NOTE PURCHASE AGREEMENT

 

TABLE OF CONTENTS

 

Section				Page
1.	AUTHORIZATION, SALE AND PURCHASE OF NOTE			1
2.	CLOSING			1
3.	CONDITIONS TO CLOSING			2
	3.1.	Representations and Warranties		2
	3.2.	Performance; No Default		2
	3.3.	Compliance Certificates		2
	3.4.	Opinion of Counsel		2
	3.5.	Purchase Permitted by Applicable Law, etc		2
	3.6.	Payment of Special Counsel Fees		3
	3.7.	Changes in Corporate Structure		3
	3.8.	Proceedings and Documents		3
4.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY			3
	4.1.	Organization; Power and Authority		3
	4.2.	Authorization, etc		4
	4.3.	No Governmental Approvals Required		4
	4.4.	Subsidiary		4
	4.5.	Financial Statements		5
	4.6.	No Other Liabilities, No Material Adverse Changes		5
	4.7.	Intangible Assets		5
	4.8.	Binding Obligations		5
	4.9.	No Default.		5
	4.10.	Regulation U; Investment Company Act		5
	4.11.	Tax Liability		6
	4.12.	Employee Matters		6
	4.13.	Fiscal Year		6
	4.14.	Solvency		6
5.	REPRESENTATIONS OF THE PURCHASER			6
	5.1.	Purchase for Investment		6
	5.2.	Source of Funds		7

 

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6.	INFORMATION AS TO COMPANY			7
	6.1.	Financial and Business Information		7
	6.2.	Inspection		9
7.	PREPAYMENT OF THE NOTE			9
	7.1.	Optional Prepayments with Redemption Premium		9
	7.2.	Maturity; Surrender, etc		9
	7.3.	Redemption Premium		10
8.	AFFIRMATIVE COVENANTS			10
	8.1.	Insurance		11
	8.2.	Payment of Taxes		11
	8.3.	Corporate Existence, etc		11
	8.4.	Acquire Non-voting Participation Certificates in Purchaser		11
9.	NEGATIVE COVENANTS			11
	9.1.	Disposition of Property		12
	9.2.	Liens on Property; Permitted Encumbrances		12
	9.3.	Merger, Consolidation, etc		12
	9.4.	Change in Business		13
	9.5.	Transactions with Affiliates		13
	9.5.	Restrictions on Sale and Leaseback Transactions		13
10.	FINANCIAL COVENANTS			14
	10.1.	Indebtedness		14
	10.2.	Distributions		14
	10.3.	Rounding		15
	10.4.	Accounting Terms; Covenant Calculations		15
	10.5.	Fiscal Year		15
11.	EVENTS OF DEFAULT			15
12.	REMEDIES ON DEFAULT, ETC			16
	12.1.	Acceleration		16
	12.2.	Other Remedies		17
	12.3.	Rescission		17
	12.4.	No Waivers or Election of Remedies, Expenses, etc		18
13.	PAYMENTS ON NOTE			18
14.	EXPENSES, ETC			18
	14.1.	Transaction Expenses		18

 

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	14.2.	Survival		18
15.	ENTIRE AGREEMENT			19
16.	AMENDMENT AND WAIVER			19
	16.1.	Requirements		19
	16.2.	Binding Effect, etc		19
17.	NOTICES			19
18.	REPRODUCTION OF DOCUMENTS			19
19.	CONFIDENTIAL INFORMATION			20
20.	MISCELLANEOUS			21
	20.1.	Successors and Assigns		21
	20.2.	Payments Due on Non-Business Days		21
	20.3.	Severability		21
	20.4.	Construction		21
	20.5.	Counterparts		21
	20.6.	Governing Law		22

 

SCHEDULE A	—	DEFINED TERMS
SCHEDULE 4.7	—	Patents, etc.
SCHEDULE 9.2	—	Liens
EXHIBIT 1	—	Form of 6.70% Senior Note due March 10, 2019

 

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GOLDEN STATE WATER COMPANY

630 East Foothill Blvd.

San Dimas, California 91773

 

March 10, 2009

 

6.70% Senior Note due March 10, 2019

 

COBANK, ACB

5500 South Quebec Street

Greenwood Village, Colorado 80111

 

Attention:  Communications and Energy Banking Group

 

Ladies and Gentlemen:

 

Golden State Water Company, a California corporation (the “Company”), agrees with CoBank, ACB (the “Purchaser”) as follows:

 

1.                                       AUTHORIZATION, SALE AND PURCHASE OF NOTE.

 

Subject to the terms and conditions of this Agreement, the Company will authorize, will issue and sell to the Purchaser, and the Purchaser will purchase from the Company, at the Closing provided for in Section 2, $40,000,000 aggregate principal amount of its 6.70% Senior Note due March 10, 2019 (the “Note”).  The Note shall be substantially in the form set out in Exhibit 1, with such changes, if any, as may be approved by the Purchaser and the Company.  Certain capitalized terms used in this Agreement are defined in Schedule A; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

 

2.                                       CLOSING.

 

The sale and purchase of the Note to be purchased by the Purchaser shall occur at the offices of Sherman & Howard, LLC, 633 17th Street, Denver, Colorado 80302, at 11:00 A.M., (Mountain time), at a closing (the “Closing”) on March 10, 2009 or on such other Business Day thereafter on or prior to March 10, 2009 as may be agreed upon by the Company and the Purchaser (the “Closing Date”).  At the Closing the Company will deliver to the Purchaser the Note in a form of a Note dated the date of the Closing in the Purchaser’s name (or in the name of the Purchaser’s nominee), against delivery by the Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to Wells Fargo Bank, ABA No. 121-000248, Account #4584-706535, Account Name:  Golden State Water Company, Ref:  Note Purchase Agreement Proceeds. If at the Closing the Company shall fail to tender the Note to the Purchaser as provided above in this Section 2, or any of the conditions specified in

 

 

 

Section 3 shall not have been fulfilled to the Purchaser’s satisfaction, the Purchaser shall, at the Purchaser’s election, be relieved of all further obligations under this Agreement, without thereby waiving any rights the Purchaser may have by reason of such failure or such nonfulfillment.

 

3.                                       CONDITIONS TO CLOSING.

 

The Purchaser’s obligation to purchase and pay for the Note to be sold to the Purchaser at the Closing is subject to the fulfillment to the Purchaser’s satisfaction, prior to or at the Closing, of the following conditions:

 

3.1.                             Representations and Warranties.

 

The representations and warranties of the Company in this Agreement shall be correct in all material respects as of the date hereof and the Closing Date.

 

3.2.                             Performance; No Default.

 

The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing in all material respects and after giving effect to the issue and sale of the Note, no Default or Event of Default shall have occurred and be continuing.

 

3.3.                             Compliance Certificates.

 

(a)                                   Officer’s Certificate .  The Company shall have delivered to the Purchaser an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 3.1, 3.2 and 3.7 have been fulfilled.

 

(b)                                  Secretary’s Certificate .  The Company shall have delivered to the Purchaser a certificate attaching and certifying as to the: (1) organizational documents of the Company; (2) resolutions and other corporate proceedings relating to the authorization, execution and delivery of the Note and the Agreement; (3) names and true ink signatures of the officers of the Company authorized to execute this Agreement, the Note, and the related documents; and (4) due incorporation and good standing of the Company in the State of California.

 

3.4.                             Opinion of Counsel.

 

The Purchaser shall have received an opinion, dated the date of the Closing from O’Melveny & Myers LLP, counsel for the Company, in form and substance satisfactory to counsel for Purchaser (and the Company hereby instructs its counsel to deliver such opinion to the Purchaser).

 

3.5.                             Purchase Permitted by Applicable Law, etc.

 

On the date of the Closing the Purchaser’s purchase of the Note shall (i) be permitted by the laws and regulations of each jurisdiction to which the Purchaser is subject, and (ii) not subject the Purchaser to any tax, penalty or liability under or pursuant to any applicable

 

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law or regulation, which law or regulation was not in effect on the date hereof. If requested by the Purchaser, the Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as the Purchaser may reasonably specify to enable the Purchaser to determine whether such purchase is so permitted.

 

3.6.                             Payment of Special Counsel Fees.

 

Without limiting the provisions of Section 14.1, the Company shall have paid on or before the Closing the reasonable fees, charges and disbursements of the Purchaser’s special counsel up to a maximum amount of $25,000 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing.

 

3.7.                             Changes in Corporate Structure.

 

The Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Section 4.5.

 

3.8.                             Proceedings and Documents.

 

All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all documents and instruments necessary to the consummation thereof shall be reasonably satisfactory in form and substance to the Purchaser and the Purchaser’s special counsel, and the Purchaser and the Purchaser’s special counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchaser or they may reasonably request.

 

4.                                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to the Purchaser that:

 

4.1.                             Organization; Power and Authority.

 

The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, other than those jurisdictions as to which the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect. The Company has all requisite corporate power and corporate authority to conduct its business, to own and lease its Properties and to execute and deliver this Agreement and the Note and to perform the provisions hereof and thereof.  The chief executive offices of the Company are located in San Dimas, California.  All outstanding capital stock of Company is duly authorized, validly issued, fully paid and non-assessable, and no holder thereof has any enforceable right of rescission under any applicable state or federal securities or other Laws.  The Company is in compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registrations and

 

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qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except as disclosed in the Company’s filings with the Securities and Exchange Commission after January 1, 2008 until the date hereof or where the failure so to comply with Laws and other legal requirements applicable to its business, obtain authorizations, etc., file, register, qualify or obtain exemptions could not reasonably be expected to have a Material Adverse Effect.

 

4.2.                             Authorization, etc.

 

The execution and delivery by Company of this Agreement and the Note and payment of the Obligations have been duly authorized by all necessary corporate action and do not and will not:

 

(a)                                   Require any consent or approval not heretofore obtained of any shareholder, security holder or creditor of the Company;

 

(b)                                  Violate or conflict with any provision of the Company’s articles of incorporation or bylaws;

 

(c)                                   Result in or require the creation or imposition of any Lien ( other than pursuant to the Loan Documents) or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by the Company;

 

(d)                                  Violate any Requirement of Law applicable to the Company;

 

(e)                                   Result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which the Company is a party or by which the Company or any of its Property is bound or affected;

 

and the Company is not in violation of, or default under, any Requirement of Law or Contractual Obligation, or any indenture, loan or credit agreement described in Section 4.2(e), in any respect that could reasonably be expected to have a Material Adverse Effect.

 

4.3.                             No Governmental Approvals Required.

 

Except as previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Agency is or will be required to authorize or permit under applicable Laws the execution and delivery by the Company of the Agreement and the Note and payment of the Obligations.

 

4.4.                             Subsidiary.

 

The only Subsidiary of the Company is a wholly owned Subsidiary of the Company, California Cities Water Company, Inc., a California corporation.

 

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4.5.                             Financial Statements.

 

The Company has delivered to the Purchaser (a) the audited consolidated financial statements of the Company and its Subsidiary for the Fiscal Year ended December 31, 2007 and (b) the consolidated financial statements of the Company and its Subsidiary for the Fiscal Quarters ended June 30, 2008 and September 30, 2008.  Such financial statements fairly present in all material respects the financial condition, results of operations and changes in financial position as of such dates and for such periods in conformity with GAAP consistently applied.

 

4.6.                             No Other Liabilities, No Material Adverse Changes.

 

As of the Closing Date, the Company does not have any material liability or material contingent liability required under GAAP to be reflected or disclosed, and not reflected or disclosed, in the financial statements described in Section 4.5, other than liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements, or that could not be reasonably expected to have a Material Adverse Effect.  As of the Closing Date, no circumstance or event has occurred that could reasonably be expected to have a Material Adverse Effect since December 31, 2007.

 

4.7.                             Intangible Assets.

 

The Company owns, or possesses the right to use to the extent necessary in its  business, all material trademarks, trade names, copyrights, patents, patent rights, computer software, licenses and other Intangible Assets that are used in the conduct of its business as now operated, and no such Intangible Asset, to the best knowledge of Company, conflicts with the valid trademark, trade name, copyright, patent, patent right or Intangible Asset of any other Person, except, in any such case, to the extent that could not reasonably be expected to have a Material Adverse Effect. Schedule 4.7 sets forth all patents, patent applications, trademarks, trade names and trade styles used by Company at any time within the five (5) year period ending on the Closing Date.

 

4.8.                             Binding Obligations.

 

Each of this Agreement and the Note will, when executed and delivered by Company, constitute the legal, valid and binding obligation of the Company, enforceable against Company in accordance with its terms, except as enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion.

 

4.9.                             No Default.

 

No event has occurred and is continuing that is a Default or Event of Default.

 

4.10.                      Regulation U; Investment Company Act.

 

No part of the proceeds of the Note hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any Margin Stock in

 

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violation of Regulation U.  The Company is not or is not required to be registered as an “investment company” under the Investment Company Act of 1940.

 

4.11.                      Tax Liability.

 

The Company has filed all tax returns which are required to be filed, and has paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by the Company, except (a) such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained and (b) immaterial taxes so long as no material Property of Company is at impending risk of being seized, levied upon or forfeited.

 

4.12.                      Employee Matters.

 

There is no strike, work stoppage or labor dispute with any union or group of employees pending or, to the best knowledge of the Company overtly threatened involving Company that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.

 

4.13.                      Fiscal Year.

 

The Company operates on a fiscal year ending on December 31.

 

4.14.                      Solvency.

 

After giving effect to this Agreement (including after giving effect to delivery of the Note under this Agreement as of the Closing Date), the Company shall be Solvent.

 

4.15.                      Use Of Proceeds .

 

The Company’s capital expenditure budgets for 2008-2011 include at least $40 million of capital expenditures for projects that will serve rural communities (populations of 20,000 or less).

 

5.                                       REPRESENTATIONS OF THE PURCHASER.

 

5.1.                             Purchase for Investment.

 

The Purchaser represents that the Note represents a loan by the Purchaser. The Purchaser further represents and warrants to the Company that: (A) it is authorized under the laws applicable to it to make the loan and accept the Note as evidence thereof; and (B) it is making the Loan and acquiring the Note for its own account, with no intention of dividing its participation with others or reselling or otherwise distributing the same in violation of the Securities Act of 1933 or applicable state securities laws. The Purchaser understands that the Note has not been registered under the Securities Act and may be resold only if registered

 

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pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Note or to permit the resale of the Note. The Company may place an appropriate legend on the Note concerning the restrictions set forth in this Article 5.

 

5.2.                             Source of Funds.

 

The Purchaser represents, as to each source of funds (a “Source”) to be used by the Purchaser to pay the purchase price of the Note to be purchased by the Purchaser hereunder, that the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.  As used in this Section 5.2, the term “employee benefit plan” shall have the meaning assigned to such term in Section 3 of ERISA.

 

6.                                       INFORMATION AS TO COMPANY.

 

6.1.                             Financial and Business Information.

 

The Company shall deliver to the Purchaser:

 

(a)                                   Quarterly Statements — within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

 

(i)                                      a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

 

(ii)                                   consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the Company and its Subsidiaries and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company’s Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 6.1(a);

 

(b)                                  Annual Statements — within 100 days after the end of each fiscal year of the Company, duplicate copies of,

 

(i)                                      a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and

 

(ii)                                   consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such year,

 

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setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the Company and its Subsidiaries and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company’s Annual Report on Form 10-K for such fiscal year prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 6.1(b);

 

(c)                                   Notice of Default or Event of Default — promptly, and in any event within five days after a Responsible Officer becomes aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

 

(d)                                  ERISA Matters — promptly, and in any event within five days after a Responsible Officer becomes aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

 

(i)                                      with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

 

(ii)                                   the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

 

(iii)                                any event, transaction or condition that could result in the  imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA, if such liability or Lien, taken together with any other such Liens then existing, would reasonably be expected to have a Material Adverse Effect; and

 

(e)                                   Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, annual budget, assets or properties of the Company or relating to the ability of the Company to perform its obligations hereunder and under the Note as from time to time may be reasonably requested by the Purchaser.

 

Information required to be delivered pursuant to this Section 6.1 (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange

 

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Commission) shall be deemed to have been delivered on the date on which the Company provides notice to Purchaser that such information has been posted on the Company’s website at the website address listed on the signature page hereof or another website identified in such notice and accessible to the Purchaser without charge; provided that the Company shall provide the Purchaser with paper copies if requested to do so by Purchaser.

 

6.2.                             Inspection.

 

The Company shall permit the representatives of the Purchaser:

 

(a)                                   No Default — if no Default or Event of Default then exists, at the expense of the Purchaser and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company with the Company ’ s officers, and, with the consent of the Company (which consent will not be unreasonably withheld) to visit the other offices and properties of the Company, all at such reasonable times and as often as may be reasonably requested in writing; provided , however, that unless the Company otherwise agrees, the Purchaser may only conduct an on-site inspection of the Company following the Closing twice in any fiscal year; and

 

(b)                                  Default — if a Default or Event of Default then exists, at the reasonable expense of the Company and upon reasonable prior notice to the Company, to visit and inspect any of the offices or properties of the Company, and, to the extent permitted by applicable Law, to examine all its books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss its affairs, finances and accounts with its officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company), all at such times and as often as may be reasonably requested; provided that the Company may, if it so chooses, be present at or participate in any such discussion.

 

7.                                       PREPAYMENT OF THE NOTE.

 

7.1.                             Optional Prepayments with Redemption Premium.

 

The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Note, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Redemption Premium determined for the prepayment date with respect to such principal amount as provided in Section 7.3.  The Company will give the Purchaser written notice of each optional prepayment under this Section 7.1 not less than 3 days and not more than 60 days prior to the date fixed for such prepayment.  Each such notice shall specify such date, the aggregate principal amount of the Note to be prepaid on such date, and the interest to be paid on the prepayment date with respect to such principal amount being prepaid. By noon (Mountain Time) on the date for such prepayment, the Purchaser shall notify the Company of its calculation of the amount of the Redemption Premium due on such date.

 

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7.2.         Maturity; Surrender, etc.

 

In the case of each prepayment of the Note pursuant to this Section 7, the principal amount of the Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Redemption Premium.  From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Redemption Premium as aforesaid, interest on such principal amount shall cease to accrue.

 

7.3.         Redemption Premium.

 

The term “Redemption Premium” means, with respect to the Note, an amount calculated by Purchaser in good faith and in a commercially reasonable manner as follows:

 

                (A)          Purchaser will determine the difference between:  (1) the rate allocated by Purchaser on the date the rate on the Note is fixed as its cost to fund the loan represented by the Note in the manner set forth in Purchaser’s standard  methodology; minus (2) the rate estimated by Purchaser on the date of calculation to be its cost, less dealer concessions and other issuance costs, to fund a new fixed rate loan in accordance with the methodology used by the Purchaser for loans to other borrowers on the date the Note is repaid having the same fixed rate period and repayment characteristics as the balance of the Note being repaid.  If such difference is negative, then for purposes of the remaining calculations, such difference shall be deemed to be zero.

 

                (B)           Add ½ of 1% to such difference (such that the minimum result shall at all times be ½ of 1%).

 

                (C)           Divide the result determined in (B) above by the number of times interest is payable during the year.

 

                (D)          For each interest period (or portion thereof) during which interest was scheduled to accrue at the fixed rate of the Note, multiply the amount determined in (C) above by the principal balance scheduled to have been outstanding during such period (such that there is a calculation for each interest period during which the amount repaid was scheduled to have been outstanding at the fixed rate).

 

                (E)           Determine the present value of each calculation made under (D) above based upon the scheduled time that interest on the amount repaid would have been payable and a discount rate equal to the rate set forth in (A)(2) above.

 

(F)           Add all of the calculations made under (E) above.  The result is the Redemption Premium.

 

(G)           Purchaser’s determination of the Redemption Premium shall be presumed to be correct in the absence of manifest error.

 

Nothing contained herein shall prevent Purchaser from funding its loans in any manner as Purchaser may, in its sole discretion, elect, and the surcharges provided for herein shall not be

 

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increased or decreased based on the actual methods chosen by Purchaser to fund or hedge the loan being repaid.

 

8.                                       AFFIRMATIVE COVENANTS.

 

The Company covenants that so long as any portion of the Note is outstanding:

 

8.1.         Insurance.

 

The Company will maintain liability, casualty and other insurance (subject to customary deductibles and retentions and which may include self-insurance) with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets.

 

8.2.         Payment of Taxes.

 

The Company will pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon it, upon its Property or any part thereof and upon its respective income or profits or any part thereof, except that Company shall not be required to pay or cause to be paid (a) any tax, assessment, charge or levy that is not yet past due, or is being contested in good faith by appropriate proceedings so long as the relevant entity has established and maintains adequate reserves for the payment of the same or (b) any immaterial tax, assessment, governmental charge or levy so long as no material Property of Company is at impending risk of being seized, levied upon or forfeited.

 

8.3.         Corporate Existence, etc.

 

(a)           The Company will at all times preserve and maintain its existence in its jurisdiction of organization.

 

(b)           The Company will also at all times preserve and maintain all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits or registrations from any Governmental Agency that are necessary for the transaction of its business and qualify to transact business in each jurisdiction in which such qualification is necessary in view of the business or the ownership or leasing of its Properties, except where the failure to so preserve, maintain or qualify could not reasonably be expected to have a Material Adverse Effect.

 

8.4.         Acquire Non-voting Participation Certificates in Purchaser.

 

Acquire non-voting participation certificates in Purchaser in such amounts and at such times as the Purchaser may require in accordance with its bylaws and capital plan (as each may be amended from time to time), except that the maximum amount of such certificates that the Company may be required to purchase in connection with the loan made by Purchaser hereunder may not exceed the maximum amount permitted by the bylaws of the Purchaser at the time the Note is entered into or is renewed or refinanced by Purchaser.  The rights and obligations of the parties with respect to such certificates and any patronage or other distributions made by the Purchaser shall be governed by the Purchaser’s bylaws and capital plan (as each

 

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may be amended from time to time). As security for the Company’s obligations to Purchaser, Purchaser shall have a statutory first priority lien on all equity which the Company may now own or hereafter acquire in Purchaser and all proceeds thereof.

 

8.5.         Use of Proceeds .

 

                                The proceeds of the Note will be used to finance capital expenditures under the Company’s capital expenditure budgets for 2008-2011.

 

9.                                       NEGATIVE COVENANTS.

 

The Company covenants that so long as any portion of the Note is outstanding, or any other Obligation remains unpaid, that the Company shall not, unless the Purchaser otherwise consents:

 

9.1.         Disposition of Property.

 

In any fiscal year make one or more Dispositions of Property with a book value of more than a Substantial Portion, whether such Property is now owned or hereafter acquired, including Dispositions pursuant to any order of any Governmental Agency in an eminent domain proceeding and any settlement of any such proceeding unless, within one year of the occurrence of such Disposition, the Company applies the Net Proceeds of such Disposition to one or more of the following:

 

                (1)           the optional redemption of all or a portion of the Note as provided in Section 7; or

 

                (2)           the payment or other retirement of a portion of Indebtedness incurred or assumed by the Company which ranks pari passu with the Note); or

 

                (3)           the purchase of Public Utility Property (other than Property of the Company involved in such Disposition), as determined by the Board of Directors of the Company whose determination shall be conclusive and evidenced in a resolution of the Board of Directors.

 

9.2.         Liens on Property; Permitted Encumbrances.

 

Create, issue, assume, guarantee or suffer to exist any Indebtedness secured by any Lien of any nature upon any of its Properties, whether now owned or hereafter acquired, except:

 

(a)           Liens existing on the Closing Date and disclosed in Schedule 9.2 and any renewals/extensions, refinancings or amendments thereof, provided that the obligations secured or benefited thereby are not increased (other than for premiums or other payments required to be paid in connection therewith and the expenses incurred in connection therewith);

 

(b)           Liens under the Loan Documents; and

 

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(c)           Permitted Encumbrances,

 

without, in each case, effectively providing that the Note (together with, if the Company shall so determine, any other Indebtedness of the Company ranking pari passu with the Note) shall be secured equally and ratably with such Indebtedness.

 

9.3.         Merger, Consolidation, etc.

 

The Company shall not consolidate with or merge with any other corporation, except mergers and consolidations of a Subsidiary into the Company (with the Company as the surviving entity), or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person unless:

 

(a)           the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be, shall be a Solvent corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation, such corporation shall have executed and delivered to the Purchaser its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Note; and

 

(b)           immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and

 

(c)           the Total Indebtedness to Capitalization Ratio of the Company, its Subsidiaries and of such other corporation, on a consolidated basis, is not more than .6667 to 1 at the end of the fiscal quarter immediately preceding the merger after giving effect to the merger, consolidation or sale and any changes in Total Indebtedness since the end of such quarter (exclusive of any adjustments to Total Capitalization relating to transaction costs and accounting adjustments resulting from such transaction); and

 

(d)           the Total Indebtedness to EBITDA Ratio of the Company, its Subsidiaries and of such other corporation, on a consolidated basis, is not greater than 8:1 for the 12 month period preceding the end of the quarter preceding such merger, after giving effect to the merger, consolidation or sale and any changes in Total Indebtedness since the end of such quarter; and

 

(e)           the successor or survivor entity has agreed to conduct the principal business of the successor or survivor entity as a regulated water/wastewater public utility under the laws of one or more states of the United States.

 

9.4.         Change in Business.

 

Cease to conduct its principal business as a regulated water/wastewater public utility under the laws of one or more states of the United States of America.

 

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9.5.         Transactions with Affiliates.

 

The Company will not enter into or be a party to, any transaction or arrangement with any Affiliate (including without limitation, the purchase from, sale to or exchange of Property with, or the rendering of any service by or for, any Affiliate), except upon fair and reasonable terms no less favorable in any material respect to the Company than would be obtained in a comparable arm’s length transaction with a Person other than an Affiliate or as otherwise may be permitted by applicable Law.

 

9.6          Restrictions on Sale and Leaseback Transactions.

 

                                Enter into any arrangement with any Person providing for a Sale and Leaseback, unless the Net Proceeds of such sale are at least equal to the value of such Property, as determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced in a resolution of the Board of Directors, and the Company would be entitled, pursuant to Section 9.2 to incur Indebtedness secured by a Lien on the Property to be leased without equally and ratably securing the Note. In no event may the value of Property subject to a Sale and Leaseback, as determined by the Board of Directors of the Company as provided herein, together with the amount of Permitted Capital Indebtedness outstanding on the date of any such Sale and Leaseback exceed a Substantial Portion of the Property of the Company and its Subsidiaries on a consolidated basis.

 

10.                                FINANCIAL COVENANTS.

 

10.1.       Indebtedness.

 

The Company covenants and agrees that it will not create, incur or assume any Indebtedness, if an Event of Default has occurred and is continuing or if, after giving effect thereto, any of the following conditions is not satisfied:

 

(a)           the Total Indebtedness to Capitalization Ratio of the Company and its Subsidiaries, on a consolidated basis, would be more than .6667 to 1 at the end of the fiscal quarter immediately preceding such creation, occurrence or assumption; or

 

(b)           the Total Indebtedness to EBITDA Ratio of the Company and its Subsidiaries, on a consolidated basis, would be greater than 8:1 for the 12 month period preceding the end of the quarter preceding such creation, incurrence or assumption; or

 

(c)           an Event of Default would otherwise occur.

 

Notwithstanding the foregoing, the Company may incur Indebtedness solely for the purpose of repaying or refinancing existing Indebtedness so long as (i) the principal amount of such new Indebtedness does not exceed the principal amount of the existing Indebtedness refinanced or repaid (plus the premiums or other payments required to be paid in connection with such refinan