UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
___
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
___
|___| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission file number 0-464
CALIFORNIA WATER SERVICE COMPANY
(Exact name of registrant as specified in its charter)
California 94-0362795
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1720 North First Street, San Jose, Ca. 95112
(Address of principal executive offices) (Zip Code)
1-408-451-8200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common shares outstanding as of October 25, 1994 - 6,247,034
This Form 10-Q contains a total of 35 pages.
PART I - FINANCIAL INFORMATION
CALIFORNIA WATER SERVICE COMPANY
ITEM 1 FINANCIAL STATEMENTS BALANCE SHEET
SEPT 30, 1994 Dec. 31, 1993
In Thousands
ASSETS
Utility plant $553,062 $533,213
Less depreciation (149,840) (141,510)
Net utility plant 403,222 391,703
Current assets:
Cash and cash equivalents 1,812 1,461
Accounts receivable 14,758 10,835
Unbilled revenue 8,111 7,548
Materials and supplies 3,028 2,853
Taxes and other prepaid expenses 5,044 3,716
Total current assets 32,753 26,413
Regulatory assets 23,545 23,404
Other deferred charges 4,902 5,099
$464,422 $446,619
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity:
Common stock $ 42,922 $ 25,059
Retained earnings 101,692 98,940
Total common shareholders' equity 144,614 123,999
Preferred stock without mandatory
redemption provision 3,475 3,475
First mortgage bonds 129,608 129,608
Total capitalization 277,697 257,082
Current liabilities:
Short-term borrowings 0 15,000
Accounts payable 14,843 11,234
Accrued expenses and other liabilities 17,502 11,722
Total current liabilities 32,345 37,956
Unamortized investment tax credits 3,320 3,341
Deferred income taxes 11,401 11,045
Regulatory liabilities 11,466 11,467
Advances for construction 92,478 90,812
Contributions in aid of construction 35,715 34,916
$464,422 $446,619
2
See accompanying notes on page 5
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME
Sept. 30
1994 1993
In Thousands
FOR THE THREE MONTHS ENDED:
Operating revenue $50,303 $47,431
Operating expenses:
Operations 30,848 27,564
Maintenance 2,192 1,928
Depreciation 2,748 2,550
Income taxes 4,038 4,363
Property and other taxes 1,747 1,649
41,573 38,054
Net operating income 8,730 9,377
Other income and expenses, net (2,873) (3,156)
Net income 5,857 6,221
Preferred dividends 38 38
Net income available for common stock $ 5,819 $ 6,183
Weighted average shares outstanding 5,709 5,689
Earnings per share of common stock $ 1.02 $ 1.09
Dividends per share of common stock $ 0.495 $ 0.48
FOR THE NINE MONTHS ENDED:
Operating revenue $121,029 $115,768
Operating expenses:
Operations 74,404 68,862
Maintenance 5,901 5,294
Depreciation 8,220 7,744
Income taxes 7,766 7,930
Property and other taxes 4,952 4,698
101,243 94,528
Net operating income 19,786 21,240
Other income and expenses, net (8,464) (9,351)
Net income 11,322 11,889
Preferred dividends 115 115
Net income available for common stock $ 11,207 $ 11,774
Weighted average shares outstanding 5,700 5,689
Earnings per share of common stock $ 1.97 $ 2.07
Dividends per share of common stock $ 1.485 $ 1.44
See accompanying notes on page 5
3
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED:
In Thousands
SEPT. 30
1994 1993
Operating activities:
Net income $ 11,322 $ 11,889
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,220 7,744
Regulatory assets and liabilities, net (142) (10,926)
Deferred income taxes and investment tax credits 335 10,859
Change in assets and liabilities:
Accounts receivable (3,923) (2,295)
Unbilled revenue (563) (2,213)
Materials and supplies (175) (60)
Taxes and other prepaid expenses (1,328) (651)
Accounts payable 3,609 3,491
Accrued expenses and other liabilities 5,780 5,108
Other changes, net 637 (322)
Net adjustments 12,450 10,735
Net cash provided by operating activities 23,772 22,624
Investing activities:
Utility plant expenditures (20,835) (20,603)
Financing activities:
Net short-term borrowings (15,000) (2,500)
Proceeds from issuance of common stock 17,863 0
Proceeds from sale of first mortgage bonds 0 20,000
Advances for construction 4,429 3,769
Contributions in aid of construction 1,459 1,783
Refunds of advances for construction (2,766) (2,668)
Retirements of first mortgage bonds 0 (14,768)
Dividends (8,571) (8,306)
Net cash used for
financing activities (2,586) (2,690)
Change in cash and cash equivalents 351 (669)
Cash and cash equivalents at start of
period 1,461 899
Cash and cash equivalents at end of
period $ 1,812 $ 230
See accompanying notes on page 5
4
Notes:
1. Due to the seasonal nature of the water business, the results for
interim periods are not indicative of the results for a twelve month
period.
2. The interim financial information is unaudited. In the opinion of
management, the accompanying financial statements reflect all
adjustments which are necessary to provide a fair statement of the
results for the periods covered. The adjustments consist only of
normal recurring adjustments.
3. Earnings per share are calculated on the weighted average number of
common shares outstanding during the period and net income
available for common stock as shown on the Statement of Income.
4. Refer to 1993 Annual Report on Form 10-K for a summary of signifi-
cant accounting policies and detailed information regarding the
financial statements.
5
PART I FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
On September 29, 1994 the Company completed the sale of
550,000 new common shares at an offer price of $33.375. The
Company received proceeds from the offering of $17,559,000, after
deducting underwriters' commissions. Additional expenses of the
offering for printing, accounting and legal services are estimated
to be $175,000.
Prior to the offering, short-term bank borrowings under a $30
million bank line of credit and cash generated from operations
were used to finance the Company's 1994 capital improvement
budget. Proceeds from the offering were used to repay the $15.5
million outstanding under the line of credit at the time of the
stock issuance. Capital improvement expenditures for the
remainder of the year will be funded with the balance of the stock
issue proceeds, cash generated from operations and short-term bank
borrowings. No additional permanent financing is planned for
1994.
Capital ratios after and before the stock issue are:
9-30-94 6-30-94
------- -------
Common shareholders' equity 52.1% 48.2%
Preferred stock 1.3 1.4
First mortgage bonds 46.6 50.4
----- -----
Total 100.0% 100.0%
6
RESULTS OF THIRD QUARTER OPERATIONS
Third quarter earnings were $1.02 per common share, a decline
of 7 cents from the record earnings of $1.09 reported for third quarter 1993.
Revenue for the quarter increased $2,872,000 to $50,303,000,
compared with the $47,431,000 in the prior year, however,
operation expense increased $3,284,000, exceeding the revenue
increase.
Water consumption was up 4 percent resulting in $1,480,000 in
higher revenue. Average consumption per customer for the quarter
was 97.9 Ccf., equal to the average for the 5 year pre-drought
period, 1982-86. Rate relief contributed $2,124,000 to increased
revenue, however, as authorized by the California Public Utilities
Commission (Commission) $1 million dollars was recorded in 1993
for lost revenue due to water conservation with no corresponding
revenue source during 1994. New customers added $268,000.
Operation expense increased primarily due to purchased water,
purchased power and pump tax increases of $2,540,000 due to
increased water delivered to the systems and suppliers' wholesale
water rate increases affecting water purchases for the Company's
three San Francisco peninsula districts and its four Los Angeles
area districts. Payroll and employee benefit costs increased
$540,000 due to increased wage rates and benefit programs.
Mainenance expense increased due to completion of several tank
painting projects, pump repairs and other routine projects.
RESULTS FOR NINE MONTHS OPERATIONS
Net income was $1.97 per share, a 10 cent decrease from 1993.
7
Operating revenue for the 9 months ended September 30, 1994
increased 4.5% to $121,029,000. During 1993 a Commission decision
authorized the transfer of water conservation penalties collected
during the mandatory rationing period to revenue in order to
offset under-collection in balancing accounts. The Commission
also permitted the recording in memorandum accounts of revenue
lost due to water conservation during 1993. The aggregate amount
recorded under these decisions during 1993 was $4,352,000,
equivalent to 45 cents in earnings per share. Since this
authority expired in 1993, no similar revenue was recorded in
1994.
Offsetting the decrease noted above was $3,731,000 in
additional revenue due to increased usage, $5,209,000 from
customer rate changes and $673,000 from 2,475 new customers.
Operation expense increased $5,542,000. Increases in
purchased water, purchased power and pump taxes accounted for 74%
of the increase due to increased water delivered to the systems
and suppliers' wholesale water rate increases with employee
payroll and benefits and maintenance cost accounting for the
balance.
REGULATORY MATTERS
In July the Commission approved rate increases totaling
$1,970,000 to offset wholesalers' purchased water increases in
five districts. An additional application requesting $593,000 to
cover purchased water increases in the Mid-Peninsula district was
filed with the Commission in September.
8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
Sequential
Exhibit Page Numbers
Number Description in this Report
10.15 Underwriting Agreement. The Underwriting 10
Agreement between California Water
Service Company and Smith Barney
Inc. and A. G. Edwards & Sons, Inc.
dated September 22, 1994.
27 Financial Data Schedule as of September 30, 35
1994.
(b) No reports on Form 8-K have been filed during the quarter
ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CALIFORNIA WATER SERVICE COMPANY
Registrant
November 1, 1994 /s/ GERALD F. FEENEY
Gerald F. Feeney
Vice President, Chief Financial Officer
and Treasurer
9
EXHIBIT 10.15
550,000 SHARES
CALIFORNIA WATER SERVICE COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
September 22, 1994
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
As Underwriters
c/o Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
California Water Service Company, a California corporation (the
"Company"), proposes to issue and sell an aggregate of 550,000 shares (the
"Firm Shares") of its common stock, no par value per share (the "Common
Stock"), to you (the "Underwriters"). The Company also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up
to an additional 50,000 shares (the "Additional Shares") of Common Stock. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares".
The Company wishes to confirm as follows its agreement with you in
connection with the several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 under the Act
(the "registration statement"), including a prospectus subject to completion
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. The term "Prospectus"
as used in this Agreement means the prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits
10
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus. Any
reference in this Agreement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of the registration statement, the
Registration Statement, such Prepricing Prospectus or the Prospectus, as the
case may be, and any reference to any amendment or supplement to the
registration statement, the Registration Statement, any Prepricing Prospectus
or the Prospectus shall be deemed to refer to and include any documents filed
after such date under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") which, upon filing, are incorporated by reference therein, as
required by paragraph (b) of Item 12 of Form S-3. As used herein, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $31.925 per
Share (the "purchase price per share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from the Company, at the purchase price per
share, pursuant to an option (the "over-allotment option") which may be
exercised at any time and from time to time prior to 9:00 P.M., New York City
time, on the 30th day after the date of the Prospectus (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next business day thereafter
when the New York Stock Exchange is open for trading), up to an aggregate of
50,000 Additional Shares. Additional Shares may be purchased only for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of
11
such Underwriter in Schedule I hereto (or such number of Firm Shares increased
as set forth in Section 10 hereof) bears to the aggregate number of Firm
Shares.
3. Terms of Public Offering. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on September 29, 1994 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than three nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement between you and
the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 P.M., New York City time, on the third
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by certified or official bank check or checks payable in New
York Clearing House (next day) funds to the order of the Company.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the
offering of the Shares may commence, the Company will endeavor to cause
the Registration Statement or such post-effective amendment to become
effective as soon as possible and will advise you promptly and, if
requested by
12
you, will confirm such advice in writing, when the Registration
Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested
by you, will confirm such advice in writing: (i) of any request by the
Commission for amendment of or a supplement to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for
additional information; (ii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction or the initiation of any proceeding for such
purpose; and (iii) within the period of time referred to in the first
sentence in subsection (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net
worth or results of operations, or of the happening of any event, which
makes any statement of a material fact made in the Registration
Statement or the Prospectus (as then amended or supplemented) untrue or
which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act or
the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to
amend or supplement the Prospectus (as then amended or supplemented) to
comply with the Act or any other law. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort
to obtain the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge (i)
three signed copies of the registration statement as originally filed
with the Commission and of each amendment thereto, including financial
statements and all exhibits to the registration statement, (ii) such
number of conformed copies of the registration statement as originally
filed and of each amendment thereto, but without exhibits, as you may
reasonably request, (iii) such number of copies of the Incorporated
Documents, without exhibits, as you may reasonably request, and (iv)
three copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus or, prior to the end of the period of time referred to in
the first sentence in subsection (f) below, file any document which,
upon filing becomes an Incorporated Document, of which you shall not
previously have been advised or to which, after you shall have received
a copy of the document proposed to be filed, you shall reasonably
object.
(e) Prior to the execution and delivery of this Agreement,
the Company has delivered to you, without charge, in such quantities as
you have reasonably requested, copies of each form of the Prepricing
Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and
13
by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period
as in the opinion of counsel for the Underwriters a prospectus is
required by the Act to be delivered in connection with sales by any
Underwriter or dealer, the Company will expeditiously deliver to each
Underwriter and each dealer, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as you may
reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period
of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment
of the Company or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary to supplement or amend
the Prospectus (or to file under the Exchange Act any document which,
upon filing, becomes an Incorporated Document) in order to comply with
the Act or any other law, the Company will forthwith prepare and,
subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto (or to such
document), and will expeditiously furnish to the Underwriters and
dealers a reasonable number of copies thereof. In the event that the
Company and you agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or
qualification of the Shares for offering and sale by the several
Underwriters and by dealers under the securities or Blue Sky laws of
such jurisdictions as you may designate and will file such consents to
service of process or other documents necessary or appropriate in order
to effect such registration or qualification; provided that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction
where it is not now so subject.
(h) The Company will make generally available to its
security holders an earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of
the Registration Statement and ending not later
14
than 15 months thereafter, as soon as practicable after the end
of such period, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to shareholders or filed with the Commission, and
(ii) from time to time such other information concerning the Company as
you may reasonably request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise
than pursuant to the second paragraph of Section 10 hereof or by notice
given by you terminating this Agreement pursuant to Section 10 or
Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of the
Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse you for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale
of the Shares substantially in accordance with the description set
forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and
will advise you of the time and manner of such filing.
(m) Except for shares issued pursuant to the Company's
Dividend Reinvestment Plan and as provided in this Agreement, the
Company will not sell, contract to sell or otherwise dispose of any
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or grant any options or warrants to
purchase Common Stock, for a period of 90 days after the date of the
Prospectus, without the prior written consent of Smith Barney Inc.
(n) The Company has furnished or will furnish to you
"lock-up" letters, addressed to you and in form and substance
satisfactory to you, signed by each of its current officers and
directors.
(o) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has not taken, nor
will it take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(p) The Company will use its best efforts to have the
shares of Common Stock which it agrees to sell under this Agreement
listed, subject to notice of issuance, on the New York Stock Exchange
on or before the Closing Date.
15
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the Act,
complied when so filed in all material respects with the provisions of
the Act. The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. The
registration statement in the form in which it became or becomes
effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the prospectus and any
supplement or amendment thereto when filed with the Commission under
Rule 424(b) under the Act, complied or will comply in all material
respects with the provisions of the Act and will not at any such times
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
registration statement or the prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed), conformed in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, any further Incorporated Documents so filed
will, when they are filed, conform in all material respects with the
requirements of the Exchange Act and the rules and regulations
thereunder; no such document when it was filed (or, if an amendment
with respect to any such document was filed, when such amendment was
filed), contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and no such
further document, when it is filed, will contain an untrue statement
of a material fact or will omit to state a material fact required to
be stated therein or necessary in order to make the statements therein
not misleading.
(d) All the outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are fully paid
and nonassessable and are free of any preemptive or similar rights;
the Shares have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free
of any preemptive or similar rights; and the capital stock of the
Company conforms to the description thereof in the registration
statement and the prospectus.
16
(e) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of California
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification,
except where the failure so to register or qualify does not have a
material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the
Company.
(f) The Company does not have, and at the Closing Date will
not have, any subsidiary. The Company does not own, and at the Closing
Date will not own, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other
entity.
(g) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the Company,
or to which the Company, or to which any of its properties is subject,
that are required to be described in the Registration Statement or
the Prospectus but are not described as required, and there are no
agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
or any Incorporated Document that are not described or filed as
required by the Act or the Exchange Act.
(h) The Company is not in violation of its articles of
incorporation or by-laws, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or of any
decree of any court or governmental agency or body having jurisdiction
over the Company (except for noncompliance with certain environmental
laws, which noncompliance does not and will not have a material
adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company), or in
default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement,
indenture, lease or other instrument to which the Company is a party
or by which it or any of its properties are bound.
(i) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated
hereby (i) requires any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
(except (a) the authorizations and orders of the Public Utilities
Commission of the State of California, which have been obtained, are
in full force and effect and are sufficient to authorize the
transactions contemplated by this Agreement and (b) such as may be
17
required for the registration of the Shares under the Act and the
Exchange Act and compliance with the securities or Blue Sky laws
of various jurisdictions, all of which have been or will be effected
in accordance with this Agreement) or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
articles of incorporation or bylaws of the Company or (ii) conflicts
or will conflict with or constitutes or will constitute a breach of,
or a default under, any material agreement, indenture, lease or other
instrument to which the Company is a party or by which it or any of
its properties are bound, or violates or will violate any statute,
law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of its properties, or will result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any
material agreement or instrument to which it is a party or by which it
is bound or to which any of its property or assets is subject.
(j) The accountants, KPMG Peat Marwick LLP, who have
certified or shall certify the financial statements included or
incorporated by reference in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) are independent
certified public accountants as required by the Act.
(k) The financial statements, together with related
schedules and notes, included or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the financial position, results of
operations and cash flows of the Company on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and
statistical information and data included or incorporated by reference
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company.
(l) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement have been duly
and validly authorized by the Company, and this Agreement has been
duly executed and delivered by the Company and constitutes the valid
and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by federal or state
securities laws and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited
by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights
generally, and by general equitable principles.
(m) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to
the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any
18
amendment or supplement thereto), the Company has not incurred any
liability or obligation, direct or contingent, or entered into any
transaction, in each case other than in the ordinary course of
business, that is material to the Company, and there has not been any
change in the capital stock (other than pursuant to the Company's
employee savings plans and Dividend Reinvestment Plan), or material
increase in the short-term debt or long-term debt, of the Company, or
any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective material adverse
change, in the condition (financial or other), business, net worth or
results of operations of the Company.
(n) The Company has good and marketable title to all
property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests
or other encumbrances except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to
the Registration Statement and all the property described in the
Prospectus as being held under lease by the Company is held by it
under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later
to occur of (i) the Closing Date and (ii) completion of the
distribution of the Shares, will not distribute any offering material
in connection with the offering and sale of the Shares other than the
Registration Statement, the Prepricing Prospectus, the Prospectus or
other materials, if any, permitted by the Act.
(p) The Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits")
as are necessary to own its properties and to conduct its business in
the manner described in the Prospectus, subject to such qualifications
as may be set forth in the Prospectus; the Company has fulfilled and
performed all its material obligations with respect to such permits
and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any
other material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be set forth
in the Prospectus; and, except as described in the Prospectus, none of
such permits contains any restriction that is materially burdensome to
the Company.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
19
(r) To the Company's knowledge, neither the Company nor any
employee or agent of the Company has made any payment of funds of the
Company or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
(s) The Company has filed all tax returns required to be
filed, which returns are complete and correct, and the Company is not
in default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto.
(t) No holder of any security of the Company has any right
to require registration of shares of Common Stock or any other
security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this
Agreement.
(u) The Company owns or possesses all patents, trademarks,
trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by it or necessary
for the conduct of its business, and the Company is not aware of any
claim to the contrary or any challenge by any other person to the
rights of the Company with respect to the foregoing.
(v) A registration statement relating to the Common Stock
has been declared effective by the Commission pursuant to the Exchange
Act and the Common Stock is duly registered thereunder.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any Prepricing Prospectus shall not inure to
the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Shares by such Underwriter to any person
if a copy of the Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the regulations thereunder, and
the untrue statement or alleged
20
untrue statement or omission or alleged omission of a material fact contained
in such Prepricing Prospectus was corrected in the Prospectus, provided that
the Company has delivered the Prospectus to the several Underwriters in
requisite quantity on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which the
Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling person
and the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Company shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the Company
agrees to indemnify and hold harmless any Underwriter, to the extent provided
in the preceding paragraph, and any such controlling person from and against
any loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but
only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought
21
against the Company, any of its directors, any such officer, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph (c), such Underwriter shall have the rights and duties given to the
Company by paragraph (b) above (except that if the Company shall have assumed
the defense thereof such Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such Underwriter's expense), and
the Company, its directors, any such officer, and any such controlling person
shall have the rights and duties given to the Underwriters by paragraph (b)
above. The foregoing indemnity agreement shall be in addition to any liability
which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which
22
the total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a
post-effective amendment thereto to be declared effective before the
offering of the Shares may commence, the registration statement or
such post-effective amendment shall have become effective not later
than 5:30 P.M., New York City time, on the date hereof, or at such
later date and time as shall be consented to in writing by you, and
all filings, if any, required by Rules 424 and 430A under the Act
shall have been timely made; no stop order suspending the
effectiveness of the registration statement shall have been issued and
no proceeding for that purpose shall have been instituted or, to the
knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional
information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your
satisfaction.
23
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development
involving a prospective change, in or affecting the condition
(financial or other), business, properties, net worth, or results of
operations of the Company not contemplated by the Prospectus, which in
your opinion, would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the
Company or any officer or director of the Company which makes any
statement made in the Prospectus untrue or which, in the opinion of
the Company and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to
be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your opinion, adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date, an opinion
of McCutchen, Doyle, Brown & Enersen, counsel for the Company, dated
the Closing Date and addressed to you, as Underwriters, to the effect
that:
(i) The Company is a corporation duly incorporated
and validly existing in good standing under the laws of the
State of California with full corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is
duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of
its properties or the conduct of its business requires such
registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net
worth or results of operations of the Company;
(ii) The authorized and outstanding capital stock of
the Company is as set forth under the caption "Description of
Capital Stock" in the Prospectus; and the authorized capital
stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock";
(iii) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, and are fully paid and
nonassessable;
(iv) The Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any
preemptive, or to the best knowledge of such counsel after
reasonable inquiry, similar rights that entitle or will entitle
any person to acquire any Shares upon the issuance thereof by
the Company;
24
(v) The form of certificates for the Shares
conforms to the requirements of the California Corporations
Code;
(vi) The Registration Statement and all
post-effective amendments, if any, have become effective under
the Act and, to the best knowledge of such counsel after
reasonable inquiry, no stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated
by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in accordance with Rule
424(b);
(vii) The Company has corporate power and authority
to enter into this Agreement and to issue, sell and deliver the
Shares to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by
the Company;
(viii) The Company is not in violation of its articles
of incorporation or bylaws, or to the best knowledge of such
counsel after reasonable inquiry, is not in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note or other evidence of
indebtedness, except as may be disclosed in the Prospectus;
(ix) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this
Agreement, compliance by the Company with the provisions hereof
nor consummation by the Company of the transactions
contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under,
the articles of incorporation or bylaws of the Company or any
material agreement, indenture, lease or other instrument to
which the Company is a party or by it or any of its properties
is bound that is an exhibit to the Registration Statement or to
any Incorporated Document, or is known to such counsel after
reasonable inquiry, or (to the best knowledge of such counsel
after reasonable inquiry) will result in the creation or
imposition of any lien, charge or encumbrance upon any property
or assets of the Company, nor will any such action result in
any violation of any existing law, regulation, ruling (assuming
compliance with all applicable state securities and Blue Sky
laws), judgment, injunction, order or decree known to such
counsel after reasonable inquiry, applicable to the Company or
any of its properties;
(x) The California Public Utilities Commission has
duly authorized the issuance and sale of the Shares; such
authorization is in full force and effect and is sufficient
pursuant to the California Public Utilities Code for the
issuance and sale of the Shares as contemplated hereby; the
issuance and sale of the Shares is, in all material respects,
in conformity with the terms of such authorization. No other
consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body,
administrative agency or other
25
governmental body, agency, or official is required on
the part of the Company (except as have been obtained under the
Act and the Exchange Act or such as may be required under state
securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of
the Shares to the Underwriters as contemplated by this
Agreement;
(xi) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the
financial statements and the notes thereto and the schedules
and other financial and statistical data included therein, as
to which such counsel need not express any opinion) comply as
to form in all material respects with the requirements of the
Act; and each of the Incorporated Documents (except for the
financial statements and the notes thereto and the schedules
and other financial and statistical data included therein, as
to which counsel need not express any opinion) complies as to
form in all material respects with the Exchange Act and the
rules and regulations of the Commission thereunder;
(xii) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated
in the Prospectus (or any supplement thereto), there are no
legal or governmental proceedings pending or threatened against
the Company, or to which the Company or any of its property, is
subject, which are required to be described in the Registration
Statement or Prospectus (or any amendment or supplement
thereto) and (B) there are no agreements, contracts,
indentures, leases or other instruments, that are required to
be described in the Registration Statement or the Prospectus
(or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any Incorporated
Document that are not described or filed as required, as the
case may be;
(xiii) To the best knowledge of such counsel after
reasonable inquiry, the Company is not in violation of any law,
ordinance, administrative or governmental rule or regulation
applicable to the Company or of any decree of any court or
governmental agency or body having jurisdiction over the
Company, except for any such violation which would have a
material adverse effect on the condition (financial or other),
business, net worth or results of operations of the Company;
(xiv) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts,
agreements or other legal documents, or refer to statements of
law or legal conclusions, are accurate and present fairly the
information required to be shown; and
(xv) Except as described in the Prospectus, there
are no outstanding options, warrants or other rights calling
for the issuance of, and such counsel does not know of any
commitment, plan or arrangement to issue, any shares of capital
stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company.
In addition, such counsel shall state that, although such
counsel has not undertaken, except as otherwise indicated in their
opinion, to determine independently, and does not assume any
responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has
26
participated in the preparation of the Registration Statement
and the Prospectus, including review and discussion of the contents
thereof (including review and discussion of the contents of all
Incorporated Documents), and nothing has come to the attention of such
counsel that has caused them to believe that the Registration Statement
(including the Incorporated Documents) at the time the Registration
Statement became effective, or the Prospectus, as of its date and as of
the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that any amendment or supplement
to the Prospectus, as of its respective date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to
the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration
Statement or the Prospectus or any Incorporated Document).
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel
retained by them or the Company as to laws of any jurisdiction other
than the United States, provided that (1) each such local counsel is
acceptable to you (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is delivered to
you and is, in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe
that they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date, an opinion
of Helen Mary Kasley, Esq., legal counsel at the Company, dated the
Closing Date and addressed to you, as Underwriters, to the effect that:
(i) The Company has full corporate power and
authority, and all necessary governmental authorizations,
approvals, orders, licenses, certificates, franchises and
permits of and from all governmental regulatory officials and
bodies (except where the failure so to have any such
authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would
not have a material adverse effect on the business, properties,
operations or financial condition of the Company), to own its
properties and to conduct its business as now being conducted,
as described in the Prospectus;
(ii) Other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or
governmental proceedings pending or threatened against the
Company, or to which the Company, or any of its property, is
subject, which if determined adversely to the Company would
have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of
operations of the Company;
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(iii) There are no agreements, contracts, indentures,
leases or other instruments, that are required to be described
in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an exhibit
to the Registration Statement or any Incorporated Document that
are not described or filed as required, as the case may be;
(iv) To the best knowledge of such counsel after
reasonable inquiry, the Company is not in violation of any law,
ordinance, administrative or governmental rule or regulation
applicable to the Company or of any decree of any court or
governmental agency or body having jurisdiction over the
Company, except for any such violation which would have a
material adverse effect on the condition (financial or other),
business, net worth or results of operations of the Company;
and
(v) Except as described in the Prospectus, there is
no holder of any security of the Company or any other person
who has the right, contractual or otherwise, to cause the
Company to sell or otherwise issue to them, or to permit them
to underwrite the sale of, the Shares or the right to have any
Common Stock or other securities of the Company included in the
registration statement or the right, as a result of the filing
of the registration statement, to require registration under
the Act of any shares of Common Stock or other securities of
the Company.
In addition, such counsel shall state that, although such counsel has
not undertaken, except as otherwise indicated in her opinion, to determine
independently, and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement and the Prospectus
(including the Incorporated Documents), such counsel has reviewed and discussed
the contents thereof and nothing has come to the attention of such counsel that
has caused her to believe that the Registration Statement (including the
Incorporated Documents) at the time the Registration Statement became
effective, or the Prospectus, as of its date and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or
28
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the
Closing Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus or
any Incorporated Document).
(e) You shall have received on the Closing Date an opinion
of Chapman and Cutler, counsel for the Underwriters, dated the Closing
Date and addressed to you, as Underwriters, with respect to the matters
referred to in clauses (iv), (vi), (vii) and (xi) and the penultimate
paragraph of the foregoing paragraph (c) and such other related matters
as you may request.
(f) You shall have received letters addressed to you, as
Underwriters, and dated the date hereof and the Closing Date from KPMG
Peat Marwick LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been taken or, to the knowledge of the Company,
shall be contemplated by the Commission at or prior to the Closing
Date; (ii) there shall not have been any change in the capital stock of
the Company nor any material increase in the short-term or long-term
debt of the Company (other than in the ordinary course of business)
from that set forth or contemplated in the Registration Statement or
the Prospectus (or any amendment or Supplement thereto); (iii) there
shall not have been, since the respective dates as of which information
is given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), except as may otherwise be stated in
the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net worth or
results of operations of the Company; (iv) the Company shall not have
any liabilities or obligations, direct or contingent (whether or not in
the ordinary course of business), that are material to the Company,
other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date,
and you shall have received a certificate, dated the Closing Date and
signed by the president and chief executive officer and the chief
financial officer and treasurer of the Company (or such other officers
as are acceptable to you), to the effect set forth in this Section 8(g)
and in Section 8(h) hereof.
29
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements
herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(i) Prior to the Closing Date the Shares shall have been
listed, subject to notice of issuance, on the New York Stock Exchange.
(j) You shall have received, on or prior to the Closing
Date, the "lock-up" letters contemplated by Section 5(n) hereof.
(k) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall
have reasonably requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company to each Underwriter as to the
statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 8, except that, if any
Option Closing Date is other than the Closing Date, the certificates, opinions
and letters referred to in paragraphs (c) through (g) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission by the Company of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectus, the
Incorporated Documents, and all amendments or supplements to any of them, as
may be reasonably requested for use in connection with the offering and sale of
the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in
connection with the original issuance and sale of the Shares; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the listing of the Shares on the New York Stock Exchange; (vi) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the reasonable fees, expenses and disbursements of counsel
for the Underwriters relating to the preparation,
30
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vii) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with
any filings, if any, required to be made with the National Association of
Securities Dealers, Inc.; (viii) the transportation and other expenses incurred
by or on behalf of Company representatives in connection with presentations to
prospective purchasers of the Shares; and (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such post-
effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing
Date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule I hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non-defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non- defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
31
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market shall have been suspended or materially
limited, (ii) a general moratorium on commercial banking activities in New York
or California shall have been declared by either federal or state authorities,
or (iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it, in your reasonable judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at 1720 North First Street, San Jose, California, Attention:
Harold C. Ulrich, Vice President, Chief Financial Officer & Treasurer; or (ii)
if to you, care of Smith Barney Inc., 1345 Avenue of the Americas, New York,
New York 10105, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Shares
in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
32
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
CALIFORNIA WATER SERVICE COMPANY
By /s/ DONALD L. HOUCK
President and Chief Executive Officer
Confirmed as of the date first above
mentioned.
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
As Underwriters
By SMITH BARNEY INC.
By /s/ WILLIAM PATTERSON
Managing Director
33
SCHEDULE I
CALIFORNIA WATER SERVICE COMPANY
Underwriter Number of Firm Shares
----------- ---------------------
Smith Barney Inc. 275,000
A.G. Edwards & Sons, Inc. 275,000
-------
TOTAL 550,000
=======
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