EXHIBIT 10.18
CREDIT AGREEMENT
BETWEEN
SUBURBAN WATER SYSTEMS
AND
MELLON BANK, N.A.
DECEMBER 23, 1997
TABLE OF CONTENTS
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PAGE(S)
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ARTICLE I DEFINITIONS............................................ 1
SECTION 1.01. Defined Terms.......................................... 1
SECTION 1.02. Other Definitional Provisions.......................... 7
ARTICLE II THE CREDIT............................................. 8
SECTION 2.01. The Revolving Loans.................................... 8
(a) The Revolving Commitment........................... 8
(b) Making the Revolving Loans......................... 8
(c) Reduction of the Revolving Commitment.............. 9
(d) Revolving Note..................................... 9
SECTION 2.02. Repayment.............................................. 9
(a) Mandatory Repayments............................... 9
(b) Optional Prepayment................................ 9
SECTION 2.03. Interest Rate and Payment Dates........................ 9
(a) Payment............................................ 9
(b) Interest Rate...................................... 10
(c) Rate Periods....................................... 10
(d) Interest After Event of Default or Maturity........ 10
(e) Selection, Conversion or Renewal of Rate Options... 11
(f) Prime Rate Fallback................................ 11
SECTION 2.04. Commitment Fee......................................... 11
ARTICLE III GENERAL PROVISIONS CONCERNING THE LOANS................ 12
SECTION 3.01. Use of Proceeds........................................ 12
SECTION 3.02. Computation of Interest and Fees....................... 12
(a) Calculations....................................... 12
(b) Determination by Bank.............................. 12
SECTION 3.03. Payments............................................... 12
SECTION 3.04. Payment on Non-Business Days........................... 12
SECTION 3.05. Reduced Return......................................... 12
SECTION 3.06. Indemnities and Losses................................. 13
(a) Indemnities........................................ 13
(b) Funding Losses..................................... 13
SECTION 3.07. Funding Sources........................................ 14
SECTION 3.08. Requirements of Law.................................... 14
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ARTICLE IV CONDITIONS OF LENDING.................................. 15
SECTION 4.01. Conditions Precedent to Initial Loans.................. 15
SECTION 4.02. Conditions Precedent to Each Borrowing................. 16
ARTICLE V REPRESENTATIONS AND WARRANTIES......................... 17
SECTION 5.01. Representations and Warranties......................... 17
(a) Organization........................................... 17
(b) Authorization; No Conflict............................. 17
(c) Governmental Consents.................................. 17
(d) Validity............................................... 17
(e) Financial Condition.................................... 18
(f) Litigation............................................. 18
(g) Employee Benefit Plans................................. 18
(h) Disclosure............................................. 18
(i) Environmental Matters.................................. 18
(j) Employee Matters....................................... 19
(k) Solvency............................................... 19
(l) Title to Properties.................................... 19
(m) Tax Returns............................................ 19
(n) Compliance with Other Agreements and Applicable Laws... 20
ARTICLE VI COVENANTS.............................................. 20
SECTION 6.01. Affirmative Covenants.................................. 20
(a) Financial Information.................................. 20
(b) Notices and Information................................ 22
(c) Corporate Existence, Etc............................... 23
(d) Payment of Taxes and Claims............................ 23
(e) Maintenance of Properties; Insurance................... 23
(f) Inspection............................................. 24
(g) Compliance with Laws Etc............................... 24
(h) Hazardous Waste Studies................................ 24
SECTION 6.02. Negative Covenants..................................... 24
(a) Leverage Ratio......................................... 24
(b) Consolidated Tangible Net Worth of Borrower............ 24
(c) Consolidated Tangible Net Worth of Southwest........... 25
(d) Consolidated Net Profit................................ 25
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(e) Consolidated Net Profit of Southwest................... 25
(f) EBITDA Coverage Ratio of Southwest..................... 25
(h) Liens Etc.............................................. 25
(i) Debt................................................... 25
(j) Consolidation, Merger or Dissolution................... 26
(k) Loans, Investments, Secondary Liabilities.............. 26
(l) Asset Sales............................................ 26
(m) Hostile Tender Offers.................................. 27
(n) Distributions.......................................... 27
(o) Transactions with Affiliates........................... 27
(p) Books and Records...................................... 27
(q) Restructure............................................ 27
ARTICLE VII EVENTS OF DEFAULT...................................... 27
SECTION 7.01. Events of Default...................................... 27
ARTICLE VIII MISCELLANEOUS.......................................... 31
SECTION 8.01. Amendments, Etc........................................ 31
SECTION 8.02. Notices, Etc........................................... 31
SECTION 8.03. Right of Setoff: Security Interest in Deposit Accounts 31
SECTION 8.04. No Waiver; Remedies.................................... 31
SECTION 8.05. Costs and Expenses..................................... 31
SECTION 8.06. Participations......................................... 32
SECTION 8.07. Effectiveness: Binding Effect.......................... 32
SECTION 8.08. Governing Law.......................................... 32
SECTION 8.09. Arbitration............................................ 32
SECTION 8.10. Waiver of Notices...................................... 34
SECTION 8.11. Entire Agreement....................................... 35
SECTION 8.12. Separability of Provisions............................. 35
SECTION 8.13. Execution in Counterparts.............................. 35
Schedules
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5.01(f) Litigation
5.01(i) Environmental Matters
6.02(h) Liens
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PAGE(S)
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Exhibits
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A - Form of Revolving Note
B - Form of Legal Opinion
iv
CREDIT AGREEMENT
This Credit Agreement dated as of December 23, 1997 is entered into between
SUBURBAN WATER SYSTEMS, a California corporation (the "Borrower") and MELLON
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BANK, N.A. (the "Bank"). The Borrower and the Bank agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
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terms have the following meanings:
"Agreement": This Credit Agreement, as amended, supplemented or modified
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from time to time.
"Bank": As set forth in the introductory paragraph of this Agreement.
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"Bondable Capacity": Has the meaning as set forth in Section 4.02(A) of
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that certain Indenture of Mortgage and Deed of Trust dated October 1, 1986,
executed by Suburban Water Systems to First Trust of California, National
Association, as Trustee, as amended by First Supplemental Indenture of Mortgage
dated February 7, 1990, Second Amendment and Supplement to Indenture of Mortgage
dated January 24, 1992 and Third Amendment and Supplement to Indentured Mortgage
dated October 9, 1996.
"Borrower": As set forth in the introductory paragraph of this Agreement.
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"Borrowing": As defined in Section 2.01.
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"Business Day": Any day on which the Bank is open for business at the
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location where the Revolving Note is payable unless otherwise stated.
"Capital Leases": As applied to any Person, any lease of any property
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(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"Change of Control": Shall be deemed to have occurred at such times as:
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(a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Act of 1934), becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of
more than thirty percent (30%) of the total voting power of all classes of stock
then outstanding of Borrower normally entitled to vote in the election of
directors; or (b) Southwest shall fail to own directly one hundred percent
(100%) of the issued and outstanding common stock of Borrower, NMUI or ECO or
shall lose voting control of Borrower's, NMUI's or ECO's issued and outstanding
common stock. A
1
change of control shall not include a transfer of NMUI's operating assets
through a condemnation or sale in lieu of condemnation.
"Commitment": The Bank's obligation to make Loans to the Borrower pursuant
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to Article II in the amount or amounts referred to therein.
"Consolidated EBITDA of Southwest" means, for any period of Southwest and
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its Subsidiaries on a consolidated basis, Consolidated Net Income of Southwest
for such period, plus interest expense (net of capitalized interest expense) and
provision for income taxes for such period, plus depreciation and amortization
for such period.
"Consolidated Liabilities of Southwest": At any date of determination, the
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total liabilities of Southwest and its Subsidiaries on a consolidated basis
determined in accordance with GAAP (including, without limitation, (1) any
balance sheet liability with respect to a Pension Plan recognized pursuant to
Financial Accounting Standards Board Statements 87 or 88 and (2) any withdrawal
liability under Section 4201 of ERISA with respect to a withdrawal from a
Multiemployer Plan, as such liability may be set forth in a notice of withdrawal
liability under Section 4219 (and as adjusted from time to time subsequent to
the date of such notice) less (1) deferred taxes, (2) contributions in aid of
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construction ("CIAC"), (3) unamortized investment tax credits, (4) deferred
revenue on CIAC, and (5) deposits for CIAC for capital improvement projects.
"Consolidated Net Income of Southwest" means, in respect of any period of
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Southwest and its Subsidiaries, the consolidated net income after taxes of
Southwest and its Subsidiaries as such would appear on the consolidated
statement of earnings of Southwest and its Subsidiaries prepared in accordance
with GAAP, consistently applied, minus nonrecurring or extraordinary income.
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"Consolidated Tangible Net Worth of Borrower": At any date of
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determination, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of the Borrower and its
consolidated Subsidiaries minus (i) treasury stock, (ii) intangible assets
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(including, without limitation, franchises, patents, patent applications,
trademarks, brand names, goodwill, purchased contracts, water rights and
deferred charges (including unamortized debt discount and expense and
organization costs) and research and development expenses) and (iii)
receivables, advances, loans and all other amounts due from employees, officers,
shareholders and/or affiliates (excluding Southwest), on a consolidated basis
determined in conformity with GAAP.
"Consolidated Tangible Net Worth of Southwest": At any date of
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determination, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of Southwest and its
consolidated Subsidiaries minus (i) treasury stock, (ii) intangible assets
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(including, without limitation, franchises, patents, patent applications,
trademarks, brand names, goodwill, purchased contracts, water rights and
deferred charges (including unamortized debt discount and expense and
organization costs) and research and development expenses) and (iii)
receivables, advances, loans and all other
2
amounts due from employees, officers, shareholders and/or affiliates (excluding
Southwest's wholly-owned Subsidiaries), on a consolidated basis determined in
conformity with GAAP.
"Debt": As applied to any Person, (i) all indebtedness for borrowed money,
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(ii) that portion of obligations with respect to Capital Leases which is
properly classified as a liability on a balance sheet in conformity with GAAP,
(iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
which purchase price is (y) due more than six months from the date of incurrence
of the obligation in respect thereof, or (z) evidenced by a note or similar
written instrument; (v) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to the
credit of that person; (vi) reimbursement obligations under letters of credit;
and (vii) other contingent liabilities.
"Distribution": With respect to any Person shall mean that such Person has
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paid any dividend or returned any capital to, its stockholders or equity holders
as such or authorized or made any other distribution, payment or delivery of
property or cash to its stockholders or equity holders as such, or redeemed,
retired, purchased, or otherwise acquired, directly or indirectly, for
consideration, any shares of any class of its capital stock or equity interests
(or any options, warrants or rights issued by such Person with respect to its
capital stock or equity interests), or set aside any funds for any of the
foregoing purposes, or shall have permitted any of its Subsidiaries to purchase
or otherwise acquire for a consideration any shares of any class of the capital
stock or any equity interests of such Person (or any options, warrants or rights
issued by such Person with respect to its capital stock or equity interests).
Without limiting the foregoing, "Distributions" with respect to any Person shall
also include all payments made or required to be made by such Person with
respect to any stock appreciation rights plans, equity incentive or the setting
aside of any funds for the foregoing purposes.
"Dollars and $": Dollars in lawful currency of the United States of
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America.
"EBITDA Coverage Ratio of Southwest " means, for any period of Southwest
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and its Subsidiaries on a consolidated basis, Consolidated EBITDA divided by the
sum of the total interest expense plus current portion of long-term Debt plus
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current portion of advances for construction plus Distributions.
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"ECO": ECO Resources, Inc., a Texas corporation.
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"Employee Benefit Plan": Any Pension Plan, any employee welfare benefit
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plan, or any other employee benefit plan which is described in Section 3(3) of
ERISA and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended
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to the date hereof and from time to time hereafter.
3
"ERISA Affiliate": As applied to any Person, any trade or business
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(whether or not incorporated) which is a member of a group of which that Person
is a member and which is under common control within the meaning of Section
414(b) and (c) of the Internal Revenue Code.
"Funded Debt of Borrower" means, without duplication, all with respect to
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Borrower and its Subsidiaries on a consolidated basis, all Debt for borrowed
money, including without limitation: (i) Debt evidenced by Borrower's mortgage
bonds; (ii) unsecured Debt; (iii) all amounts owing under the Loan Documents;
and (iv) all amounts owing to Xxxxx Fargo (including, without limitation,
unsecured Debt to Xxxxx Fargo as permitted hereunder).
"GAAP": Generally accepted accounting principles set forth in the opinions
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and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession
or any public commission having regulatory responsibility over the Borrower or
any Subsidiary.
"Interest Rate Options": Has the meaning set forth in Section 2.03(b)
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hereof.
"Internal Revenue Code": The Internal Revenue Code of 1986, as amended to
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the date hereof and from time to time hereafter and any successor statute.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
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charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Libor Rate": For any day for any proposed or existing Rate Segment
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corresponding to a Rate Period shall mean the rate per annum determined by Bank
to be the rate per annum obtained by dividing (the resulting quotient to be
rounded upward to the nearest 1/16 of 1%) (A) the rate of interest (which shall
be the same for each day in such Rate Period) estimated in good faith by Bank in
accordance with its usual procedures (which determination shall be conclusive)
to be the average of the rates per annum for deposits in United States dollars
offered to major money center banks in the London interbank market at
approximately 11:00 a.m., London time, two London Business Days prior to the
first day of such Rate Period for delivery on the first day of such Rate Period
in amounts comparable to such Rate Segment (or, if there are no such comparable
amounts actively traded, the smallest amounts actively traded) and have
maturities comparable to such Rate Period by (B) a number equal to 1.00 minus
the Libor Rate Reserve Percentage for such day.
4
The "Libor Rate" may also be expressed by the following formula:
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[average of rates offered to major]
[money banks in the London inter-]
Libor Rate = [bank market estimated by the Bank]
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[1.00 - Libor Rate Reserve Percentage]
"Libor Rate Reserve Percentage": For any day shall mean the percentage
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(rounded upward to the nearest 1/16 of 1%), as determined in good faith by Bank
(which determination shall be conclusive) as representing for such day the
maximum effective reserve requirement (including, without limitation,
supplemental, marginal and emergency requirements ) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "Eurocurrency Liabilities") of any maturity. Each Libor Rate shall be
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adjusted automatically as of the effective date of any change in the Libor Rate
Reserve Percentage.
"Loans": Loans made to the Borrower pursuant to Section 2.01.
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"Loan Documents": This Agreement, the Revolving Note and each agreement,
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document, instrument and guarantee required by the Bank in connection with this
Agreement and/or the credit extended hereunder.
"London Business Day": A day for dealing in deposits in United States
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dollars by and among banks in the London interbank market.
"Maturity Date": July 1, 1999.
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"Multiemployer Plan": A "multiemployer plan" as defined in Section
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4001(a)(3) of ERISA which is maintained for employees of the Borrower or any
ERISA Affiliate of the Borrower.
"NAIC" means National Association of Insurance Companies.
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"NMUI": New Mexico Utilities, Inc., a New Mexico corporation.
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"Pension Plan": Any employee plan which is subject to Section 412 of the
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Internal Revenue Code and which is maintained for employees of the Borrower or
any ERISA Affiliate of the Borrower, other than a Multiemployer Plan.
"Person": An individual, partnership, corporation, limited liability
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company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Portion": "Prime Rate Portion" shall mean at any time the part, including
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the whole, of the unpaid principal amount of the Revolving Note bearing interest
at such time under the Prime Rate Option, in accordance with the first sentence
of Section 2.03(d) hereof,
5
or in accordance with Section 2.03(f) hereof. "Libor Rate Portion" shall mean
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at any time, the part, including the whole, of the unpaid principal
amount of the Revolving Note bearing interest at such time under the Libor Rate
Option or in accordance with the second sentence of Section 2.03(d) hereof.
"Potential Event of Default": A condition or event which, after notice or
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lapse of time or both, would constitute an Event of Default if that condition or
event were not cured or removed within any applicable grace or cure period.
"Prime Rate": The interest rate per annum announced from time to time by
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Bank as its Prime Rate. The Prime Rate may be greater or less than other
interest rates charged by Bank to other borrowers and is not solely based or
dependent upon the interest rate which Bank may charge any particular borrower
or class of borrowers. Information concerning the Prime Rate may be obtained
from the Bank.
"Rate Period": As defined in Section 2.03(c).
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"Rate Segment": Of the Libor Rate Portion at any time shall mean the
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entire principal amount of such Portion to which at such time there is
applicable a particular Rate Period beginning on a particular day and ending on
another particular day. (By definition, each Portion is at all times composed
of an integral number of discrete Rate Segments, each corresponding to a
particular Rate Period, and the sum of the principal amounts of all Rate
Segments of a particular Portion at any time equals the principal amount of such
Portion at such time).
"Regulation G, T, U and X": Regulations G, T, U and X, respectively,
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promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"Revolving Commitment": The amount of $4,000,000 as such amount may be
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reduced pursuant to Section 2.01(c).
"Revolving Loans": As defined in Section 2.01(a).
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"Revolving Note": As defined in Section 2.01(d).
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"S.E.C.": The United States Securities and Exchange Commission and any
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successor institution or body which performs the functions or substantially all
of the functions thereof.
"Solvent": When used with respect to any Person that as of the date as to
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which the Person's solvency is to be measured:
6
(i) the fair saleable value of its assets is in excess of the total amount
of its liabilities (including contingent liabilities) as they become
absolute and matured;
(ii) it has sufficient capital to conduct its business; and
(iii) it is able to meet its debts as they mature.
"Southwest": means Southwest Water Company, a Delaware corporation and the
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parent company of Borrower.
"Southwest Loan Documents" means that Amended and Restated Credit Agreement
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dated as of the date hereof between the Bank and Southwest, and each agreement,
document, instrument and guarantee required by the Bank in connection with such
Amended and Restated Credit Agreement and/or the credit extended thereunder.
"Standard Notice": An irrevocable notice provided to the Bank on a
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Business Day which is:
(i) at least one Business Day in advance in the case of selection of,
conversion to or renewal of the Prime Rate Option or prepayment of any
Prime Rate Portion; and
(ii) at least three London Business Days in advance in the case of
selection of, conversion to or renewal of the Libor Rate Option or
prepayment of any Libor Rate Portion.
Standard Notice must be provided no later than 12:00 p.m., Los Angeles time, on
the last day permitted for such notice.
"Subsidiary": A corporation of which shares of stock having ordinary
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voting power (other than stock having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation are at the time owned, directly, or indirectly
through one or more intermediaries, or both, by the Borrower.
"Termination Event": (i) a "Reportable Event" described in Section 4043 of
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ERISA and the regulations issued thereunder (other than a "Reportable Event" not
subject to the provision for 30-day notice to the Pension Benefit Guaranty
Corporation under such regulations) with respect to any Pension Plan, or (ii)
the withdrawal of the Borrower or any of its ERISA Affiliates from a Pension
Plan during a plan year in which it was a "substantial employer" as defined in
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Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to
terminate a Pension Plan or the treatment of a Pension Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Pension Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (v) any other
7
event or condition which might constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
under Section 4042 of ERISA, or (vi) the imposition of a lien with respect to
any Pension Plan pursuant to Section 412(n) of the Internal Revenue Code.
"Xxxxx Fargo" means Xxxxx Fargo Bank, National Association.
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SECTION 1.02. Other Definitional Provisions.
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(a) All terms defined in this Agreement shall have the defined meanings
when used in the Revolving Note or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Revolving Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
subsection 1.01, and accounting terms partly defined in subsection 1.01 to the
extent not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) So long as the Borrower does not have any Subsidiaries, references to
a Subsidiary or Subsidiaries in this Agreement shall be deemed to be deleted.
ARTICLE II
THE CREDIT
SECTION 2.01. The Revolving Loans.
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(a) The Revolving Commitment. The Bank agrees, on the terms and conditions
------------------------
hereinafter set forth, to make loans ("Revolving Loans") to the Borrower from
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time to time during the period from the date hereof to and including the
Maturity Date in an aggregate amount not to exceed the Revolving Commitment, as
such amount may be reduced pursuant to Section 2.01(c). Each borrowing under
this Section (a "Borrowing") shall be in a minimum amount of $1.00; provided
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that every selection of, conversion to or renewal of the Libor Rate Option shall
be in a minimum principal amount of $250,000 or an integral multiple of $50,000
above such amount. Within the limits of the Revolving Commitment and prior to
the Maturity Date, the Borrower may borrow, repay pursuant to Section 2.02(b)
and reborrow under this Section.
(b) Making the Revolving Loans. The Borrower may borrow under the
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Revolving Commitment on any Business Day, provided that the Borrower shall give
the Bank
8
Standard Notice specifying (i) the amount of the proposed Borrowing and (ii) the
requested date of the Borrowing. Upon satisfaction of the applicable conditions
set forth in Article IV, the proceeds of all such Loans will then be made
available to the Borrower by the Bank by crediting the account of the Borrower
on the books of the Bank, or as otherwise directed by the Borrower.
The Standard Notice may be given in writing (including facsimile
transmission) signed by the President, Vice President, Chief Financial Officer,
Secretary or Treasurer of Borrower or orally by one of the aforementioned
persons, but if the Standard Notice is provided orally, Borrower shall same day
confirm the oral Standard Notice in writing (including facsimile transmission)
no later than 2:00 p.m., Los Angeles time, and any conflict regarding a written
or oral notice and the Bank's books and records applicable to the same Borrowing
shall be conclusively determined by the Bank's books and records. The Bank shall
not incur any liability to the Borrower in acting upon any oral or written
notice of Borrowing which the Bank believes in good faith to have been given by
a Person duly authorized to borrow on behalf of the Borrower.
(c) Reduction of the Revolving Commitment. The Borrower shall have the
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right, upon at least two Business Days' notice to the Bank, to terminate in
whole or reduce in part the unused portion of the Revolving Commitment, without
premium or penalty, provided that each partial reduction shall be in the
aggregate amount of $100,000 or an integral multiple thereof and that such
reduction shall not reduce the Revolving Commitment to an amount less than the
amount outstanding hereunder on the effective date of the reduction. Such
notice shall be irrevocable and such reduction shall not be reinstated.
(d) Revolving Note. The Loans made by the Bank pursuant hereto shall be
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evidenced by an a promissory note of the Borrower, substantially in the form of
Exhibit A, with any appropriate insertions (the "Revolving Note"), payable to
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the order of the Bank and representing the obligation of the Borrower to pay the
aggregate unpaid principal amount of all Revolving Loans made by the Bank, with
interest thereon as prescribed in Section 2.03. The Bank is hereby authorized to
record in its books and records and on any schedule annexed to the Revolving
Note, the date and amount of each Revolving Loan made by the Bank, and the date
and amount of each payment of principal thereof, and in the case of Libor Rate
Option Loans, the Libor Rate, the Libor Rate Portion, and the Rate Period with
respect thereto, and any such recordation shall constitute prima facie evidence
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of the accuracy of the information so recorded; provided that failure by the
Bank to effect such recordation shall not affect the Borrower's obligations
hereunder. Prior to the transfer of a Revolving Note, the Bank shall record
such information on any schedule annexed to and forming a part of such Revolving
Note.
SECTION 2.02. Repayment.
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(a) Mandatory Repayments. The aggregate principal amount of the Revolving
--------------------
Loans outstanding on the Maturity Date, together with accrued interest thereon,
shall be due and payable in full on the Maturity Date. If at any time the
aggregate outstanding
9
Borrowings exceed the Revolving Commitment then in effect, the Borrower shall
immediately repay the excess to the Bank without penalty or premium.
(b) Optional Prepayment. Borrower shall have the right at its option from
-------------------
time to time to prepay the Prime Rate Portion in whole or in part without
penalty or premium. Borrower shall have no right to prepay any part of the
Libor Rate Portion at any time without the prior written consent of Bank except
that Borrower may prepay any part of any Rate Segment at the expiration of the
Rate Period corresponding to such Rate Segment. Prepayments shall be made by
giving the Bank Standard Notice thereof (which shall be irrevocable), specifying
the date, and amount and type of prepayment, and upon such date the amount so
specified, accrued interest thereon, and any amounts payable under Section
3.06(b) hereof shall be due and payable.
SECTION 2.03. Interest Rate and Payment Dates.
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(a) Payment. The principal balance of the Revolving Note shall be paid in
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accordance with the terms set forth in the Revolving Note. Accrued interest on
the Prime Rate Portion shall be due and payable on the last day of each month
commencing on December 31, 1997. Interest on each Rate Segment of the Libor
Rate Portion which has a Rate Period equal to or less than three months shall be
due and payable on the last day of the corresponding Rate Period. Interest on
each Rate Segment of the Libor Rate Portion which has a Rate Period greater than
three months shall be due and payable on the third and sixth month anniversary
date of the first day of the corresponding Rate Period, if any, and on the last
day of the corresponding Rate Period. After maturity of any part of the
Revolving Note (by acceleration or otherwise), interest on such part of the
Revolving Note shall be due and payable ON DEMAND.
(b) Interest Rate. The unpaid principal amount of the Revolving Note shall
-------------
bear interest for each day until due on one or more bases selected by Borrower
from among the interest rate options (the "Interest Rate Options") set forth
---------------------
below. Borrower understands and agrees: (i) that Bank may in its sole
discretion from time to time determine that the right of Borrower to select,
convert to or renew the Prime Rate Option or the Libor Rate Option is not
available and (ii) that subject to the provisions hereof Borrower may select any
number of Options to apply simultaneously to different parts of the unpaid
principal amount of the Revolving Note and may select any number of Rate
Segments to apply simultaneously to different parts of the Libor Rate Portion.
Available Interest Rate Options
-------------------------------
Prime Rate Option: A rate per annum for each day equal to the Prime Rate.
-----------------
Libor Rate Option: A rate per annum for each day equal to the Libor Rate for
-----------------
such day plus one and one-half (1.5) percentage points.
10
(c) Rate Periods. At any time when Borrower selects, converts to or renews
------------
the Libor Rate Option, Borrower shall fix a period (the "Rate Period") which
-----------
shall be one, two, three or six months, which shall be acceptable to Bank in
Bank's sole discretion, during which the Libor Rate Option shall apply to the
corresponding Rate Segment; provided, that Borrower may not elect a Rate Period
--------
which will end after the Maturity Date. Bank's right to payment of principal
and interest under the Revolving Note shall in no way be affected by the fact
that one or more Rate Periods may be in effect.
Interest Rate Options shall be selected in a manner which shall ensure that
Borrower shall be able to make scheduled payments of principal under the
Revolving Note without incurring liability under Section 3.06(b) below;
provided, however, that in the event that Borrower prepays any Rate Segment
-------- -------
bearing interest under the Libor Rate Portion in order to make a scheduled
payment of principal under the Revolving Note, Borrower shall indemnify the Bank
as provided in Section 3.06(b) below.
(d) Interest After Event of Default or Maturity. After the occurrence of
-------------------------------------------
an Event of Default or the principal amount of any part of the Prime Rate
Portion shall have become due and payable, the outstanding principal amount of
such Prime Rate Portion shall bear interest for each day until paid (before and
after judgment) at a rate per annum (based on a year of 360 days and actual days
elapsed) which for each day shall be the greater of (a) two (2) percentage
points above the Prime Rate Option on the day such Event of Default or such
amount become due, and (b) two (2) percentage points above the Prime Rate
Option, such interest rate to change automatically from time to time effective
as of the effective date of each change in the Prime Rate. After the occurrence
of an Event of Default or the principal amount of any part of the Libor Rate
Portion shall have become due and payable, the outstanding principal amount of
such Libor Rate Portion amount shall bear interest for each day until paid
(before and after judgment) (a) until the end of the applicable then current
Rate Period at a rate per annum (based on a year of 360 days and actual days
elapsed) two (2) percentage points above the Libor Rate Option otherwise
applicable to such part, and (b) thereafter in accordance with the previous
sentence.
(e) Selection, Conversion or Renewal of Rate Options. Subject to the other
------------------------------------------------
provisions hereof, Borrower may select any Interest Rate Option to apply to the
borrowings evidenced by the Revolving Note. Subject to the other provisions
hereof, Borrower may convert any part of the unpaid principal amount of the
Revolving Note from either Interest Rate Option to the other Interest Rate
Option: (a) at any time with respect to the conversion from the Prime Rate
Option to the Libor Rate Option and (b) at the expiration of any Rate Period
with respect to conversion from or renewals of the Libor Rate Option as to the
Rate Segment corresponding to such expiring Rate Period. Whenever Borrower
desires to select, convert or renew the Libor Rate Option, Borrower shall give
Bank Standard Notice thereof (which shall be irrevocable), specifying the date,
amount and type of the proposed new Rate Option. If such notice has been duly
given, and if Bank in its sole discretion approves the proposed selection,
conversion or renewal, on and after the date specified in such notice, interest
shall be calculated upon the unpaid principal amount of the Revolving Note
taking into account such selection, conversion or renewal.
11
(f) Prime Rate Fallback. If any Rate Period expires, any part of the Rate
-------------------
Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with Section 2.03(e) hereof automatically shall be
converted to the Prime Rate Option. If Borrower fails to select, or if Bank
fails to approve an Interest Rate Option to apply to the borrowings evidenced by
the Revolving Note, such borrowings shall be deemed to be at the Prime Rate
Option. If at any time the Bank shall have determined in good faith (which
determination shall be conclusive) that the accrual of interest at the Libor
Rate Option has been made unascertainable, impractical or unlawful by compliance
by the Bank in good faith with any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any government or political subdivision or any agency, authority,
bureau, central bank, commission, department or instrumentality of either, or
any court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic, or administration thereof by any official body charged with the
interpretation or administration thereof or with any request or directive of any
such authority, the outstanding principal amount of the Revolving Note subject
to the Libor Rate Option shall accrue interest at the Prime Rate Option and the
Borrower shall not have the right to select the Libor Rate Option.
SECTION 2.04. Commitment Fee. Borrower shall pay to Bank a fee for the
--------------
Revolving Commitment equal to one-half of one percent (0.5%) per annum of the
daily unused balance of the Revolving Commitment, calculated on a calendar
quarter basis, which fee shall be due and payable by Borrower to Bank, or
debited to Borrower's account with Bank, if so maintained, not later than ten
(10) days after billing is sent by Bank.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
SECTION 3.01. Use of Proceeds. The proceeds of the Loans hereunder shall
---------------
be used by the Borrower (i) for general corporate purposes and working capital
of the Borrower, and (ii) to finance capital additions to the water utility and
other operations of the Borrower. Subject to the terms of Section 6.02(h)(iv)
hereof, Borrower may also lend proceeds of the Loans to Southwest for (i)
general corporate purposes and working capital of Southwest and (ii) to finance
capital addition to the water utility and other operations of Southwest and
Southwest's wholly-owned Subsidiaries.
SECTION 3.02. Computation of Interest and Fees.
--------------------------------
(a) Calculations. Interest in respect of the Prime Rate Option Loans shall
------------
be calculated on the basis of a 360 day year for the actual days elapsed. Any
change in the interest rate on a Prime Rate Loan resulting from a change in the
Prime Rate shall become effective as of the opening of business on the day on
which such change in the Prime Rate shall become effective. Interest in respect
of the Libor Rate Option Loans, and any fees payable hereunder, shall be
calculated on the basis of a 360 day year for the actual days elapsed.
12
(b) Determination by Bank. Each determination of an interest rate or fee
---------------------
by the Bank pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower in the absence of manifest error.
SECTION 3.03. Payments. The Borrower shall make each payment of
--------
principal, interest and fees hereunder and under the Revolving Note, without
setoff or counterclaim, not later than 12:00 p.m. (Los Angeles time) on the day
when due in lawful money of the United States of America to the Bank at the
office of the Bank designated in writing in immediately available funds.
SECTION 3.04. Payment on Non-Business Days. Whenever any payment to be
----------------------------
made hereunder or under the Revolving Note shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
SECTION 3.05. Reduced Return. If the Bank shall have determined that any
--------------
applicable law, regulation, rule or regulatory requirement generally applicable
to banks located in California (collectively in this Section 3.05 "Requirement")
-----------
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any United States federal or state
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Bank's capital as a
consequence of its Commitment and obligations hereunder to a level below that
which would have been achieved but for such Requirement, change or compliance
(taking into consideration the Bank's policies with respect to capital adequacy)
by an amount deemed by the Bank to be material (which amount shall be determined
by the Bank's reasonable allocation of the aggregate of such reductions
resulting from such events), then from time to time, within five (5) Business
Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction. The
Bank does not presently have knowledge of any new Requirement or any pending
change in any existing Requirement which would result in such additional amounts
being owed.
SECTION 3.06. Indemnities and Losses.
----------------------
(a) Indemnities. Whether or not the transactions contemplated hereby shall
-----------
be consummated, the Borrower agrees to indemnify, pay and hold the Bank, and the
shareholders, officers, directors, employees and agents of the Bank
("Indemnified Person"), harmless from and against any and all claims,
---------------------
liabilities, losses, damages, costs and expenses (whether or not any of the
foregoing Indemnified Persons is a party to any litigation), including, without
limitation, reasonable attorneys' fees and costs (including, without limitation,
the reasonable estimate of the allocated cost of in-house legal counsel and
staff) and costs of investigation, document production, attendance at a
deposition, or other discovery,
13
prior to the assumption of defense by the Borrower, with respect to or arising
out of any proposed acquisition by the Borrower or any of its Subsidiaries of
any Person or any securities (including a self-tender), this Agreement or any
use of proceeds hereunder, or any claim, demand, action or cause of action being
asserted against the Borrower or any of its Subsidiaries (collectively, the
"Indemnified Liabilities"), provided that the Borrower shall have no obligation
-----------------------
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of any such Indemnified Persons. If any claim
is made, or any action, suit or proceeding is brought, against any Indemnified
Person pursuant to this Section, the Indemnified Person shall notify the
Borrower within thirty (30) days of the Bank being notified in writing of any
such claim or the commencement of such action, suit or proceeding, and the
Borrower will assume the defense of such action, suit or proceeding, employing
counsel selected by Borrower's insurance carrier, or selected by the Borrower
and reasonably satisfactory to the Indemnified Person, and pay the fees and
expenses of such counsel. This covenant shall survive termination of this
Agreement and payment of the outstanding Revolving Note for a period of six (6)
years.
(b) Funding Losses. The Borrower agrees to indemnify the Bank and to hold
--------------
the Bank harmless from any loss or expense including, but not limited to, any
such loss or expense arising from interest or fees payable by the Bank to
lenders of funds obtained by it in order to maintain its Libor Rate Option Loans
hereunder, which the Bank may sustain or incur as a consequence of (i) payment,
prepayment or conversion of any part of any Rate Segment of the Libor Rate
Portion on a day other than the last day of the corresponding Rate Period
(whether or not any such payment is pursuant to demand by Bank under the
Revolving Note and whether or not any such payment, prepayment or conversion is
consented to by Bank, unless Bank shall have expressly waived such indemnity in
writing); (ii) default by the Borrower in making a conversion or continuation
after the Borrower has given a notice thereof, (iii) default by the Borrower in
making any payment after the Borrower has given a notice of payment, (iv)
attempt by Borrower to revoke in whole or part any irrevocable notice given
pursuant to Section 2.03(e) hereof; or (v) breach of or default by any obligor
in the performance or observance of any covenant or condition in the Revolving
Note, any separate security, guarantee or suretyship agreement between Bank and
any obligor, or any other document executed and delivered to Bank by any obligor
in connection with the indebtedness evidenced by the Revolving Note. If Bank
sustains any such loss or expense, it shall from time to time notify Borrower of
the amount determined in good faith by Bank (which determination shall be
conclusive) to be necessary to indemnify Bank for such loss or expense. Such
amount shall be due and payable by Borrower within five (5) Business Days after
demand. This covenant shall survive termination of this Agreement and payment of
the outstanding Revolving Note.
SECTION 3.07. Funding Sources. Nothing in this Agreement shall be deemed
---------------
to obligate the Bank to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by the Bank that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
14
SECTION 3.08. Requirements of Law. In the event that any law, regulation
-------------------
or directive generally applicable to banks located in California or any change
therein or in the interpretation or application thereof or compliance by the
Bank with any request or directive (whether or not having the force of law) from
any United States federal or state central bank or other governmental authority,
agency or instrumentality:
(a) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement
(collectively in this Section 3.08 "Requirements") against assets held by, or
------------
deposits or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
the Bank which are not otherwise included in the determination of any Libor Rate
at the last Borrowing, conversion or continuation date of a Loan;
(b) does or shall impose, modify or hold applicable any of the
Requirements against Commitments to extend credit;
(c) does or shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining its Revolving Commitment, or the Libor Rate
Option Loans or to reduce any amount receivable thereunder (which increase or
reduction shall be determined by the Bank's reasonable allocation of the
aggregate of such cost increases or reduced amounts receivable resulting from
such events), then, in any such case, the Borrower shall pay to the Bank, within
five (5) Business Days of its demand, any additional amounts necessary to
compensate the Bank for such additional cost or reduced amount receivable as
determined by the Bank with respect to Sections 3.05 and 3.08 of this Agreement.
If the Bank becomes entitled to claim any additional amounts pursuant to this
Section, it shall notify the Borrower of the event by reason of which it has
become so entitled. Such notice shall contain a statement incorporating the
calculation as to any additional amounts payable pursuant to the foregoing
sentence, and such statement submitted by the Bank to the Borrower shall be
conclusive in the absence of manifest error. The Bank does not presently have
knowledge of any new Requirement or any pending change in any existing
Requirement which would result in such additional amounts being owed. To the
extent that the Bank recovers under either Section 3.05 or Section 3.08 of this
Agreement, the Bank shall not be entitled to duplicative recovery under the
other of Sections 3.05 or 3.08.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. Conditions Precedent to Initial Loans. The obligation of
-------------------------------------
the Bank to make its initial Loan is subject to the conditions precedent that:
15
(a) The Bank shall have received on or before the day of the initial
Borrowing the following, each dated prior to or as of such day, in form and
substance satisfactory to the Bank:
(i) The Revolving Note issued by the Borrower to the order of the
Bank;
(ii) Copies of the Articles, Certificate of Incorporation,
partnership agreement or other organizational document of the Borrower,
certified as of a recent date by the Secretary of State of its state of
formation or incorporation;
(iii) Copies of the Bylaws, if any, of the Borrower, certified by the
Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, in form and substance satisfactory to the
Bank, approving the Loan Documents and the Borrowings hereunder;
(v) An incumbency certificate executed by the Secretary or an
Assistant Secretary of the Borrower or equivalent document, certifying the names
and signatures of the officers of the Borrower or other Persons authorized to
sign the Loan Documents and the other documents to be delivered hereunder;
(vi) a Guaranty executed by Southwest in form and substance
satisfactory to Bank;
(vii) Executed copies of all Loan Documents;
(viii) Opinion from Borrower's counsel substantially in the form of
Exhibit B hereto;
(b) The Bank shall have completed its due diligence review of the Borrower,
and the scope and results thereof shall be satisfactory to Bank in its
discretion;
(c) All information previously furnished by Borrower to Bank shall be true
and correct in all material respects;
(d) All fees required to be paid at closing shall have been paid;
(e) All corporate and legal proceedings and all instruments and documents
in connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in content, form and substance to the Bank and its
counsel, and the Bank and such counsel shall have received any and all further
information and documents which the Bank or such counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities; and
16
(f) Nothing shall have occurred and the Bank shall not have become aware of
any fact or condition not previously known, which the Bank shall determine has,
or could reasonably be expected to have, a material adverse effect on the rights
or remedies of the Bank, or on the ability of the Borrower to perform its
obligations to the Bank or which has, or could reasonably be expected to have, a
materially adverse effect on the performance, business, property, assets,
condition (financial or otherwise) or prospects of Borrower and its Subsidiaries
taken as a whole.
SECTION 4.02. Conditions Precedent to Each Borrowing. The obligation of
--------------------------------------
the Bank to make a Loan on the occasion of each Borrowing (including the initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing (a) the following statements shall be true and the Bank shall
have received the notice required by Section 2.01(b), which notice shall be
deemed to be a certification by the Borrower that:
(i) The representations and warranties contained in Section 5.01 are
correct on and as of the date of such Borrowing as though made on and
as of such date,
(ii) No event has occurred and is continuing, or would result from such
Borrowing, which constitutes an Event of Default or Potential Event of
Default;
(iii) Southwest and its Subsidiaries are in compliance with all financial
covenants under the Southwest Loan Documents; and
(iv) Nothing shall have occurred and the Bank shall not have become aware
of any fact or condition not previously known, which the Bank shall
determine has, or could reasonably be expected to have, a material
adverse effect on the rights or remedies of the Bank, or on the
ability of the Borrower to perform its obligations to the Bank or
which has, or could reasonably be expected to have, a materially
adverse effect on the performance, business, property, assets,
condition (financial or otherwise) or prospects of Borrower and its
Subsidiaries taken as a whole; and
(v) All Loan Documents are in full force and effect,
and (b) the Bank shall have received such other approvals, opinions or documents
as the Bank may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
17
SECTION 5.01. Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows:
(a) Organization. The Borrower and each of its Subsidiaries is duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation. The Borrower and each of its Subsidiaries is also duly
authorized, qualified and licensed in all applicable jurisdictions, and under
all applicable laws, regulations, ordinances or orders of public authorities, to
carry on its business in the locations and in the manner presently conducted.
(b) Authorization; No Conflict. The execution, delivery and
--------------------------
performance by the Borrower of the Loan Documents, and the making of Borrowings
hereunder, are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, do not contravene (i) the Borrower's charter,
by-laws or other organizational document or (ii) any law or regulation
(including, without limitation, Regulations G, T, U and X and regulations of
public utility commissions or similar regulatory authorities) binding on or
affecting the Borrower or its properties, and will not constitute an event of
default under any material agreement to which Borrower is a party or by which
its assets or properties may be bound.
(c) Governmental Consents. No authorization or approval or other action
---------------------
by, and no notice to or filing with, any governmental authority or regulatory
body (except routine reports required pursuant to the Securities Exchange Act of
1934, as amended (if such act is applicable to the Borrower), which reports will
be made in the ordinary course of business) is required for the due execution,
delivery and performance by the Borrower of the Loan Documents.
(d) Validity. The Loan Documents are the binding obligations of the
--------
Borrower or other executing Person, if any, enforceable in accordance with their
respective terms; except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
(e) Financial Condition. The balance sheets of the Borrower and its
-------------------
consolidated Subsidiaries as at September 30, 1997,and the related consolidated
statements of income and changes in common stockholders' equity of the Borrower
and its consolidated Subsidiaries for the fiscal nine months then ended, copies
of which have been furnished to the Bank, fairly present the financial condition
of the Borrower and its consolidated Subsidiaries as at such date and the
results of the operations of the Borrower and its consolidated Subsidiaries for
the period ended on such date, all in accordance with GAAP, consistently
applied, and since September 30, 1997 there has been no material adverse change
in the business, operations, properties, assets or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole.
18
(f) Litigation. Except as set forth in the Form 10-Q of Southwest dated
----------
September 30, 1997, and on Schedule 5.01(f) hereto, there is no known pending or
threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the consolidated financial condition or operations
of the Borrower or which may have a material adverse effect on the Borrower's
ability to perform its obligations under the Loan Documents, having regard for
its other financial obligations.
(g) Employee Benefit Plans. The Borrower and each of its ERISA
----------------------
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to all Employee Benefit Plans. No Termination Event has occurred
with respect to any Pension Plan. The excess of the actuarial present value of
all benefit liabilities under all Pension Plans (excluding in such computation
Pension Plans with assets greater than benefit liabilities) over the fair market
value of the assets allocable to such benefit liabilities are not greater than
five percent (5%) of Consolidated Tangible Net Worth. For purposes of the
preceding sentence, the term "benefit liabilities" shall have the meaning
specified in Section 4001 of ERISA.
(h) Disclosure. No representation or warranty of the Borrower contained
----------
in this Agreement or any other document, certificate or written statement
furnished to the Bank by or on behalf of the Borrower for use in connection with
the transactions contemplated by this Agreement contains any known untrue
statement of a material fact or omits to state a known material fact (known to
the Borrower in the case of any document not furnished by it) necessary in order
to make the statements contained herein or therein not misleading. There is no
fact known to the Borrower (other than matters of a general economic nature)
which materially adversely affects the business, operations, property, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, which has not been disclosed herein or in such other documents,
certificates and statements furnished to the Bank for use in connection with the
transactions contemplated hereby.
(i) Environmental Matters. Except as set forth in Schedule 5.01(i)
--------------------- ----------------
hereto, neither the Borrower nor any Subsidiary, nor any of their respective
officers, employees, representatives or agents, nor, to the best of their
knowledge, any other person, has treated, stored, processed, discharged,
spilled, or otherwise disposed of any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any other
facility owned, leased or used by the Borrower or any Subsidiary, in violation
of any applicable statutes, regulations, ordinances or directives of any
governmental authority or court, which violations may result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $500,000 for all
such violations; and the unresolved violations set forth in said Schedule
5.01(i) will not result in liability to the Borrower or any Subsidiary or any of
their respective officers, employees, representatives, agents or shareholders in
an amount exceeding $500, 000 for all such unresolved violations. Except as set
forth in said Schedule, no employee or other person has made a claim or demand
against the Borrower or any Subsidiary based on alleged damage to
19
health caused by any such hazardous or toxic substance or by any waste or by-
product thereof; and the unsatisfied claims or demands against the Borrower or
any Subsidiary set forth in said Schedule 5.01(i) will not result in uninsured
liability to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$250,000 in excess of reserves on the books of the Borrower for all such
unsatisfied claims or demands. Except as set forth in said Schedule 5.01(i),
neither the Borrower nor any Subsidiary has been charged by any governmental
authority with improperly using, handling, storing, discharging or disposing of
any such hazardous or toxic substance or waste or by-product thereof or with
causing or permitting any pollution of any body of water; and the outstanding
related charges set forth in said Schedule 5.01(i) will not result in liability
to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$500,000 for all such outstanding charges.
(j) Employee Matters. There is no known strike or work stoppage in
----------------
existence or threatened involving the Borrower or its Subsidiaries that may
materially adversely affect the consolidated financial condition or operations
of the Borrower or that may have a material adverse effect on the Borrower's
ability to perform its obligations under the Loan Documents, having regard for
its other financial obligations.
(k) Solvency. Borrower and each of its Subsidiaries is Solvent.
--------
(l) Title to Properties. Borrower and each of its Subsidiaries has good
-------------------
and marketable title to or interests in all of its properties and assets subject
to no liens, mortgages, pledges, security interests, encumbrances or charges of
any kind, except those granted to Bank and such others as are permitted under
Section 6.02(d) hereof.
(m) Tax Returns. Borrower and each of its Subsidiaries has filed, or
-----------
caused to be filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it (without requests for extension except as
previously disclosed in writing to Bank). All information in such tax returns,
reports and declarations is complete and accurate in all material respects.
Borrower and each of its Subsidiaries has paid or caused to be paid all taxes
due and payable or claimed due and payable in any assessment received by it,
except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or its
Subsidiary and with respect to which adequate reserves have been set aside on
its books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed.
(n) Compliance with Other Agreements and Applicable Laws. Neither
----------------------------------------------------
Borrower nor any of its Subsidiaries is in default in any material respect
under, or in violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment (including, but not
limited to any such agreement involving the debts or investments of Borrower or
liens upon its assets) to which it is a party or by which it or any of its
assets are bound and Borrower and each of its Subsidiaries is in compliance in
all material
20
respects with all applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or local
governmental authority.
ARTICLE VI
COVENANTS
SECTION 6.01. Affirmative Covenants. So long as any Revolving Note shall
---------------------
remain unpaid or the Bank shall have any Commitment hereunder, the Borrower
will, unless the Bank shall otherwise consent in writing:
(a) Financial Information. Furnish to the Bank:
---------------------
(i) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the Borrower's audited
consolidated balance sheets of itself and its consolidated Subsidiaries as
at the end of each fiscal year and the related consolidated statements of
income and changes in common stockholders' equity (or comparable statement)
employed in the business and changes in financial position and cash flow
for such year, in each case prepared in accordance with GAAP, setting forth
in each case in comparative form the figures for the previous year,
accompanied by an unqualified report and opinion thereon of independent
certified public accountants acceptable to the Bank and, if prepared, such
accountants' letter to management;
(ii) as soon as available, but in any event within forty-five (45)
days after the end of each fiscal quarter, the Borrower's unaudited
consolidated and consolidating balance sheets of itself and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated and consolidating statements of income and changes
in common stockholders' equity (or comparable statement) and changes in
financial position and cash flow for such period and year to date, setting
forth in each case in comparative form the figures as at the end of the
previous fiscal year as to the balance sheet and the figures for the
previous corresponding period as to the other statements, certified by a
duly authorized officer of the Borrower as being fairly stated in all
material respects subject to year end adjustments; all such financial
statements to be complete and correct in all material respects and to be
prepared in reasonable detail acceptable to the Bank and in accordance with
GAAP applied consistently throughout the periods reflected therein (except
as approved by such accountants and disclosed therein and except for the
exclusion of certain information and footnote disclosures omitted pursuant
to the rules and regulations of the S.E.C.); and
(iii) as soon as available, but in any event within 120 days after
the end of each fiscal year of Southwest, (1) a copy of Southwest's audited
consolidated
21
balance sheets of itself and its consolidated Subsidiaries as at the end of
each fiscal year and the related consolidated statements of income and
changes in common stockholders' equity (or comparable statement) employed
in the business and changes in financial position and cash flow for such
year, setting forth in each case in comparative form the figures for the
previous year, accompanied by an unqualified report and opinion thereon of
independent certified public accountants acceptable to the Bank and, if
prepared, such accountants' letter to management and (2) a copy of
Southwest's prepared consolidated financial statements prepared in
connection with each of the statements provided in subpart (1) above;
(iv) as soon as available, but in any event within forty-five (45)
days after the end of each fiscal quarter, Southwest's unaudited
consolidated and consolidating balance sheets of itself and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated and consolidating statements of income and changes
in common stockholders' equity (or comparable statement) and changes in
financial position and cash flow for such period and year to date, setting
forth in each case in comparative form the figures as at the end of the
previous fiscal year as to the balance sheet and the figures for the
previous corresponding period as to the other statements, certified by a
duly authorized officer of Southwest as being fairly stated in all material
respects subject to year end adjustments; all such financial statements to
be complete and correct in all material respects and to be prepared in
reasonable detail acceptable to the Bank and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
approved by such accountants and disclosed therein and except for the
exclusion of certain information and footnote disclosures omitted pursuant
to the rules and regulations of the S.E.C.); and
(v) as soon as available, copies of all reports which Southwest sends
to any of its security holders, and copies of all reports and registration
statements which Southwest or any of its Subsidiaries files with the S.E.C.
or any national securities exchange; and
(vi) (a) together with each delivery of financial statements of
Borrower, Southwest and their respective Subsidiaries pursuant to
subdivision (i) or subdivision (iii) above, a certificate, executed by the
Borrower's chairman of the board (if an officer) or its president or one of
its vice presidents or by its chief financial officer stating that the
signers have reviewed the terms of this Agreement and have made, or caused
to be made under their supervision, a review in reasonable detail of the
transactions and condition of Borrower and its Subsidiaries during the
accounting period covered by such financial statements and that such review
has not disclosed the existence during or at the end of such accounting
period, and that the signers do not have knowledge of the existence as at
the date of such certificate, of any condition or event that constitutes an
22
Event of Default or Potential Event of Default, or, if any such condition
or event existed or exists, specifying the nature and period of existence
thereof and what action Borrower has taken, is taking and proposes to take
with respect thereto; and (b) together with each delivery of financial
statements pursuant to subdivision (i), (ii), (iii) and (iv) above, a
certificate demonstrating in reasonable detail compliance during and at the
end of the applicable accounting periods with the restrictions contained in
Section 6.02 hereof;
(b) Notices and Information. Deliver to the Bank:
-----------------------
(i) promptly upon any officer of the Borrower obtaining knowledge (a)
of any condition or event which constitutes an Event of Default or
Potential Event of Default, (b) that any Person has given any notice to the
Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to
in Section 7.01(e), (c) of the institution of any litigation involving an
alleged liability (including possible forfeiture of property) of the
Borrower or any of its Subsidiaries equal to or greater than $500,000 which
is not, except for deductibles and self insurance reserves, fully covered
by insurance maintained by Borrower or any adverse determination in any
litigation involving a potential liability of the Borrower or any of its
Subsidiaries equal to or greater than $500,000 which is not, except for
deductibles and self insurance reserves, fully covered by insurance
maintained by Borrower or (d) of a material adverse change in the business,
operations, properties, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, an officers' certificate
specifying the nature and period of existence of any such condition or
event, or specifying the notice given or action taken by such holder or
Person and the nature of such claimed default, Event of Default, Potential
Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(ii) promptly upon becoming aware of the occurrence of any (a)
Termination Event, or (b) non-exempt "prohibited transaction", as such term
is defined in Section 4975 of the Internal Revenue Code or a transaction
prohibited by Section 406 of ERISA, in connection with any Employee Benefit
Plan or any trust created thereunder, a written notice specifying the
nature thereof, what action the Borrower has taken, is taking or proposes
to take with respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor, or the
Pension Benefit Guaranty Corporation with respect thereto;
(iii) with reasonable promptness copies of (a) all notices received by
the Borrower or any of its ERISA Affiliates of the Pension Benefit Guaranty
Corporation's intent to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan and (b) all notices received by
the
23
Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor
concerning the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA;
(iv) promptly, and in any event within 30 days after receipt thereof,
a copy of any notice, summons, citation, directive, letter or other form of
communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous
by any applicable federal, state or local law, rule, regulation, order or
directive or any waste or byproduct thereof, or concerning the filing of a
lien upon, against or in connection with the Borrower, its Subsidiaries, or
any of their leased or owned real or personal property, in connection with
a Hazardous Substance Superfund or a Post-Closure Liability Fund as
maintained pursuant to (S) 9507 of the Internal Revenue Code; and
(v) promptly, and in any event within 30 days after request, such
other information and data with respect to the Borrower or any of its
Subsidiaries as from time to time may be reasonably requested by the Bank
and is reasonably available to Borrower.
(c) Corporate Existence, Etc. At all times preserve and keep in full force
-------------------------
and effect its and its Subsidiaries' corporate existence and rights, licenses
and franchises material to its business and those of each of its Subsidiaries;
provided, however, that the corporate existence of any such Subsidiary may be
-------- -------
terminated if such termination is in the best interest of the Borrower and is
not materially disadvantageous to the holder of any Revolving Note.
(d) Payment of Taxes and Claims. Pay, and cause each of its Subsidiaries
---------------------------
to pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or property before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or may become a lien upon any of its properties or assets, prior to the time
when any penalty or fine shall be incurred with respect thereto; provided that
no such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to be
------------------------------------
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
24
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations. The Borrower will comply
with any other insurance requirement set forth in any other Loan Document.
(f) Inspection. Permit any authorized representatives designated by the
----------
Bank to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested.
(g) Compliance with Laws Etc. Exercise, and cause each of its Subsidiaries
-------------------------
to exercise, all due diligence in order to comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
including, without limitation, all rules and regulations of public utility
commissions or similar regulatory authorities, and all environmental laws,
rules, regulations and orders, noncompliance with which would materially
adversely affect the business, properties, assets, operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole.
(h) Hazardous Waste Studies. Promptly, and in any event within thirty (30)
-----------------------
days after submission, provide the Bank with copies of all such investigations,
studies, samplings and testings as may be requested by any governmental or
regulatory authority relative to any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at or affecting any real property
or any facility owned, leased or used by the Borrower or any Subsidiary. The
foregoing shall not include sampling and testing of water, waste water and
effluent conducted by the Subsidiaries of Borrower on periodic bases as a normal
part of their water delivery and wastewater treatment businesses.
SECTION 6.02. Negative Covenants. So long as any Revolving Note shall
------------------
remain unpaid or the Bank shall have any Commitment hereunder, neither Southwest
nor Borrower will, without the written consent of the Bank:
(a) Leverage Ratio. At any time, permit the ratio of Consolidated
--------------
Liabilities of Southwest to Consolidated Tangible Net Worth of Southwest to be
more than 2.30:1:00
(b) Consolidated Tangible Net Worth of Borrower. At any time, permit
-------------------------------------------
Consolidated Tangible Net Worth of Borrower to be less than $24,500,000.
(c) Consolidated Tangible Net Worth of Southwest. At any time, permit
--------------------------------------------
Consolidated Tangible Net Worth of Southwest to be less than $28,500,000.
25
(d) Consolidated Net Profit of Borrower. At the end of any fiscal quarter
-----------------------------------
of the Borrower, permit Consolidated Net Profit of Borrower, determined on a
four quarter rolling basis, to be less than $1.00.
(e) Consolidated Net Profit of Southwest. At the end of any fiscal quarter
------------------------------------
of the Borrower, permit Consolidated Net Profit of Southwest, determined on a
four quarter rolling basis, to be less than $1.00.
(f) EBITDA Coverage Ratio of Southwest. At the end of any fiscal quarter
----------------------------------
of Borrower, permit the EBITDA Coverage Ratio of Southwest, determined on a four
quarter rolling basis, to be less than 1.25:1.0.
(g) Funded Debt of Borrower. At any time, permit Funded Debt of Borrower
-----------------------
to exceed Bondable Capacity.
(h) Liens Etc. Create or suffer to exist, or permit any of its
---------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or permit
any of its Subsidiaries to assign, any right to receive income, in each case to
secure any Debt of any Person other than (i) Liens in favor of the Bank; (ii)
Liens reflected on the financial statements referred to in Section 5.01(e)
hereof and other Liens existing on the date hereof and set forth in Schedule
6.02(h) hereto; (iii) purchase money Liens upon or in any equipment acquired or
held by the Borrower or any Subsidiary in the ordinary course of business up to
a maximum of $500,000 to secure the purchase price of such equipment or to
secure indebtedness incurred solely for the purpose of financing the acquisition
of such equipment: (iv) Liens existing on property acquired by the Borrower or
any Subsidiary, and all refundings and extensions of any such Liens, and (v)
Liens, deposits and/or pledges made to secure the performance of operating
leases; provided that the principal amount of Debt secured by any such Lien
permitted hereunder shall not exceed an amount equal to (x) one hundred percent
(100%) of the cost of the real property subject to such lien or security
interest or (y) one hundred percent (100%) of the cost of the personal property
subject to such lien or security interest, and further provided that none of
such liens or security interests shall extend to other assets of the Borrower or
its Subsidiaries. The Bank acknowledges that Borrower has an existing first
mortgage indenture encumbering substantially all of its assets to secure three
series (A, B and C) of first mortgage bonds.
(i) Debt. Create, incur, assume or permit to exist, or permit any
----
Subsidiary to create, incur, assume or permit to exist, any indebtedness or
liabilities resulting from borrowings, loans or advances, whether matured or
unmatured, liquidated or unliquidated, joint or several, secured or unsecured,
except for (i) Debt incurred pursuant to this Agreement and the other Loan
Documents, (ii) Debts, revolving lines of credit and lease obligations of
Borrower existing as of, and disclosed to Bank prior to the date of this
Agreement (including $4,000,000 of unsecured debt of Borrower to Xxxxx Fargo),
(iii) secured indebtedness for purchase money financing of equipment which is
permitted under Section 6.02(h)(iii) not to exceed an aggregate of $500,000, and
(iv) unsecured funded bank debt not to exceed an aggregate of $12,000,000 at any
time (including, without limitation, unsecured funded bank
26
debt incurred pursuant to the Loan Documents and unsecured funded bank debt to
Xxxxx Fargo as described in clause (ii) above).
(j) Consolidation, Merger or Dissolution. (i) Consolidate with or merge
------------------------------------
into any other Person, (ii) wind up, liquidate or dissolve or (iii) agree to do
any of the foregoing.
(k) Loans, Investments, Secondary Liabilities. Make or permit to remain
-----------------------------------------
outstanding, or permit any Subsidiary to make or permit to remain outstanding,
any loan or advance to, or guarantee, induce or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or securities
of or any other interest in, or make any capital contribution to, any other
Person, except that the Borrower and its Subsidiaries may:
(i) own, purchase or acquire certificates of deposit issued by a bank,
commercial paper rated Moody's P-1, municipal bonds rated Xxxxx'x XX or
better, direct obligations of the United States of America or its agencies,
and obligations guaranteed by the United States of America;
(ii) continue to own the existing capital stock of the Borrower's
Subsidiaries;
(iii) endorse negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(iv) make or permit to remain outstanding loans or advances to
Southwest; provided, however, that any such outstanding loans or advances
-------- -------
by Borrower to Southwest shall be evidenced by negotiable promissory notes,
in form and substance satisfactory to Bank, and which notes shall provide
for the assignment thereof to the Bank as collateral security for the
repayment of the Loans and any other obligations of the Borrower hereunder
upon the demand of the Bank; and
(v) make or permit to remain outstanding loans and advances to any of
its officers, shareholders or affiliates or enter into or permit to remain
outstanding guarantees in connection with the obligations of its officers,
shareholders or affiliates, in an aggregate amount for all such loans,
advances and guarantees not exceeding $100,000 in addition to the loans
outstanding and reflected on the Borrower's financial statements dated
September 30, 1997.
(l) Asset Sales. Convey, sell, lease, transfer or otherwise dispose of, or
-----------
permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any part of its or its
Subsidiary's business, property or fixed assets outside the ordinary course of
business, whether now owned or hereafter acquired, except that Borrower and its
Subsidiaries may convey, sell, lease, transfer
27
or otherwise dispose of business, property or fixed assets for consideration
which in the aggregate does not exceed $500,000 per year. The foregoing covenant
shall not extend to any property taken by eminent domain by any governmental
authority or other person or entity having the power of eminent domain or to any
sale in lieu of condemnation to a governmental authority or other person or
entity having the power of eminent domain made after threat of condemnation by
such governmental authority or other person or entity, or to the pending sale by
Suburban of that certain parcel of real estate commonly known as 00000 Xxxx
Xxxxxxxxxx Xxxxxx, Xx Xxxxxx, Xxxxxxxxxx, which property was the site of the
former headquarters facility of Borrower and Southwest.
(m) Hostile Tender Offers. Make any offer to purchase or acquire, or
---------------------
consummate a purchase or acquisition of, five percent (5%) or more of the
capital stock of any publicly held corporation or other publicly held business
entity, unless the board of directors of such corporation or business entity has
notified the Borrower that it invites or does not oppose such offer or purchase.
(n) Distributions. Upon the occurrence and during the continuance of an
-------------
Event of Default or Potential Event of Default, authorize, declare or pay, or
permit any of its Subsidiaries to authorize, declare or pay, any Distributions.
(o) Transactions with Affiliates. Neither Borrower nor any of its
----------------------------
Subsidiaries shall enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of Borrower's
or its Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or its Subsidiary than Borrower or its Subsidiary
would obtain in a comparable arm's length transaction with an unaffiliated
person.
(p) Books and Records. Borrower will, and will cause each of its
-----------------
Subsidiaries to, keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of applicable law
shall be made of all dealings and transactions in relation to its business and
activities.
(q) Restructure. Make any change in Borrower's financial restructure, the
-----------
principal nature of Borrower's business operations (taken as a whole), or the
date of its fiscal year.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following events ("Events
----------------- ------
of Default") shall occur and be continuing:
----------
28
(a) Borrower shall fail to pay within three (3) days of the date when due,
any principal, interest, fees or other amounts payable under any of the Loan
Documents; or
(b) Any representation or warranty made by the Borrower herein or by the
Borrower (or any of its officers) in connection with the Loan Documents shall
prove to have been incorrect in any material respect when made; or
(c) Borrower shall fail to perform or observe any term, any affirmative or
negative covenant, including, but not limited to, those covenants set forth in
Sections 6.01 and 6.02 hereof, or any other agreement contained in this
Agreement on its part to be performed or observed (other than those referred to
in subsections (a) and (b) above); and with respect to any such default which by
its nature can be cured, such default shall continue for a period of twenty (20)
days from its occurrence; or
(d) The Borrower or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in any Loan Document other
than this Agreement and such default shall not have been remedied or waived
within any applicable grace period in such Loan Document or in (c) above; or
(e) an Event of Default shall occur under the Southwest Loan Documents; or
(f) (i) The Borrower or any of its Subsidiaries shall (A) fail to pay any
principal of, or premium or interest on, any Debt (including, without
limitation, debt owing to Xxxxx Fargo), the aggregate outstanding principal
amount of which is at least $100,000 (excluding Debt evidenced by the Revolving
Note), when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (B) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Debt or material to the performance, business,
property, assets, condition (financing or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole, when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument; or
(g) (i) The Borrower or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to
29
in clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days (Bank may, in its discretion, cease
making Revolving Loans during the pendency of such action or proceeding); or
(iii) there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within sixty (60) days from the entry thereof (Bank may, in its
discretion, cease making Revolving Loans during the pendency of such action or
proceeding); or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clauses (i), (ii) and (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(h) One or more judgments or decrees shall be entered against the Borrower
or any of its Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance or reserves) equal to or greater than $250,000 and
all such judgments or decrees shall not have been vacated, discharged, or stayed
or bonded pending appeal within thirty (30) days from the entry thereof; or
(i) (i) The Borrower or any of its ERISA Affiliates fails to make full
payment when due of all material amounts which, under the provisions of any
Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or any of
its ERISA Affiliates is required to pay as contributions thereto and such
development is not remedied or reversed within fifteen (15) days after the
Borrower knows of such development;
(ii) any material accumulated funding deficiency occurs or exists,
whether or not waived, with respect-to any Pension Plan and such development is
not remedied or reversed within fifteen (15) days after the Borrower knows of
such development;
(iii) the excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets of
such Pension Plans (excluding in such computation Pension Plans with assets
greater than benefit liabilities) allocable to such benefit liabilities are
greater than five percent (5%) of Consolidated Tangible Net Worth and such
development is not remedied or reversed within fifteen (15) days after the
Borrower knows of such development;
(iv) the Borrower or any of its ERISA Affiliates enters into any
transaction which has as its principal purpose the evasion of liability under
Subtitle D of Title IV of ERISA:
(v) (A) Any Pension Plan maintained by the Borrower or any of its
ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA in
a distress termination, or (B) a trustee shall be appointed by an appropriate
United States district court in
30
accordance with Section 4042 of ERISA to administer any Pension Plan, or (C) the
Pension Benefit Guaranty Corporation (or any successor thereto) shall institute
proceedings to terminate any Pension Plan or to appoint a trustee to administer
any Pension Plan in accordance with Section 4042 of ERISA, or (D) the Borrower
or any of its ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from
a Pension Plan, if as of the date of the event listed in subclauses (A)-(D)
above or any subsequent date, either the Borrower or its ERISA Affiliates has
any material liability (such liability to include, without limitation, any
liability to the Pension Benefit Guaranty Corporation, or any successor thereto,
or to any other party under Sections 4062, 4063 or 4064 of ERISA or any other
provision of law) resulting from or otherwise associated with the events listed
in subclauses (A)-(D) above;
(vi) As used in this subsection 7.01(h) the term "accumulated funding
deficiency" has the meaning specified in Section 412 of the Internal Revenue
Code, and the term "benefit liabilities" has the meaning specified in Section
4001 of ERISA;
(j) There shall be instituted against the Borrower or any Subsidiary, or
against any guarantor, any proceeding for which forfeiture of any property with
a value of $250,000 or more is a potential penalty and such proceeding remains
undismissed, undischarged or unbonded for a period of thirty (30) days from the
date the Borrower knows of such proceeding;
(k) A Change of Control shall have occurred; or
(l) The mortgage bonds of Borrower shall fail to maintain a NAIC rating of
1 or 2.
Then, (i) upon the occurrence of any Event of Default described in clause
7.01(g) above, the Commitment shall immediately terminate and all Loans
hereunder with accrued interest thereon, and all other amounts owing under the
Loan Documents shall automatically become due and payable, and (ii) upon the
occurrence of any other Event of Default, the Bank may, by notice to the
Borrower, declare the Commitment to be terminated forthwith, whereupon the
Commitment shall immediately terminate; and, by notice to the Borrower, declare
the Loans hereunder, with accrued interest thereon, and all other amounts owing
under the Loan Documents to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Bank shall have all rights, powers
and remedies available under each of the Loan Documents, or accorded by law,
including, without limitation, the right to resort to any or all security for
any credit accommodation from the Bank subject hereto and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable law. All
rights, powers and remedies of Bank in connection with each of the Loan
Documents may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
Notwithstanding any other provision of this Agreement,
31
including Section 8.02, notices to the Borrower under this Section shall be
communicated in writing (including telex or facsimile transmissions).
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
---------------
the Loan Documents nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8.02. Notices, Etc. Except as otherwise set forth in this
------------
Agreement, all notices and other communications provided for hereunder shall be
in writing (including facsimile communication) and mailed certified mail, return
receipt requested or sent by facsimile or delivered, if to the Borrower, at its
address set forth on the signature page hereof; and if to the Bank, at its
address set forth on the signature page hereof; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall be effective upon
personal delivery or upon receipt when sent by facsimile, or on the date of
receipt or refusal indicated on the return receipt if sent by certified mail,
except that notices and communications to the Bank pursuant to Article II or VII
shall not be effective until received by the Bank.
SECTION 8.03. Right of Setoff: Security Interest in Deposit Accounts.
-------------------------------------------------------
Upon and only after the occurrence of any Event of Default not cured within any
applicable grace period, the Bank is hereby authorized by the Borrower, at any
time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of the
Borrower under the Loan Documents (whether matured or unmatured, fixed or
contingent or liquidated or unliquidated) any and all amounts owing by the Bank
to the Borrower (whether payable in Dollars or any other currency, whether
matured or unmatured, and, in the case of deposits, whether general or special,
time or demand and however evidenced) and (b) pending any such action, to the
extent necessary, to hold such amounts as collateral to secure such obligations
and liabilities and to return as unpaid for insufficient funds any and all
checks and other items drawn against any deposits so held as the Bank in its
sole discretion may elect. The Borrower hereby grants to the Bank a security
interest in all deposits and accounts maintained with the Bank and with any
other financial institution. The Bank is authorized to debit any account
maintained with it by the Borrower for any amount of principal, interest or fees
which are then due and owing to the Bank.
SECTION 8.04. No Waiver; Remedies. No failure on the part of either party
-------------------
hereto to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any
32
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 8.05. Costs and Expenses. Borrower shall pay to Bank immediately
------------------
upon demand the full amount of all costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and each other of the Loan
Documents, and the preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents (including, without
limitation, in appellate, bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings) or the restructuring of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including, without limitation, any action for
declaratory relief.
SECTION 8.06. Participations. The Bank may sell, assign, transfer,
--------------
negotiate or grant participations to other financial institutions in all or part
of the obligations of the Borrower outstanding under the Loan Documents,
provided that any such sale, assignment, transfer, negotiation or participation
shall be in compliance with the applicable federal and state securities laws;
and provided further that any assignee or transferee agrees to be bound by the
terms and conditions of this Agreement. The Bank may, in connection with any
actual or proposed assignment or participation, disclose to the actual or
proposed assignee or participant, any information relating to the Borrower or
any of its Subsidiaries.
SECTION 8.07. Effectiveness: Binding Effect. This Agreement shall become
-----------------------------
effective when it shall have been executed by the Borrower and the Bank and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Bank and their respective successors and assigns, except that the Borrower shall
not have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Bank.
SECTION 8.08. Governing Law. The validity, interpretation and enforcement
-------------
of this Agreement and the other Loan Documents and any dispute arising out of
the relationship between the parties hereto, whether in contract, tort, equity
or otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
SECTION 8.09. Arbitration.
-----------
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents,
33
including without limitation, any of the foregoing arising in connection with
the exercise of any self-help, ancillary or other remedies pursuant to any of
the Loan Documents. Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who fails or refuses to
submit to arbitration following a lawful demand by any other party shall bear
all costs and expenses incurred by such other party in compelling arbitration of
any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in the County of
Los Angeles, California selected by the AAA or other administrator. If there is
any inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or
34
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel of
three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (1) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall
35
survive termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
SECTION 8.10. Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments, included in or evidencing any of the obligations,
and any and all other demands and notices of any kind or nature whatsoever with
respect to the obligations and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower which Bank may elect to
give shall entitle Borrower to any other or further notice or demand in the
same, similar or other circumstances.
SECTION 8.11. Entire Agreement. This Agreement with Exhibits and
----------------
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
SECTION 8.12. Separability of Provisions. In case any one or more of the
--------------------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 8.13. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MELLON BANK, N.A. SUBURBAN WATER SYSTEMS
By:_/S/ XXXXX X. KELLY_____________ By:__/S/ XXXXXX X. EVANS_____________
Name: Xxxxx X. Xxxxx Name: Xxxxxx X. Xxxxx
Title: Vice President Title: Vice President - Finance
Chief Financial Officer
By:__/S/ XXXXX X. XXXXXXXX
Name: Xxxxx X. Xxxxxxxx
Title: Secretary
Address: Address:
00
Xxxxxx Xxxxxx Xxxxxxx 0000 X. Xxxxxx Xxxxx Xxxxx
000 Xxxxx Xxxx Xxxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
5th Floor Attention: Xxxxxx X. Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000 Vice President of Finance
Attention: Xxxxx X. Xxxxx Chief Financial Officer
Vice President
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
37
SCHEDULE 5.01(F) - LITIGATION
-----------------------------
None other than as reported on Form 10-Q of Southwest for quarter ended
September 30, 1997.
38
SCHEDULE 5.01(I) - ENVIRONMENTAL MATTERS
----------------------------------------
See Form 10-Q of Southwest for quarter ended September 30, 1997.
Also, there may have been minor hydraulic fluid leakage at the Maplegrove Street
site formerly operated by Southwest and Suburban as their headquarters.
Southwest and Suburban are currently investigating this matter but anticipate
that any remediation required will have a cost of less than $100,000.
39
SCHEDULE 6.02(H) - LIENS
------------------------
None except as disclosed in the audited consolidated financial statements of
Southwest for the fiscal year ended December 31, 1996.
40
