal Quarter ending March 31, 2009.

 

“ Applicable Rate ” means, as of each date of determination, the following percentages (expressed in basis points per annum), based upon the Total Capitalization Ratio as set forth in the most recent Compliance Certificate received by Administrative Agent pursuant to Section 6.02(a):

 

Pricing Level		Total Capitalization Ratio		Base Rate		Non-Use Fee Rate		Eurodollar Rate + Letters of Credit
I		<50.0%		200.0		37.5		300.0
II		> 50.0% but < 55.0%		250.0		50.0		350.0
III		> 55.0%		300.0		62.5		400.0

 

Any increase or decrease in the Applicable Rate resulting from a change in the Total Capitalization Ratio shall become effective on the first Business Day of the first calendar month immediately following delivery of the related Compliance Certificate pursuant to Section 6.02(a); provided, however, that if a Compliance Certificate is not delivered  when due in accordance with such Section, then, upon the request of the Required Lenders, Pricing Level III shall apply from the first Business Day of the first calendar month following the date such Compliance Certificate was required to have been delivered until the first Business Day of the first calendar month following the date such Compliance Certificate is delivered.  Notwithstanding anything to the contrary contained

 

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in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.11(b).

 

5.             Amendment to Definition of Base Rate .  The definition of “Base Rate” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“Base Rate” means, for any day, a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate” and (c) the Eurodollar Base Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, for the avoidance of doubt, the Eurodollar Base Rate for any day shall be based on the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by Administrative Agent from time to time) at approximately 11:00 a.m., London time on such day (rounded upwards, as necessary, to the nearest 1/100 of 1%).  The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.  Any change in the Base Rate due to a change in the Federal Funds Rate, the prime rate or the Eurodollar Base Rate shall be effective from and including the effective date of such change in the Federal Funds Rate, the prime rate or the Eurodollar Base Rate, respectively.

 

6.             Amendment to Definition of EBITDA .  The definition of “EBITDA” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“EBITDA” means, for any period, Net Income for that period, plus (a) the following to the extent deducted in determining Net Income for that period: (i) Interest Expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) any non-recurring or extraordinary losses, and (v) any non-cash losses and non-cash stock compensation expense; and minus (b) the following to the extent included in determining Net Income for that period: (i) income tax credits, and (ii) any non-recurring or extraordinary gains or any non-cash gains.

 

For the avoidance of doubt, for the purpose of calculating EBITDA for any period, the Borrower shall be permitted to add back to Net Income the one-time charges described in Schedule A to this Amendment to the extent the same were deducted in determining Net Income for such period.

 

7.             Amendment to Definition of EBITDA Coverage Ratio .  The definition of “EBITDA Coverage Ratio” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows (with the added text in bold and italics for the convenience of the reader):

 

“ EBITDA Coverage Ratio ” means, as of the last day of any Fiscal Quarter, the ratio of :

 

(a) EBITDA for the twelve month period ended on that date minus Maintenance Capital Expenditures made by Borrower and its Subsidiaries during that period (but not less than (i) at any time prior to March 31, 2010, $1,500,000 , and (ii) on and after March 31, 2010, $3,000,000 ) minus income taxes paid in Cash by Borrower and its Subsidiaries with respect to that period; to

 

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(b)  the sum of (i) all Interest Expense paid or payable in cash during that period, plus (ii) scheduled principal payments in respect of Total Indebtedness during that period ( other than any such payments due upon the final maturity of any obligation which is Total Indebtedness), plus (iii) dividends paid in Cash on Equity Interests of Borrower and its Subsidiaries to third parties during that period, plus (iv) mandatory principal prepayments in respect of Subordinated Indebtedness made pursuant to Section 7.11(b) during that period.

 

provided that in the case of any Material Transaction, the calculation of the foregoing ratio shall be adjusted on a pro forma basis to give effect to the results of operations of each person or assets which are the subject of such Material Transaction.

 

8.             Amendment to Definition of Guarantors .  The definition of “Guarantors” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“ Guarantors ” means, collectively, (a) the Persons which are party to the Guaranty as of the Closing Date, (b) the Persons which joined the Guaranty via an instrument of joinder dated May 28, 2009, and (b) each Subsidiary which is required to join the Guaranty or otherwise execute a guaranty of the Obligations pursuant to Section 6.13 of this Agreement.

 

9.             Amendment to Definition of Loan Documents .  The definition of “Loan Documents” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“ Loan Documents ” means this Agreement, each Note, each Issuer Document, the Fee Letter, the Guaranty and the Collateral Documents.

 

10.           Amendment to Definition of Obligations .  The definition of “Obligations” set forth in Section 1.01 of the Credit Agreement is hereby amended to read in full as follows:

 

“ Obligations ” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, any Letter of Credit, any Swap Contract entered into by Borrower with any Lender or any Affiliate of a Lender, or any Cash Management Agreement entered into by any Loan Party with any Lender or any Affiliate of a Lender, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

11.           Additional Definitions .  Section 1.01 of the Credit Agreement is hereby amended to add the following new definitions:

 

“ Cash Management Agreement ” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.

 

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“ Collateral ” means all of the “Collateral” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

 

“ Collateral Documents ” means, collectively, the Security Agreement and each other security agreement, pledge agreement or other similar agreements delivered to the Administrative Agent pursuant to Section 6.13 of this Agreement, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

 

“ Direct Domestic Unregulated Subsidiary ” means any direct Unregulated Subsidiary of the Borrower that is organized under the laws of any political subdivision of the United States.

 

“ Secured Parties ” means, collectively, the Administrative Agent, the Lenders, the L/C Issuer, each Lender or Affiliate of a Lender party to a Swap Contract with Borrower or party to a Cash Management Agreement with any Loan Party, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

 

“ Security Agreement ” means the Security Agreement dated as of May 28, 2009, executed by Borrower and the Guarantors in favor of the Administrative Agent for the benefit of the Secured Parties, as the same may be amended, restated, extended, supplemented or otherwise modified from time to time.

 

12.           Amendment to Section 5.03 .  Section 5.03 of the Credit Agreement is hereby amended to read in full as follows:

 

5.03.        Governmental Authorization; Other Consents .  No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents.  All Significant Subsidiaries of the Borrower and all Direct Domestic Unregulated Subsidiaries of the Borrower are party to the Guaranty except to the extent that such Subsidiary is not permitted to be a party to the Guaranty based upon (i) a Law applicable to such Subsidiary by reason of its status as a regulated utility (provided that no such Subsidiary shall be obligated to apply for any discretionary regulatory approvals which would be required to permit its execution of the Guaranty), (ii) any continuing Contractual Obligation of such Subsidiary existing on May 28, 2009, and disclosed to the Administrative Agent on Schedule 5.03, or (iii) with respect to any such Subsidiary acquired after May 28, 2009, any continuing Contractual Obligation of such Subsidiary existing on the date of the Acquisition thereof (and not created in contemplation of such Acquisition).

 

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13.           New Section 5.19 — Collateral Documents .  The Credit Agreement is hereby amended to add the following provision as Section 5.19 of the Credit Agreement:

 

5.19         Collateral Documents .  The provisions of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien (subject to Liens permitted by Section 7.01) on all right, title and interest of the respective Loan Parties in the Collateral described therein.

 

14.           Amendment to Section 6.13 .  Section 6.13 of the Credit Agreement is hereby amended to read in full as follows:

 

6.13         Additional Guarantors; Additional Collateral .  (a)  Notify Administrative Agent at the time that any Person becomes a Significant Subsidiary or a Direct Domestic Unregulated Subsidiary of Borrower, and promptly thereafter (and in any event within 20 days), cause such Person to, at the Borrower’s expense:

 

(i)            become a Guarantor by executing and delivering to Administrative Agent a counterpart of the Guaranty or such other document as Administrative Agent shall deem appropriate for such purpose, except to the extent that such Subsidiary is not permitted to be a party to the Guaranty based upon a Law applicable to such Subsidiary by reason of its status as a regulated utility (provided that no such Subsidiary shall be obligated to apply for any discretionary regulatory approvals which would be required to permit its execution of the Guaranty) or a Contractual Obligation of such Subsidiary existing on the date of the Acquisition thereof (and not created in contemplation of such Acquisition);

 

(ii)           deliver to Administrative Agent documents of the types referred to in clauses (iii) and (iv) of Section 4.01(a);

 

(iii)          duly execute and deliver to the Administrative Agent Collateral Documents or joinders to Collateral Documents, as specified by and in form and substance satisfactory to the Administrative Agent (including the pledge and delivery of all Equity Interests in and of such Subsidiary), securing payment of all the Obligations of such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Liens on all such properties, except to the extent that such Subsidiary or such parent, as the case may be, is not permitted to grant such Liens on its properties based upon a Law applicable to such Subsidiary or parent, as the case may be, by reason of its status as a regulated utility (provided that no such Subsidiary or parent, as the case may be, shall be obligated to apply for any discretionary regulatory approvals which would be required to permit its execution of any Collateral Documents) or a Contractual Obligation of such Subsidiary or parent, as the case may be, existing on the date of the Acquisition of such Subsidiary (and not created in contemplation of such Acquisition); and

 

(iv)          to the extent such Person is required to execute any Guaranty or Collateral Document pursuant to the foregoing provisions, deliver favorable opinions of counsel to such Person, in form, content and scope reasonably satisfactory to Administrative Agent.

 

(b)           Upon the acquisition of any property by any Loan Party, if such property, in the judgment of the Administrative Agent, shall not already be subject to a perfected first

 

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priority security interest in favor of the Administrative Agent for the benefit of the Secured Parties, then the Borrower shall, at the Borrower’s expense, cause the applicable Loan Party to duly execute and deliver to the Administrative Agent Collateral Documents or joinders to Collateral Documents, as specified by and in form and substance satisfactory to the Administrative Agent, securing payment of all the Obligations of such Loan Party under the Loan Documents and constituting Liens on all such properties, except to the extent that such Loan Party is not permitted to grant such Liens on such properties based upon a Law applicable to such Loan Party by reason of its status as a regulated utility (provided that no such Loan Party shall be obligated to apply for any discretionary regulatory approvals which would be required to permit its execution of any Collateral Document) or a Contractual Obligation of such Loan Party existing as of the date such Loan Party became a Guarantor.

 

(c)           At any time upon request of the Administrative Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable in obtaining the full benefits of, or (as applicable) in perfecting and preserving the Liens of, the Guaranty and the Collateral Documents.

 

15.           New Section 6.14 — Further Assurances .  The Credit Agreement is hereby amended to add the following provision as Section 6.14 of the Credit Agreement:

 

6.14         Further Assurances .  Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (ii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iii) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Collateral Document or under any other instrument executed in connection with any Collateral Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

 

16.           Amendment to Section 7.03(h) — Indebtedness .  Section 7.03(h) of the Credit Agreement is hereby amended to read in full as follows:

 

(h)           Indebtedness of Borrower (including obligations in respect of Capital Lease Obligations) incurred to directly finance the acquisition of fixed or capital assets, and refinancings thereof which do not increase the principal amount outstanding thereunder, in an aggregate principal amount which does not exceed $12,500,000 at any time.

 

17.           Section 8.01(j) — Invalidity of Loan Documents .  Section 8.01(j) of the Credit Agreement is hereby amended to read in full as follows:

 

(j)            Invalidity of Loan Documents; Liens of Collateral Documents .  Any Loan Document or any provision thereof, at any time after its execution and delivery and for

 

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any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document or any provision thereof; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document or any provision thereof; or any Collateral Document after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien (subject to Liens permitted by Section 7.01) on the Collateral purported to be covered thereby; or

 

18.           Amendment to Section 9.01 .  Section 9.01 of the Credit Agreement is hereby amended to add the following paragraph at the end of such section:

 

The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders (including in its capacity as a counterparty under a Swap Contract with Borrower or a Cash Management Agreement with any Loan Party) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto.  In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent, shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.

 

19.           Amendment to Section 9.03(d)(iv) .  Section 9.03(d)(iv) of the Credit Agreement is hereby amended to read in full as follows:

 

(iv)          the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, or the value or the sufficiency of any Collateral, or

 

20.           Amendment to Section 9.10 .  Section 9.10 of the Credit Agreement is hereby amended to read in full as follows:

 

9.10.        Collateral and Guaranty Matters .  Each Lender (including in its capacity as a counterparty under a Swap Contract with Borrower or a Cash Management Agreement with any Loan Party) and the L/C Issuer hereby irrevocably authorizes Administrative Agent, at its option and in its discretion:

 

(a)           to release any Guarantor from its obligations under the Guaranty at any time (i) such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder; (ii) such Person ceases to be a Significant Subsidiary or a Direct Domestic Unregulated Subsidiary, as applicable, as a result of a transaction permitted hereunder; or (iii) such Person is prohibited from being a party to the Guaranty based upon any Law applicable

 

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to such Person by reason of its status as a regulated utility (provided that no such Person shall be obligated to apply for any discretionary regulatory approvals which would be required to permit its execution of the Guaranty);

 

(b)           to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments, payment in full of all Obligations (other than (i) Unmatured Surviving Obligations and (ii) Obligations under Cash Management Agreements and Swap Contracts as to which arrangements satisfactory to the applicable Lender or Affiliate of such Lender shall have been made) and the expiration or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii)  if approved, authorized or ratified in writing in accordance with Section 10.01; and

 

(c)           to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(p).

 

Upon request by the Administrative Agent at any time, each Lender and the L/C Issuer will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10.

 

21.           New Section 9.11 .  The Credit Agreement is hereby amended to add the following provision as Section 9.11 of the Credit Agreement:

 

9.11         Cash Management Agreements and Swap Contracts .  No Lender or Affiliate of a Lender in its capacity as a counterparty to a Cash Management Agreement with any Loan Party or a Swap Contract with the Borrower that obtains the benefits of Section 8.03 of this Agreement, the Guaranty or any Collateral by virtue of the provisions hereof or of the Guaranty or any Collateral Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents.  Notwithstanding any other provision of this Article IX to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under such Cash Management Agreements or Swap Contracts unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Lender or Affiliate of a Lender, as the case may be.

 

22.           New Section 10.01(g) .  The Credit Agreement is hereby amended to add the following provision as Section 10.01(g) of the Credit Agreement:

 

(g)           release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

 

23.           Exhibit D — Compliance Certificate .  Exhibit D (Compliance Certificate) of the Credit Agreement is hereby replaced with the form of Compliance Certificate attached hereto as Exhibit C.

 

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that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Documents, covering the Collateral described in the Collateral Documents;

 

(f)            the Administrative Agent shall have received evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Documents has been taken (including receipt of duly executed payoff letters, UCC-3 termination statements and landlords’ and bailees’ waiver and consent agreements);

 

(g)           [Reserved];

 

(h)           the Administrative Agent shall have received such certified resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party executing the joinder to the Guaranty referred to above or any Collateral Document as Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with the Credit Agreement and the other Loan Documents to which such Loan Party is a party;

 

(i)            the Administrative Agent shall have received such documents and certifications as Administrative Agent may reasonably require to evidence that each Loan Party executing the joinder to the Guaranty referred to above or any Collateral Document is duly organized or formed, and that each such Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where such Loan Party is qualified to do business;

 

(j)            the Administrative Agent shall have received drafts of the financial statements required under Section 6.01(a) of the Credit Agreement with respect to the fiscal year ended December 31, 2008, and such financial statements shall not contradict the representations and warranties made by the Borrower in this Amendment;

 

(k)           the sale of NMUI shall have been consummated on the terms set forth in Section 7 of the Waiver Agreement; and

 

(l)            the Administrative Agent shall have received, for the account of each Lender which has executed a consent hereto prior to 3:00 p.m. (Los Angeles time) on May 27, 2009 (or any extension of such deadline announced via the Intralinks system), an amendment fee in an amount equal to 0.50% of such Lender’s Commitment (giving effect to the reduction of such Commitment pursuant to this Amendment) under the Credit Agreement.

 

27.           Effectiveness of the Credit Agreement .  Except as hereby expressly amended, the Credit Agreement remains in full force and effect, and is hereby ratified and confirmed in all respects.

 

28.           Counterparts .  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

	SOUTHWEST WATER COMPANY, a Delaware corporation,
	as Borrower
	By:	/s/ Mark Swatek
	Name:	Mark Swatek
	Title:	Chief Executive Officer
	BANK OF AMERICA, N.A.,
	as Administrative Agent
	By:	/s/ Ken Puro
	Name:	Ken Puro
	Title:	Vice President

 

Signature Page

 

 

Exhibit A to Amendment

 

AMENDMENT NO. 1 TO GUARANTY AND CONSENT OF GUARANTORS

 

This Amendment No. 1 to Guaranty and Consent of Guarantors (this “Consent of Guarantors”) is delivered with reference to (a) the Amended and Restated Credit Agreement dated as of February 15, 2008 (as heretofore amended, restated, extended, supplemented, or otherwise modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware corporation (“Borrower”), the lenders from time to time party thereto (collectively, the “Lenders”), and Bank of America, N.A., as Administrative Agent (“Administrative Agent”) and (b) the Amended and Restated Continuing Guaranty dated as of February 15, 2008, made by each of the undersigned Guarantors (as heretofore amended, restated, extended, supplemented, or otherwise modified, the “Guaranty”).  Capitalized terms not otherwise defined herein are used with the meanings set forth for those terms in the Credit Agreement.

 

Each of the undersigned Guarantors (i) consents to and approves Borrower’s execution and delivery of the attached Amendment No. 2 to Amended and Restated Credit Agreement (the “Amendment”), (ii) agrees that such Amendment does not and shall not limit or diminish in any manner the obligations of such Guarantor under the Guaranty and that such obligations would not be limited or diminished in any manner even if such Guarantor had not executed this Consent of Guarantors, (iii) reaffirms the Guaranty, and (iv) agrees that the Guaranty remains in full force and effect and is hereby ratified and confirmed.

 

Additionally, each Guarantor agrees that (i) the defined term “Guaranteed Obligations” in the Guaranty is hereby amended to include the Obligations of the Borrower under Swap Contracts entered into with any Lender or any Affiliate of any Lender and the Obligations of the Loan Parties under Cash Management Agreements entered into with any Lender or any Affiliate of any Lender, and (ii) the defined term “Beneficiary” in the Guaranty is hereby amended to include any Lender or any Affiliate of any Lender party to a Cash Management Agreement with any Loan Party.

 

Dated as of  May 28, 2009.

 

	ECO RESOURCES, INC.,
	a Texas corporation
	By:
	Name:
	Title:
	OPERATIONS TECHNOLOGIES, INC.,
	a Georgia corporation
	By:
	Name:
	Title:
	SWWC SERVICES, INC.,
	a Delaware corporation
	By:
	Name:
	Title:

 

 

Accepted and Agreed:

 

BANK OF AMERICA, N.A.,
as Administrative Agent

 

By:
Name:
Title:

 

 

Exhibit B to Amendment

 

CONSENT OF LENDER

 

Reference is hereby made to the Amended and Restated Credit Agreement dated as of February 15, 2008 (as heretofore amended, restated, extended, supplemented, or otherwise modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware corporation (“Borrower”), the lenders from time to time party thereto (collectively, the “Lenders”), and Bank of America, N.A., as Administrative Agent (“Administrative Agent”).  Capitalized terms not otherwise defined herein are used with the meanings set forth for those terms in the Credit Agreement.

 

The undersigned Lender hereby consents to the execution and delivery of an Amendment No. 2 to Amended and Restated Credit Agreement by Administrative Agent on its behalf, substantially in the form of the most recent draft thereof presented to the undersigned Lender.

 

Dated as of                        , 2009.

 

 

	[Name of Lender]
	By:
	Name:
	Title:

 

 

[Note to consenting Lender - Please fax or email this consent to:

 

William M. Scott IV

Sheppard, Mullin Richter & Hampton, LLP

333 South Hope Street, 48th Floor

Los Angeles, California, 90071

bscott@sheppardmullin.com

telecopier: (213) 443-2717

telephone (213) 617-4276

 

Email submissions will be confirmed by return email.

There is no need to submit original signatures.]

 

 

Exhibit C to Amendment

 

FORM OF COMPLIANCE CERTIFICATE

 

Financial Statement Date:                          ,

 

To:          Bank of America, N.A., as Administrative Agent

 

Ladies and Gentlemen:

 

Reference is made to the Amended and Restated Credit Agreement, dated as of February 15, 2008 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Agreement ;” the terms defined therein being used herein as therein defined), among SouthWest Water Company, a Delaware corporation (“ Borrower ”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

 

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the                                                   of Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to Administrative Agent on the behalf of Borrower, and that:

 

[Use following paragraph 1 for fiscal year-end financial statements]

 

1.             Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

 

[Use following paragraph 1 for fiscal quarter-end financial statements]

 

1.             Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of Borrower ended as of the above date.  Such financial statements fairly present the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

 

2.             The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of Borrower during the accounting period covered by the attached financial statements.

 

3.             A review of the activities of Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period Borrower performed and observed all its Obligations under the Loan Documents, and

 

[select one:]

 

[to the best knowledge of the undersigned during such fiscal period, Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]

 

— or—

 

[the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

 

4.             The representations and warranties of Borrower contained in Article V of the Agreement, and/or any representations and warranties of Borrower or any other Loan Party that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date

 

D-1

 

hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

 

5.             The following Persons have been formed or acquired as direct Subsidiaries of the Borrower since the last Compliance Certificate was delivered and must, pursuant to Section 6.13 of the Credit Agreement, execute the Loan Documents described therein:                                                                       .

 

6.             The financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate.

 

IN WITNESS WHEREOF , the undersigned has executed this Certificate as of                              ,                             .

 

	SOUTHWEST WATER COMPANY
	By:
	Name:
	Title:

 

D-2

 

		4.	plus depreciation and amortization of Borrower and its Subsidiaries for such period(4):		$
		5.	plus any non-recurring or extraordinary losses of Borrower and its Subsidiaries for such period(5):		$
		6.	plus any non-cash losses and non-cash stock compensation expense of Borrower and its Subsidiaries for such period(6):		$
		7.	minus income tax credits of Borrower and its Subsidiaries(7):		$
		8.	minus any non-recurring or extraordinary gains or any non-cash gains of Borrower and its Subsidiaries for such period(8):		$
		9.	Total EBITDA: (Line 1 + 2 + 3 + 4 + 5 + 6 – 7 – 8):		$
		10.	minus Maintenance Capital Expenditures of Borrower and its Subsidiaries for such period (but not less than
			(i) at any time prior to March 31, 2010, $1,500,000, and
			(ii) on and after March 31, 2010, $3,000,000)		$
		11.	minus income taxes paid in Cash by Borrower and its Subsidiaries during such period:		$
		12.	Total: (Line 9 – 10 – 11):		$

 

	B.	Fixed Charges:
		1.	Interest Expense of Borrower and its Subsidiaries paid or payable in cash for such period:		$
		2.	plus scheduled payments of principal in respect of Total Indebtedness during such period other than any such payments due upon the final maturity of any obligation which is Total Indebtedness, in each case for Borrower and its Subsidiaries for such period:		$
		3.	plus dividends paid in Cash on Equity Interests of Borrower and its Subsidiaries to third parties during such period:		$
		4.	plus mandatory principal prepayments in respect of

 

(4)           To the extent deducted in determining Net Income.

(5)           To the extent deducted in determining Net Income.

(6)           To the extent deducted in determining Net Income.

(7)           To the extent included in determining Net Income.

(8)           To the extent included in determining Net Income.

(9)           Insert minimum requirement from Section 6.12(b) of the Credit Agreement.

 

 

			Subordinated Indebtedness made pursuant to Section 7.11(b) of the Credit Agreement during such period:		$
		5.	Total: (Line 1 + 2 + 3 + 4):		$
	C.	EBITDA Coverage Ratio (Line A.12 ÷ Line B.5)			: 1.0
	Minimum Required :				: 1.0	(9)

 

IV.

Section 6.12(c) — Bondable Capacity Ratio

 

	A.	65% of the net book value of utility plant, property and equipment of the Regulated Subsidiaries, determined in accordance with GAAP:		$
	B.	aggregate principal amount of Total Indebtedness of Borrower’s Subsidiaries as of the Statement Date:		$
	C.	net Bondable Capacity (Line A — Line B):		$
	D.	Total Indebtedness of Borrower (but not of its Subsidiaries) outstanding on the Statement Date:		$
	E.	Subordinated Indebtedness outstanding on the Statement Date:		$
	F.	net Indebtedness of Borrower (Line D — Line E):		$
	G.	Bondable Capacity Ratio (Line C ÷ Line F):		:1.00
	Minimum Required:			1.20:1.00

 

V.

Section 6.12(d) — Operating Income Ratio

 

	A.	aggregate segment operating income of the Regulated Subsidiaries for the twelve month period ended on the Statement Date(10):		$
	B.	consolidated total segment operating income (excluding corporate and other) for the twelve month period ended on the Statement Date(11):		$
	C.	Operating Income Ratio (Line A ÷ Line B):		$
	Minimum Required:			0.65:1.00

 

(10)         Determined consistently with GAAP and consistently with the past practices of Borrower.

(11)         Determined consistently with GAAP and consistently with the past practices of Borrower.

 

 

VI.

Section 7.02(h) — Other Investments

 

	A.	Aggregate outstanding “other Investments”(12) of Borrower and its Subsidiaries as of the Statement Date:		$
	Maximum Permitted :			$	10,000

 

VII.

Section 7.03(e) — Indebtedness of Borrower and the Regulated Subsidiaries

 

	A.	Aggregate principal amount of Indebtedness of Borrower and the Regulated Subsidiaries permitted under Section 7.03(e)  of the Credit Agreement as of the Statement Date:		$
	Maximum Permitted :			$	40,000
	B.	Aggregate principal amount of Indebtedness of Borrower and the Regulated Subsidiaries permitted under Section 7.03(e) of the Credit Agreement which is governed by instruments, documents and agreements which do not comply with the provisions of Section 7.09 of the Credit agreement as of the Statement Date:		$
	Maximum Permitted :			$	5,000

 

VIII.

Section 7.03(f) — Indebtedness of the Unregulated Subsidiaries

 

	A.	Aggregate principal amount of Indebtedness of the Unregulated Subsidiaries as of the Statement Date:		$
	Maximum Permitted :			$	10,000

 

IX.

Section 7.03(h) — Indebtedness re: Asset Acquisition

 

	A.	Aggregate principal amount of Indebtedness of Borrower (including obligations in respect of Capital Lease Obligations) incurred to directly finance the acquisition of fixed or capital assets, and refinancings thereof which do not increase the principal amount outstanding thereunder, as of the Statement Date:		$
	Maximum Permitted :			$	12,500

 

X.

Section 7.05(h) — Dispositions

 

	A.	Aggregate Dispositions made by Borrower and its Subsidiaries for fair market value made when no Default or Event of Default has occurred and remains continuing or would result therefrom (including any Pro Forma Covenant Default) since the Closing Date:		$
	Maximum Permitted :			$	25,000

 

(12)        “other Investments” includes all Investments made by Borrower and its Subsidiaries other than Investments permitted under Sections 7.02(a) – 7.02(g) of the Credit Agreement.

 

 

Exhibit D to Amendment

 

INSTRUMENT OF JOINDER

 

THIS INSTRUMENT OF JOINDER (“Joinder”) is executed as of May 28, 2009, by the undersigned (each a “Joining Party” and collectively, the “Joining Parties”), and delivered to Bank of America, N.A., as Administrative Agent (“Administrative Agent”), pursuant to the Amended and Restated Continuing Guaranty dated as of February 15, 2008 made by certain Subsidiaries (collectively, the “Guarantors”) of SouthWest Water Company, a Delaware corporation (the “Borrower”), in favor of Administrative Agent for the ratable benefit of the Beneficiary described therein (as amended by that certain Amendment No. 1 to Guaranty and Consent of Guarantors of even date herewith and as such agreement may from time to time be extended, modified, renewed, restated, supplemented or amended, the “Guaranty”).  Terms used but not defined in this Joinder shall have the meanings defined for those terms in the Guaranty.

 

RECITALS

 

A.            Each Joining Party is a Subsidiary of Borrower and has agreed to enter into this Joinder, pursuant to Section 6.13 of the Credit Agreement, to become a Guarantor under the terms and conditions of the Guaranty.

 

B.            Each Joining Party expects to realize direct and indirect benefits as a result of the availability to Borrower of the credit facilities under the Credit Agreement.

 

NOW THEREFORE, each Joining Party agrees as follows:

 

AGREEMENT

 

1.             By this Joinder, each Joining Party becomes a “Guarantor” under and pursuant to Section 20 of the Guaranty.  Each Joining Party agrees that, upon its execution of this Joinder, it will become a Guarantor under the Guaranty with respect to all Guaranteed Obligations heretofore or hereafter incurred, and it will be bound by all terms, conditions, and duties applicable to a Guarantor under the Guaranty.

 

2.             The effective date of this Joinder is May 28, 2009.

 

[Signature Page Follows]

 

 

	“Joining Parties”
	Metro-H2O, Ltd.,
	a Texas limited partnership
		By: Metro-H2O Utilities, Inc.
		Its: General Partner
		By:
		Name:
		Title:
	Metro-H2O Utilities, Inc.,
	a Texas corporation
	By:
	Name:
	Title:
	SWWC Enterprises, Inc.,
	a Delaware corporation
	By:
	Name:
	Title:
	SWWC Utilities, Inc.,
	a Delaware corporation
	By:
	Name:
	Title:
	CDC Maintenance, Inc.,
	a Texas corporation
	By:
	Name:
	Title:
	New Mexico Utilities, Inc.,
	a New Mexico corporation,
	By:
	Name:
	Title:

 

 

ACKNOWLEDGED:

 

 

BANK OF AMERICA, N.A.,

 

as Administrative Agent

 

 

By:
Name:
Title:

 

 

Exhibit E to Amendment

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (as amended, restated, extended, supplemented or otherwise modified from time to time, this “ Agreement ”), dated as of May 28, 2009, is made by each of the Persons listed on the signature pages hereto, together with each other Person who may become a party hereto pursuant to Section 27 of this Agreement (each a “ Grantor ” and collectively the “ Grantors ”), jointly and severally in favor of the Secured Party (as defined below), with reference to the following facts:

 

RECITALS

 

A.            Pursuant to the Amended and Restated Credit Agreement (as amended, restated, extended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), dated as of February 15, 2008, by and among SouthWest Water Company, a Delaware corporation (“ Borrower ”), each lender from time to time party thereto (each a “ Lender ” and collectively the “ Lenders ”), and Bank of America, N.A., as Administrative Agent, the Lenders have agreed to extend certain credit facilities to Borrower.

 

B.            Concurrently herewith, Borrower and Administrative Agent (with the consent of the Required Lenders) are entering into that certain Amendment No. 2 to Amended and Restated Credit Agreement (the “ Amendment ”), which provides, as a condition to its effectiveness, that Grantors enter into this Agreement and grant security interests to Secured Party as herein provided.

 

C.            Each Grantor expects to realize direct and indirect benefits as a result of the availability of the aforementioned credit facilities.

 

AGREEMENT

 

NOW, THEREFORE, in order to induce the Administrative Agent and the Lenders to enter into the Amendment, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantors hereby jointly and severally represent, warrant, covenant, agree, assign and grant as follows:

 

E.             Definitions.  This Agreement is the Security Agreement referred to in the Credit Agreement (as amended by the Amendment).  This Agreement is one of the “Loan Documents” referred to in the Credit Agreement.  Terms defined in the Credit Agreement and not otherwise defined in this Agreement shall have the meanings defined for those terms in the Credit Agreement.  Terms defined in the California Commercial Code (the “ CCC ”) and not otherwise defined in this Agreement or in the Credit Agreement shall have the meanings defined for those terms in the CCC.  As used in this Agreement, the following terms shall have the meanings respectively set forth after each:

 

“ Certificates ” means all certificates, instruments or other documents now or hereafter representing or evidencing any Pledged Securities.

 

“ Closing Date ” means the date on which the conditio