[BANK OF AMERICA LOGO]
Exhibit 10.2
LOAN AGREEMENT
This Agreement dated as of December 23, 2004, is between Bank of America, N.A.
(the "Bank") and California Water Service Company (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 1 Commitment") is Forty-Five Million and 00/100 Dollars
($45,000,000.00).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the principal balance outstanding to
exceed the Facility No. 1 Commitment. If the Borrower exceeds this
limit, the Borrower will immediately pay the excess to the Bank upon
the Bank's demand.
1.2 Availability Period. The line of credit is available between the date
of this Agreement and April 30, 2007, or such earlier date as the
availability may terminate as provided in this Agreement (the "Facility
No. 1 Expiration Date").
1.3 Repayment Terms.
(a) The Borrower will pay interest on December 31, 2004, and then on the
same day of each month thereafter until payment in full of any
principal outstanding under this facility.
(b) The Borrower will repay in full any principal, interest or other
charges outstanding under this facility no later than the Facility No.
1 Expiration Date. Any interest period for an optional interest rate
(as described below) shall expire no later than the Facility No. 1
Expiration Date.
1.4 Interest Rate.
(a) The interest rate is a rate per year equal to the Bank's Prime Rate
minus the Applicable Margin as defined below.
(b) The Prime Rate is the rate of interest publicly announced from time to
time by the Bank as its Prime Rate. The Prime Rate is set by the Bank
based on various factors, including the Bank's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime
Rate shall take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Prime Rate.
1.5 Optional Interest Rates. Instead of the interest rate based on the rate
stated in the paragraph entitled "Interest Rate" above, the Borrower
may elect the optional interest rates listed below for this Facility
No. 1 during interest periods agreed to by the Bank and the Borrower.
The optional interest rates shall be subject to the terms and
conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred
to as a "Portion." The following optional interest rates are available:
(a) The LIBOR Rate plus the Applicable Margin as defined below.
1.6 Applicable Margin. The Applicable Margin shall be the following amounts
per annum, based upon the Debt to Capitalization Ratio (as defined
below) as calculated on a consolidated basis from California Water
Service Group's ("CWSG") most recent financial statement received by
the Bank as required in the Covenants section; provided, however, that
until the Bank receives the first financial statement, such amounts
shall be those indicated for pricing level 1 set forth below:
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Applicable Margin
(in percentage points per annum)
Pricing Level Ratio Prime Rate - LIBOR Rate +
- ------------- -------------------------- -------------- -----------------------
1 less than 0.50:1.00 1.000 0.775
2 equal to or greater than 0.750 0.900
0.50:1.00 and
less than 0.55:1.00
3 equal to or greater than 0.625 1.025
0.55:1.00 and
less than 0.60:1.00
4 equal to or greater than 0.500 1.150
0.60:1.00
"Debt to Capitalization Ratio" means the ratio of Funded Debt to the sum of Net
Worth plus Funded Debt. "Funded Debt" means all outstanding liabilities for
borrowed money and other interest-bearing liabilities of CWSG, including current
and long-term debt. "Net Worth" means the value of CWSG's total assets
(including leaseholds and leasehold improvements and reserves against assets)
less its total liabilities, including but not limited to accrued and deferred
income taxes.
The Applicable Margin shall be in effect from the date the most recent financial
statement is received by the Bank until the date the next financial statement is
received; provided, however, that if the Borrower fails to timely deliver the
next financial statement, the Applicable Margin from the date such financial
statement was due until the date such financial statement is received by the
Bank shall be the highest pricing level set forth above.
1.7 Letters of Credit.
(a) During the availability period, at the request of the Borrower, the
Bank will issue standby letters of credit with a maximum maturity of
three hundred sixty-five (365) days but not to extend more than three
hundred sixty-five (365) days beyond the Facility No. 1 Expiration
Date. The standby letters of credit may include a provision providing
that the maturity date will be automatically extended each year for an
additional year unless the Bank gives written notice to the contrary.
(b) The amount of the letters of credit outstanding at any one time
(including the drawn and unreimbursed amounts of the letters of credit)
may not exceed Ten Million and 00/100 Dollars ($10,000,000.00).
(c) In calculating the principal amount outstanding under the Facility No.
1 Commitment, the calculation shall include the amount of any letters
of credit outstanding, including amounts drawn on any letters of credit
and not yet reimbursed.
(d) The following letter of credit is outstanding from the Bank for the
account of the Borrower:
Letter of Credit Number Amount
----------------------- ------
3060134 $500,000.00
As of the date of this Agreement, this letter of credit shall be deemed to be
outstanding under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.
(e) The Borrower agrees:
(i) Any sum drawn under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
(ii) If there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of
credit.
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(iii) The issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval and
must be in form and content satisfactory to the Bank and in
favor of a beneficiary acceptable to the Bank.
(iv) To sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for
Standby Letter of Credit, as applicable.
(v) To pay any issuance and/or other fees that the Bank notifies
the Borrower will be charged for issuing and processing
letters of credit for the Borrower.
(vi) To allow the Bank to automatically charge its checking account
for applicable fees, discounts, and other charges.
2. OPTIONAL INTEREST RATES
2.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on December 31, 2004, and then on the same day of
each month thereafter until payment in full of any principal
outstanding under this facility. No Portion will be converted to a
different interest rate during the applicable interest period. Upon the
occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest
periods commencing after the default occurs. At the end of each
interest period, the interest rate will revert to the rate stated in
the paragraph(s) entitled "Interest Rate" above, unless the Borrower
has designated another optional interest rate for the Portion.
2.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be one or two weeks, one month, two months, three months, four months,
five months, six months, seven months, eight months, nine months, ten
months, eleven months or twelve months. The first day of the interest
period must be a day other than a Saturday or a Sunday on which the
Bank is open for business in New York and London and dealing in
offshore dollars (a "LIBOR Banking Day"). The last day of the interest
period and the actual number of days during the interest period will be
determined by the Bank using the practices of the London inter-bank
market.
(b) Each LIBOR Rate Portion will be for an amount not less than One Hundred
Thousand and 00/100 Dollars ($100,000.00).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the average per annum
interest rate at which U.S. dollar deposits would be offered
for the applicable interest period by major banks in the
London inter-bank market, as shown on the Telerate Page 3750
(or any successor page) at approximately 11:00 a.m. London
time two (2) London Banking Days before the commencement of
the interest period. If such rate does not appear on the
Telerate Page 3750 (or any successor page), the rate for that
interest period will be determined by such alternate method as
reasonably selected by the Bank. A "London Banking Day" is a
day on which the Bank's London Banking Center is open for
business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no later
than 12:00 noon Pacific time on the LIBOR Banking Day preceding the day
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on which the London Inter-Bank Offered Rate will be set, as specified
above. For example, if there are no intervening holidays or weekend
days in any of the relevant locations, the request must be made at
least three days before the LIBOR Rate takes effect.
(e) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate Portion are not
available in the London inter-bank market; or
(ii) The LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate Portion.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement.
(g) The prepayment fee shall be in an amount sufficient to compensate the
Bank for any loss, cost or expense incurred by it as a result of the
prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained
by it to maintain such Portion or from fees payable to terminate the
deposits from which such funds were obtained. The Borrower shall also
pay any customary administrative fees charged by the Bank in connection
with the foregoing. For purposes of this paragraph, the Bank shall be
deemed to have funded each Portion by a matching deposit or other
borrowing in the applicable interbank market, whether or not such
Portion was in fact so funded.
3. FEES AND EXPENSES
3.1 Fees.
(a) Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Facility No. 1 Commitment and the amount of
credit it actually uses, determined by the average of the daily amount
of credit outstanding during the specified period. The fee will be
calculated at the following percentage points per annum, based upon the
Debt to Capitalization Ratio (as defined in Paragraph 1.6 above). The
calculation of credit outstanding shall not include the undrawn amount
of letters of credit. The Debt to Capitalization Ratio will be
calculated in the manner described in Paragraph 1.6 of this Agreement;
provided, however, that until the Bank receives the first financial
statement, the fee will be calculated at the percentage points
indicated for fee level 1 set forth below:
Applicable Fee
Fee Level Ratio (in percentage points per annum)
- --------------------------------------------------------------------------------
1 less than 0.55:1.00 .125
2 equal to or greater than .250
0.55:1.00 and
less than 0.60:1.00
3 equal to or greater than .375
0.60:1.00
This fee is due on January 1, 2005, and on the same day of each
following quarter until the expiration of the availability period.
The Applicable Fee shall be in effect from the date the most recent
financial statement is received by the Bank until the date the next
financial statement is received; provided, however, that if the
Borrower fails to timely deliver the next financial statement, the
Applicable Fee from the date such financial statement was due until the
date such financial statement is received by the Bank shall be the
highest fee level set forth above.
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(b) Late Fee. To the extent permitted by law, the Borrower agrees to pay a
late fee in an amount not to exceed four percent (4%) of any payment
that is more than fifteen (15) days late. The imposition and payment of
a late fee shall not constitute a waiver of the Bank's rights with
respect to the default.
3.2 Expenses. The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing, recording and
search fees, appraisal fees, title report fees, and documentation fees.
3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement. Expenses include,
but are not limited to, reasonable attorneys' fees, including any
allocated costs of the Bank's in-house counsel to the extent permitted
by applicable law.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Disbursements and Payments.
(a) Each payment by the Borrower will be made in U.S. Dollars and
immediately available funds by direct debit to a deposit account as
specified below or, for payments not required to be made by direct
debit, by mail to the address shown on the Borrower's statement or at
one of the Bank's banking centers in the United States.
(b) Each disbursement by the Bank and each payment by the Borrower will be
evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
4.2 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates and
telefax requests for the issuance of letters of credit given, or
purported to be given, by any one of the individuals authorized to sign
loan agreements on behalf of the Borrower, or any other individual
designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from
account number 14872-00230 owned by the Borrower or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower will indemnify and hold the Bank harmless from all
liability, loss, and costs in connection with any act resulting from
telephone or telefax instructions the Bank reasonably believes are made
by any individual authorized by the Borrower to give such instructions.
This paragraph will survive this Agreement's termination, and will
benefit the Bank and its officers, employees, and agents.
4.3 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit deposit account number
14872-00230 owned by the Borrower or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower (the
"Designated Account") on the date each payment of principal and
interest and any fees from the Borrower becomes due (the "Due Date").
(b) Prior to each Due Date, the Bank will mail to the Borrower a statement
of the amounts that will be due on that Due Date (the "Billed Amount").
The bill will be mailed a specified number of calendar days prior to
the Due Date, which number of days will be mutually agreed from time to
time by the Bank and the Borrower. The calculations in the bill will be
made on the assumption that no new extensions of credit or payments
will be made between the date of the billing statement and the Due
Date, and that there will be no changes in the applicable interest
rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued
Amount"). If the Billed Amount debited to the Designated Account
differs from the Accrued Amount, the discrepancy will be treated as
follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by
the amount of the discrepancy. The Borrower will not be in
default by reason of any such discrepancy.
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(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by
the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. The Bank will not pay the Borrower interest on any
overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the Bank may reverse the debit.
(e) The Borrower may terminate this direct debit arrangement at any time by
sending written notice to the Bank at the address specified at the end
of this Agreement. If the Borrower terminates this arrangement, then
the principal amount outstanding under this Agreement will at the
option of the Bank bear interest at a rate per annum which is 0.5
percentage point higher than the rate of interest otherwise provided
under this Agreement.
4.4 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close, or are in fact closed, in the
state where the Bank's lending office is located, and, if such day
relates to amounts bearing interest at an offshore rate (if any), means
any such day on which dealings in dollar deposits are conducted among
banks in the offshore dollar interbank market. All payments and
disbursements which would be due on a day which is not a banking day
will be due on the next banking day. All payments received on a day
which is not a banking day will be applied to the credit on the next
banking day.
4.5 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day
year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used. Installments
of principal which are not paid when due under this Agreement shall
continue to bear interest until paid.
4.6 Default Rate. Upon the occurrence of any default under this Agreement,
all amounts outstanding under this Agreement, including any interest,
fees, or costs which are not paid when due, will at the option of the
Bank bear interest at a rate which is 2.0 percentage points higher than
the rate of interest otherwise provided under this Agreement. This may
result in compounding of interest. This will not constitute a waiver of
any default.
5. CONDITIONS
Before the Bank is required to extend any credit to the Borrower under this
Agreement, it must receive any documents and other items it may reasonably
require, in form and content acceptable to the Bank, including any items
specifically listed below.
5.1 Authorizations. If the Borrower or any guarantor is anything other than
a natural person, evidence that the execution, delivery and performance
by the Borrower and/or such guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly
authorized.
5.2 Governing Documents. If required by the Bank, a copy of the Borrower's
organizational documents.
5.3 Guaranty. Guaranty signed by CWSG.
5.4 Payment of Fees. Payment of all fees and other amounts due and owing to
the Bank, including without limitation payment of all accrued and
unpaid expenses incurred by the Bank as required by the paragraph
entitled "Reimbursement Costs."
5.5 Good Standing. Certificates of good standing for the Borrower from its
state of formation and from any other state in which the Borrower is
required to qualify to conduct its business.
5.6 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
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6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewal of these representations and
warranties as of the date of the request:
6.1 Formation. The Borrower is duly formed and existing under the laws of
the state or other jurisdiction where organized.
6.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized,
and do not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, and any instrument or agreement required
hereunder, when executed and delivered, will be similarly legal, valid,
binding and enforceable.
6.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
6.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
6.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is sufficiently complete to give
the Bank accurate knowledge of the Borrower's (and any guarantor's)
financial condition, including all material contingent liabilities.
Since the date of the most recent financial statement provided to the
Bank, there has been no material adverse change in the business
condition (financial or otherwise), operations, properties or prospects
of the Borrower (or any guarantor).
6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the
Borrower's financial condition or ability to repay the loan, except as
have been disclosed in writing to the Bank.
6.8 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights,
trade name rights, patent rights, copyrights and fictitious name rights
necessary to enable it to conduct the business in which it is now
engaged.
6.9 Other Obligations. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material
lease, commitment, contract, instrument or obligation, except as have
been disclosed in writing to the Bank.
6.10 Tax Matters. The Borrower has no knowledge of any pending assessments
or adjustments of its income tax for any year and all taxes due have
been paid, except as have been disclosed in writing to the Bank.
6.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
6.12 Insurance. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this
Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of Facility No. 1 only for working
capital and general corporate purposes and to bridge capital
expenditures.
7.2 Financial Information. To provide the following financial information
and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:
(a) Within one hundred twenty (120) days of the fiscal year end, the annual
financial statements of the Borrower. These financial statements must
be audited (with an opinion satisfactory to the Bank) by a Certified
Public Accountant acceptable to the Bank. The statements shall be
prepared on an unconsolidated basis.
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(b) Within sixty (60) days of the period's end, quarterly financial
statements of the Borrower, certified and dated by an authorized
financial officer. These financial statements may be company-prepared.
The statements shall be prepared on an unconsolidated basis.
(c) Within the periods provided in (a) and (b) above, a compliance
certificate of the Borrower signed by an authorized financial officer,
and setting forth (i) the computation (on a consolidated basis) of the
Debt to Capitalization Ratio (as defined in Paragraph 1.6 above) at the
end of the period covered by the financial statements then being
furnished and (ii) whether there existed as of the date of such
financial statements and whether there exists as of the date of the
certificate, any default under this Agreement and, if any such default
exists, specifying the nature thereof and the action the Borrower is
taking and proposes to take with respect thereto.
(d) Within ninety (90) days of the fiscal year end, the annual financial
statements of CWSG. These financial statements must be audited (with an
opinion satisfactory to the Bank) by a Certified Public Accountant
acceptable to the Bank. The statements shall be prepared on a
consolidated and consolidating basis.
(e) Within sixty (60) days of the period's end, quarterly financial
statements of CWSG, certified and dated by an authorized financial
officer. These financial statements may be company-prepared. The
statements shall be prepared on a consolidated and consolidating basis.
(f) Copies of the Form 10-K Annual Report and Form 10-Q Quarterly Report
for CWSG within ten (10) days after the date of filing with the
Securities and Exchange Commission.
(g) The annual financial projections of the Borrower covering a time period
acceptable to the Bank and specifying the assumptions used in creating
the projections. These projections shall be provided to the Bank by
April 30th of each year.
(h) The annual financial projections of CWSG covering a time period
acceptable to the Bank and specifying the assumptions used in creating
the projections. These projections shall be provided to the Bank by
April 30th of each year.
7.3 Out of Debt Periods and Reduction of Debt Periods.
(a) Out of Debt Periods. Not to permit the passage of any period
of twenty-four (24) consecutive months during which the
Borrower fails to repay in full the advances outstanding under
Facility No. 1 for a period of at least thirty (30)
consecutive days.
(b) Reduction of Debt Periods. Not to permit the passage of any
period of twelve (12) consecutive months during which the
Borrower fails to reduce the amount of advances outstanding
under Facility No. 1 to not more than Ten Million Dollars
($10,000,000) for a period of at least thirty (30) consecutive
days.
For purposes of this paragraph, "advances" does not include undrawn amounts of
outstanding letters of credit.
7.4 Other Debts. Not to have outstanding or incur any direct or contingent
liabilities or lease obligations (other than those to the Bank), or
become liable for the liabilities of others, without the Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities, lines of credit and leases in existence on the date of
this Agreement disclosed in writing to the Bank.
(e) Additional debts and lease obligations for the acquisition of fixed
assets, to the extent permitted under Paragraph 7.5(d) of this
Agreement.
(f) Additional obligations of the Borrower consisting of first mortgage
bonds or unsecured senior notes substantially similar in amount and
structure to those certain first mortgage bonds and unsecured senior
notes that are outstanding as of the date of this Agreement.
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7.5 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later
owns, except:
(a) Liens and security interests in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in assets acquired after
the date of this Agreement, if the total principal amount of debts
secured by such liens does not exceed Five Million Dollars ($5,000,000)
at any one time.
(e) Liens securing first mortgage bonds permitted under the preceding
paragraph.
7.6 Maintenance of Assets.
(a) Not to sell, assign, lease, transfer or otherwise dispose of any part
of the Borrower's business or the Borrower's assets except in the
ordinary course of the Borrower's business. It is provided, however,
that this negative covenant shall not be deemed to prohibit transfers
and sales by the Borrower to CWS Utility Services of those certain
parcels of real property that are not essential to Borrower's regulated
water operations.
(b) Not to sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do so.
(c) Not to enter into any sale and leaseback agreement covering any of its
fixed assets.
(d) To maintain and preserve all rights, privileges, and franchises the
Borrower now has.
(e) To make any repairs, renewals, or replacements to keep the Borrower's
properties in good working condition.
7.7 Loans. Not to make any loans, advances or other extensions of credit to
any individual or entity, except for:
(a) Existing extensions of credit disclosed to the Bank in writing.
(b) Extensions of credit to the Borrower's current subsidiaries.
(c) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business to non-affiliated entities.
7.8 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) Enter into any consolidation, merger, or other combination, or become a
partner in a partnership, a member of a joint venture, or a member of a
limited liability company.
(b) Acquire or purchase a business or its assets.
(c) Engage in any business activities substantially different from the
Borrower's present business.
(d) Liquidate or dissolve the Borrower's business.
(e) Voluntarily suspend the Borrower's business for more than seven (7)
days in any three hundred sixty-five (365) day period.
7.9 Notices to Bank. To promptly notify the Bank in writing of:
(a) Any lawsuit over Five Million and 00/100 Dollars ($5,000,000.00)
against the Borrower (or any guarantor).
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(b) Any substantial dispute between any governmental authority and the
Borrower (or any guarantor).
(c) Any event of default under this Agreement, or any event which, with
notice or lapse of time or both, would constitute an event of default.
(d) Any material adverse change in the Borrower's (or any guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(e) Any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
(f) Any actual contingent liabilities of the Borrower (or any guarantor),
and any such contingent liabilities which are reasonably foreseeable,
where such liabilities are in excess of Five Million and 00/100 Dollars
($5,000,000.00) in the aggregate.
7.10 General Business Insurance. To maintain insurance as is usual for the
business it is in.
7.11 Compliance with Laws. To comply with the laws (including any fictitious
or trade name statute), regulations, and orders of any government body
with authority over the Borrower's business.
7.12 ERISA Plans. Promptly during each year, to pay and cause any
subsidiaries to pay contributions adequate to meet at least the minimum
funding standards under ERISA with respect to each and every Plan; file
each annual report required to be filed pursuant to ERISA in connection
with each Plan for each year; and notify the Bank within ten (10) days
of the occurrence of any Reportable Event that might constitute grounds
for termination of any capital Plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any Plan. "ERISA" means the
Employee Retirement Income Security Act of 1974, as amended from time
to time. Capitalized terms in this paragraph shall have the meanings
defined within ERISA.
7.13 Books and Records. To maintain adequate books and records.
7.14 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at
any reasonable time. If any of the Borrower's properties, books or
records are in the possession of a third party, the Borrower authorizes
that third party to permit the Bank or its agents to have access to
perform inspections or audits and to respond to the Bank's requests for
information concerning such properties, books and records.
7.15 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
8. DEFAULT AND REMEDIES
If any of the following events of default occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event which, with notice or the
passage of time, will constitute an event of default has occurred and is
continuing, the Bank has no obligation to make advances or extend additional
credit under this Agreement. In addition, if any event of default occurs, the
Bank shall have all rights, powers and remedies available under any instruments
and agreements required by or executed in connection with this Agreement, as
well as all rights and remedies available at law or in equity. If an event of
default occurs under the paragraph entitled "Bankruptcy," below, with respect to
the Borrower, then the entire debt outstanding under this Agreement will
automatically be due immediately.
8.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.
8.2 Other Bank Agreements. Any default occurs under any other agreement the
Borrower (or any Obligor) or any of the Borrower's related entities or
affiliates has with the Bank or any affiliate of the Bank. For purposes
of this Agreement, "Obligor" shall mean any guarantor or any party
pledging collateral to the Bank.
8.3 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any Obligor) or any of the Borrower's
related entities or affiliates has obtained from anyone else or which
the Borrower (or any Obligor) or any of the Borrower's related entities
or affiliates has guaranteed.
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8.4 False Information. The Borrower or any Obligor has given the Bank false
or misleading information or representations.
8.5 Bankruptcy. The Borrower, any Obligor, or any general partner of the
Borrower or of any Obligor files a bankruptcy petition, a bankruptcy
petition is filed against any of the foregoing parties, or the
Borrower, any Obligor, or any general partner of the Borrower or of any
Obligor makes a general assignment for the benefit of creditors.
8.6 Receivers. A receiver or similar official is appointed for a
substantial portion of the Borrower's or any Obligor's business, or the
business is terminated, or, if any Obligor is anything other than a
natural person, such Obligor is liquidated or dissolved.
8.7 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower or any Obligor in an aggregate
amount of Five Million and 00/100 Dollars ($5,000,000.00) or more in
excess of any insurance coverage.
8.8 Judgments. Any judgments or arbitration awards are entered against the
Borrower or any Obligor, or the Borrower or any Obligor enters into any
settlement agreements with respect to any litigation or arbitration, in
an aggregate amount of Five Million and 00/100 Dollars ($5,000,000.00)
or more in excess of any insurance coverage.
8.9 Material Adverse Change. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's (or any Obligor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
8.10 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any Obligor's
financial condition or ability to repay.
8.11 Default under Related Documents. Any default occurs under any guaranty,
subordination agreement, security agreement, deed of trust, mortgage,
or other document required by or delivered in connection with this
Agreement or any such document is no longer in effect, or any guarantor
purports to revoke or disavow the guaranty.
8.12 ERISA Plans. Any one or more of the following events occurs with
respect to a Plan of the Borrower subject to Title IV of ERISA,
provided such event or events could reasonably be expected, in the
judgment of the Bank, to subject the Borrower to any tax, penalty or
liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial
condition of the Borrower:
(a) A reportable event shall occur under Section 4043(c) of ERISA with
respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the full or partial withdrawal from a Plan by the Borrower or
any ERISA Affiliate.
8.13 Other Breach Under Agreement. A default occurs under any other term or
condition of this Agreement not specifically referred to in this
Article. This includes any failure or anticipated failure by the
Borrower (or any other party named in the Covenants section) to comply
with the financial covenants set forth in this Agreement, whether such
failure is evidenced by financial statements delivered to the Bank or
is otherwise known to the Borrower or the Bank.
8.14 Restrictive Covenant. CWSG directly or indirectly agrees to any
arrangement whereby the ability of any of its subsidiaries to pay
dividends to CWSG is restricted.
8.15 Debt to Capitalization Ratio. The Debt to Capitalization Ratio, as
defined in Paragraph 1.6 above and as calculated on a consolidated
basis from CWSG's most recent financial statement received by the Bank
as required under the Covenants section above, exceeds 0.667:1.0.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently
applied.
9.2 California Law. This Agreement is governed by California state law.
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9.3 Successors and Assigns. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may
not assign this Agreement without the Bank's prior consent. The Bank
may sell participations in or assign this loan, and may exchange
financial information about the Borrower with actual or potential
participants or assignees. If a participation is sold or the loan is
assigned, the purchaser will have the right of set-off against the
Borrower.
9.4 Arbitration and Waiver of Jury Trial
(a) This paragraph concerns the resolution of any controversies or claims
between the parties, whether arising in contract, tort or by statute,
including but not limited to controversies or claims that arise out of
or relate to: (i) this agreement (including any renewals, extensions or
modifications); or (ii) any document related to this agreement
(collectively a "Claim"). For the purposes of this arbitration
provision only, the term "parties" shall include any parent
corporation, subsidiary or affiliate of the Bank involved in the
servicing, management or administration of any obligation described or
evidenced by this agreement.
(b) At the request of any party to this agreement, any Claim shall be
resolved by binding arbitration in accordance with the Federal
Arbitration Act (Title 9, U. S. Code) (the "Act"). The Act will apply
even though this agreement provides that it is governed by the law of a
specified state.
(c) Arbitration proceedings will be determined in accordance with the Act,
the applicable rules and procedures for the arbitration of disputes of
JAMS or any successor thereof ("JAMS"), and the terms of this
paragraph. In the event of any inconsistency, the terms of this
paragraph shall control.
(d) The arbitration shall be administered by JAMS and conducted, unless
otherwise required by law, in any U. S. state where real or tangible
personal property collateral for this credit is located or if there is
no such collateral, in the state specified in the governing law section
of this agreement. All Claims shall be determined by one arbitrator;
however, if Claims exceed Five Million Dollars ($5,000,000), upon the
request of any party, the Claims shall be decided by three arbitrators.
All arbitration hearings shall commence within ninety (90) days of the
demand for arbitration and close within ninety (90) days of
commencement and the award of the arbitrator(s) shall be issued within
thirty (30) days of the close of the hearing. However, the
arbitrator(s), upon a showing of good cause, may extend the
commencement of the hearing for up to an additional sixty (60) days.
The arbitrator(s) shall provide a concise written statement of reasons
for the award. The arbitration award may be submitted to any court
having jurisdiction to be confirmed and enforced.
(e) The arbitrator(s) will have the authority to decide whether any Claim
is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis. For purposes of the application of the
statute of limitations, the service on JAMS under applicable JAMS rules
of a notice of Claim is the equivalent of the filing of a lawsuit. Any
dispute concerning this arbitration provision or whether a Claim is
arbitrable shall be determined by the arbitrator(s). The arbitrator(s)
shall have the power to award legal fees pursuant to the terms of this
agreement.
(f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate
judicial or non-judicial foreclosure against any real or personal
property collateral; (iii) exercise any judicial or power of sale
rights, or (iv) act in a court of law to obtain an interim remedy, such
as but not limited to, injunctive relief, writ of possession or
appointment of a receiver, or additional or supplementary remedies.
(g) The procedure described above will not apply if the Claim, at the time
of the proposed submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property. In this case, all of
the parties to this agreement must consent to submission of the Claim
to arbitration. If both parties do not consent to arbitration, the
Claim will be resolved as follows: The parties will designate a referee
(or a panel of referees) selected under the auspices of JAMS in the
same manner as arbitrators are selected in JAMS administered
proceedings. The designated referee(s) will be appointed by a court as
provided in California Code of Civil Procedure Section 638 and the
following related sections. The referee (or presiding referee of the
panel) will be an active attorney or a retired judge. The award that
results from the decision of the referee(s) will be entered as a
judgment in the court that appointed the referee, in accordance with
the provisions of California Code of Civil Procedure Sections 644 and
645.
(h) The filing of a court action is not intended to constitute a waiver of
the right of any party, including the suing party, thereafter to
require submittal of the Claim to arbitration.
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(i) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect
of any Claim. Furthermore, without intending in any way to limit this
agreement to arbitrate, to the extent any Claim is not arbitrated, the
parties irrevocably and voluntarily waive any right they may have to a
trial by jury in respect of such Claim. This provision is a material
inducement for the parties entering into this agreement.
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the Bank
waives a default, it may enforce a later default. Any consent or waiver
under this Agreement must be in writing.
9.6 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection
with the enforcement or preservation of any rights or remedies under
this Agreement and any other documents executed in connection with this
Agreement, and in connection with any amendment, waiver, "workout" or
restructuring under this Agreement. In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover
costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or
arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or
any similar or successor statute, the Bank is entitled to recover costs
and reasonable attorneys' fees incurred by the Bank related to the
preservation, protection, or enforcement of any rights of the Bank in
such a case. As used in this paragraph, "attorneys' fees" includes the
allocated costs of the Bank's in-house counsel.
9.7 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail. Any reference in any
related document to a "promissory note" or a "note" executed by the Borrower and
dated as of the date of this Agreement shall be deemed to refer to this
Agreement, as now in effect or as hereafter amended, renewed, or restated.
9.8 Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement
or any document required hereunder, (b) any credit extended or
committed by the Bank to the Borrower hereunder, and (c) any litigation
or proceeding related to or arising out of this Agreement, any such
document or any such credit; provided, however, that the Borrower shall
have no such obligation to indemnify or hold the Bank harmless to the
extent such loss, liability, damages, judgments or costs result from
the gross negligence or willful misconduct of the Bank, its officers,
agents or employees. This indemnity includes but is not limited to
attorneys' fees (including the allocated cost of in-house counsel).
This indemnity extends to the Bank, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys,
and assigns. This indemnity will survive repayment of the Borrower's
obligations to the Bank. All sums due to the Bank hereunder shall be
obligations of the Borrower, due and payable immediately without
demand.
9.9 Notices. Unless otherwise provided in this Agreement or in another
agreement between the Bank and the Borrower, all notices required under
this Agreement shall be personally delivered or sent by first class
mail, postage prepaid, or by overnight courier, to the addresses on the
signature page of this Agreement, or sent by facsimile to the fax
numbers listed on the signature page, or to such other addresses as the
Bank and the Borrower may specify from time to time in writing. Notices
and other communications shall be effective (i) if mailed, upon the
earlier of receipt or five (5) days after deposit in the U.S. mail,
first class, postage prepaid, (ii) if telecopied, when transmitted, or
(iii) if hand-delivered, by courier or otherwise (including telegram,
lettergram or mailgram), when delivered.
9.10 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of
this Agreement.
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9.11 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the
same agreement.
9.12 Prior Agreement Superseded. This Agreement supersedes the Business Loan
Agreement entered into as of February 28, 2003, between the Bank and
the Borrower, and any credit outstanding thereunder shall be deemed to
be outstanding under this Agreement.
9.13 Commitment Expiration. The Bank's commitment to extend credit under
this Agreement will expire on December 24, 2004, unless this Agreement
and any documents required by this Agreement have been signed and
returned to the Bank on or before that date.
This Agreement is executed as of the date stated at the top of the first page.
Borrower: Bank:
California Water Service Company Bank of America, N.A.
By: /Richard D. Nye/ By: /John C. Plecque/
--------------------------------- ------------------------------
Richard D. Nye, Vice President, Chief John C. Plecque, Senior
Vice President Financial
Officer and Treasurer
Address where notices to the Address where notices to the
Borrower are to be sent: Bank are to be sent:
1720 North First Street 315 Montgomery Street, 13th Floor
San Jose, CA 95112 San Francisco, CA 94104
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