EXHIBIT 10.22
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of August
9, 2002, by and between WINDERMERE UTILILTY CO., INC., a Texas corporation (the
"Borrower"), SOUTHWEST WATER COMPANY, a Delaware corporation (the "Guarantor")
and BANK OF THE WEST (the "Lender").
W I T N E S S E T H:
THAT, in consideration of the mutual covenants, agreements and undertakings
herein contained, the parties hereto agree as follows:
1. Definitions:
Unless a particular word or phrase is otherwise defined or the context
otherwise requires, capitalized words and phrases used in Loan Documents have
the meanings provided below (such meanings to be applicable to both the singular
and plural forms of these words):
Accounts, Account Debtor, Equipment, Inventory and General Intangibles
shall have the respective meanings assigned to them in the Texas Business and
Commerce Code in force on the date the document using such term was executed.
Adjusted LIBOR shall mean the sum of the LIBOR plus one and three-fourths
percent (1-3/4%).
Affiliate shall mean any Person controlling, controlled by, or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise. If any Person shall own, directly
or indirectly, twenty percent (20%) or more of the indicia of equity rights
(whether outstanding capital stock, partnership interests or otherwise) of
another Person, such Person shall be deemed to be an Affiliate.
Agreement shall mean this Loan Agreement.
Annual Audited Financial Statements shall mean consolidated financial
statements, including all notes thereto, which statements shall include a
balance sheet as of the end of such fiscal year and an income statement and a
statement of changes in cash flows for such fiscal year, all setting forth in
comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with Generally Accepted Accounting Principles and
accompanied by a report and opinion of independent certified public accountants
qualified to practice before the SEC, which shall state that such financial
statements, in the opinion of
such accountants, present fairly the financial position of such Person as of the
date thereof and the results of its operations for the period covered thereby in
conformity with Generally Accepted Accounting Principles.
Annual Unaudited Financial Statements shall mean annual financial
statements, which shall include a balance sheet as of the end of such fiscal
year and an income statement and a statement of changes in cash flows for such
fiscal year, all setting forth in comparative form the corresponding figures
from the previous fiscal year, all prepared in conformity with Generally
Accepted Accounting Principles, which agree, on a consolidating basis, with the
Annual Audited Financial Statements of the Guarantor.
Capital Expenditures shall mean all expenditures which, in accordance with
Generally Accepted Accounting Principles, would be capitalized, excluding those
specifically financed by the Lender.
Chapter 303 shall mean Chapter 303 of the Texas Finance Code, as in effect
on the date the document using such term was executed (unless otherwise provided
in such document).
Code shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
Collateral shall mean all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Security Documents, or intended so to
be.
Coverage Ratio shall mean the ratio of (a) the sum of net income after
taxes, plus depreciation and amortization, less dividends to (b) the prior
year's current maturities of long-term debt, all as determined in accordance
with Generally Accepted Accounting Principles.
Debt to Worth Ratio shall mean the ratio of (a) total liabilities, less
contributions in aid of construction, living unit equivalents and inter-company
debt which is subordinated in payment to the Loan to (b) net worth, being total
assets minus total liabilities, as determined in accordance with Generally
Accepted Accounting Principles.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
Event of Default shall mean any of the events specified as a default in any
Loan Document, including without limitation any of the events described in
Section 7.1 of this Agreement, provided there has been satisfied any requirement
in connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and Default shall mean any
of such events, whether or not any such requirement has been satisfied.
Generally Accepted Accounting Principles shall mean, as to a particular
Person, such accounting practice as, in the opinion of the independent accounts
of recognized national standing regularly retained by such Person and acceptable
to the Lender, conforms at the time to Generally Accepted Accounting Principles,
consistently applied. Generally Accepted Accounting Principles means those
principles and practices (1) which are recognized as such by the Financial
Accounting Standards Board, (2) which are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the most recent audited financial statements of the
relevant Person furnished to the Lender, and (3) which are consistently applied
for all periods after the date hereof so as to reflect properly the financial
condition, and results of operations and changes in cash flow, of such Person.
Any accounting terms used in this Agreement but not defined herein shall have
the same meaning as promulgated by the Financial Accounting Standards Board.
Highest Lawful Rate shall mean the maximum nonusurious rate of interest
permitted to be charged, contracted for, received or collected by applicable
federal or Texas law (whichever shall permit the higher lawful rate) from time
to time in effect. At all times, if any, as Chapter 303 shall establish the
Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated rate
ceiling" (as defined in Chapter 303) from time to time in effect. If the
obligation is an open-end account, the Lender may from time to time, as to
then-current and future balances, implement any other ceiling under Chapter 303
and/or revise the index, formula, or provision of law used to compute the rate
on such obligation, if and to the extent permitted by, and in the manner
provided in, Chapter 303.
Indebtedness shall mean and include (1) all items which in accordance with
Generally Accepted Accounting Principles would be included on the liability side
of a balance sheet on the date as of which Indebtedness is to be determined
(excluding capital stock, surplus, surplus reserves, and deferred credits), (2)
all guaranties, endorsements, and other contingent obligations respecting any
obligations to purchase or otherwise acquire, Indebtedness of others, (3) all
Indebtedness secured by any Lien existing on any interest of the Person
respecting which Indebtedness is being determined in Property owned subject to
such Lien whether or not the Indebtedness secured thereby shall have been
assumed, and (4) capital leases; provided, that such term shall not mean or
include any Indebtedness in respect of which monies sufficient to pay and
discharge the same in full (either on the expressed date of maturity thereof or
on such earlier date as such Indebtedness may be duly called for redemption and
payment) have been deposited with a depository, agency, or trustee acceptable to
the Lender in trust for the payment thereof.
Interest Period shall mean a one (1) month, three (3) month of six (6)
month period chosen by the Borrower and specified in each Rate Request.
Investment shall mean the purchase or other acquisition of any securities
or Indebtedness of, or the making of any loan, advance, transfer of Property, or
capital contribution to, or the incurring of any liability, contingently or
otherwise, respecting the Indebtedness of, any Person.
LIBOR shall mean the London Interbank Offered Rate as quoted under the
title "Money Rates" in the Wall Street Journal issue published on or nearest to
the date said rate is to be determined for any pertinent Interest Period,
adjusted upward to the nearest hundredth of one percent to compensate for any
reserve requirements (including any basic, supplemental, marginal and emergency
reserves under regulations of any governmental authority) actually required to
be maintained by the Lender. In the event The Wall Street Journal ceases or
fails to publish LIBOR for any reason, then the Lender shall determine LIBOR by
reference to other recognized sources of market information.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment, or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute, or contract, and
shall include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases, and other title exceptions.
Loan shall mean all indebtedness for money borrowed from the Lender by the
Borrower, together with all other liabilities of the Borrower under the Loan
Documents, whether now existing or hereafter arising.
Loan Documents shall mean this Agreement, the Note, all Security Documents,
all instruments, certificates, and agreements now or hereafter executed or
delivered to the Lender pursuant to any of the foregoing, and all amendments,
modifications, renewals, extensions, increases, and rearrangements of, and
substitutions for, any of the foregoing.
Material shall mean an expected result or impact with a value of greater
than $250,000.00, as to the Borrower, or $500,000.00 as to the Guarantor.
Note shall mean the Promissory Note described in Section 2.1 hereof.
Parties shall mean all Persons other than the Lender executing any Loan
Document.
Permitted Investment Securities shall mean: (1) readily marketable
securities issued or fully guaranteed by the United States of American; (2)
commercial paper rated "Prime 1" by Moody's Investor Service, Inc., or A-1 by
Standard and Poor's Borrower with maturities of not more than one hundred eighty
(180) days; (3) mutual funds acceptable to the Lender; (4) certificates of
deposit or repurchase contracts with financial institutions acceptable to the
Lender on terms satisfactory to the Lender, all of the foregoing not having a
maturity of more than one (1) year from the date of issuance thereof; and (5)
readily marketable securities received in settlement of liabilities created in
the ordinary course of business.
Person shall mean any individual, business entity, trust, unincorporated
organization, governmental authority, or any other form of entity.
Plan shall mean any plan subject to Title IV of ERISA and maintained for
employees of the Borrower or of any member of a "controlled group of
corporations", as such term is
defined in the Code, of which the Borrower is a part, or any such plan to which
the Borrower is required to contribute on behalf of its employees.
Property shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
Quarterly Unaudited Financial Statements shall mean quarterly financial
statements which statements shall include a balance sheet as of the end of such
period and an income statement for such period, and for the fiscal year to date,
subject to normal end of period adjustments, all setting forth in comparative
form the corresponding figures for the corresponding month of the preceding
year, prepared in accordance with Generally Accepted Accounting Principles and
certified by the president or chief financial officer of such Person as being
true and correct and fairly reflecting the financial position of such Person as
of the date thereof and the results of its operations for the period covered
thereby.
Rate Request shall mean a choice of interest rate made by the Borrower
pursuant to this Agreement.
Security Documents shall mean this Agreement, the security agreement, and
any and all other agreements, mortgages, security agreements, pledges,
guaranties, assignments of income, assignments of contract rights, subordination
agreements, undertakings, and other instruments and financing statements now or
hereafter executed and delivered by any Person (other than solely by the Lender
and/or any other creditor participating in the Loan or any collateral or
security therefor) in connection with, or as security for the payment or
performance of, the Note, or any Indebtedness.
Subsidiary shall mean, as to a particular parent business entity, any
business entity of which fifty percent (50%) or more of the indicia of equity
rights (whether outstanding capital stock or otherwise) is at the time directly
or indirectly owned by such parent business entity, or by one or more of its
Affiliates.
2. The Loan.
2.1 Description of the Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties made by
the Borrower and the Guarantor, the Lender agrees to (a) make available to the
Borrower a $10,000,000.00 term loan, as evidenced by the Promissory Note (the
"Note") in substantially the form attached hereto as Exhibit "A". The Loan is
secured, in part, by the Borrower's Accounts, Equipment, Inventory and General
Intangibles, and the Borrower's real property located in Travis County, Texas,
together with all improvements, fixtures, equipment and other appurtenances
attached thereto.
2.2 Rates of Interest on the Note. From the date of this Agreement
until maturity, interest shall accrue on the Note at a rate (or rates) per annum
equal to a fixed rate equal to Adjusted LIBOR for the pertinent Interest Period.
Each determination of the rate of interest
made by the Lender in accordance with this Agreement shall be conclusive except
in the case of manifest error. Each Rate Request shall include the following
information:
1. The amount of the Loan to be subject to the Rate Request;
2. The Borrower's choice of the Interest Period; and
3. Any other information required under the other provisions of this
Agreement.
Each Rate Request shall be made by telephone or in writing not later than
12:00 noon, local time, in Albuquerque, New Mexico, three (3) business days
prior to the date the Borrower desires for the rate to be changed under this
Agreement. In the event the Rate Request is made by telephone, written
confirmation of such Rate Request must be sent to the Lender within five (5)
business days following such Rate Request.
If the Borrower makes no interest rate choice by the end of any Interest
Period, the Borrower shall be deemed to have made a Rate Request for the same
Interest Period as previously in effect until such time as said Interest Period
ends (or the Note matures). The Borrower and the Lender contemplate that
different rate options may be in effect simultaneously under the Note.
Any Rate Request shall be subject to the following special provisions: (a)
interest shall commence on the date specified in the Rate Request and shall
remain in effect for the Interest Period specified in the pertinent Rate
Request, or until maturity, whichever is earlier; (b) if any Interest Period
would otherwise expire on a day which is not a banking day in Albuquerque, New
Mexico, such Interest Period shall expire on the next succeeding banking day;
(c) no Interest Period shall extend beyond the scheduled maturity of the Note;
and (d) no more than ten (10) Interest Periods shall be in existence under this
Agreement at any time.
2.3 Fees and Deposit. The Borrower shall pay the Lender a fee of
$100,000.00 (1.00%) for the Loan at funding, and an annual fee of $12,000.00,
commencing on August 9, 2003 and continuing annually through and including
August 9, 2011. Furthermore, the Borrower shall deposit $100,000.00 (the
"Deposit") at funding, which Deposit shall be applied toward the cost of the
interest rate swap described in Section 5.13 of this Agreement, or, at the
Borrower's option, refunded to the Borrower after the interest rate swap
agreement is executed. If the Borrower fails to enter into said interest rate
swap by December 15, 2002, the Lender shall be entitled to retain the Deposit as
an additional fee for the Loan.
3. Conditions.
3.1 Funding. The obligation of the Lender to fund the proceeds of the
Loan to the Borrower is subject to the receipt by the Lender of each of the
following, in form and substance satisfactory to the Lender:
(a) The Note;
(b) Appropriate certificates from the Borrower and the Guarantor which
evidence the authority of the officers and agents of the Borrower
and the Guarantor to
execute the Loan Documents, together with copies of appropriate
organizational documents for said entities;
(c) The Security Documents;
(d) Policies of insurance reflecting the insurance required by Section
5.6 hereof;
(e) Satisfaction of the requirements described in commitment letter
from the Lender to the Borrower dated on or about May 31, 2002;
(f) An opinion from the Borrower's counsel in form and substance
acceptable to the Lender;
(g) Evidence satisfactory to the Lender as to the priority of the
security interests created by the Security Documents, and to the
further condition that, at the time of the initial advance of
funds, all legal matters incident to the transactions herein
contemplated shall be satisfactory to counsel for the Lender;
(h) A business valuation prepared by an appraiser acceptable to the
Lender showing that the market value of the Borrower is not less
than $13,333,333.33; and
(i) A Phase I Environmental Site Assessment in form and substance
acceptable to the Lender that concludes that no impairments exist
or are likely to exist.
4. Representations and Warranties.
To induce the Lender to enter into this Agreement and to make the Loan, the
Parties represent and warrant as follows:
4.1 Organization. Windermere Utility Co., Inc. expressly represents and
warrants to the Lender that it is a corporation duly organized and existing
under the laws of the State of Texas; that it possesses full power and authority
to own its property and to conduct its business as presently proposed to be
conducted; that the execution and delivery of this Agreement and the Loan
Documents and the performance of the obligations hereunder will not contravene
any provisions of its articles of incorporation; and that the president, vice
president or other agent executing this Agreement and the Loan Documents is
expressly authorized to execute this Agreement and the Loan Documents by
resolution of the Board of Directors of the Borrower.
4.2 Financial Statements. The financial statements delivered to the
Lender fairly present, in accordance with Generally Accepted Accounting
Principles, the results of operations of the Borrower and the Guarantor at the
dates and for the periods indicated. No Material adverse change has occurred in
the Property, liabilities, and financial condition of, and no significant
adverse change has occurred in the business of affairs of, the Borrower or the
Guarantor since the dates of such financial statements. The Borrower is not
subject to any instrument or agreement materially and adversely affecting its
financial condition, business, or affairs.
4.3 Enforceable Obligations; Authorization. The Loan Documents are
legal, valid, and binding obligations of the Parties thereto, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, and other similar laws affecting
creditors' rights generally and by general equitable principles. The execution,
delivery, and performance of the Loan Documents have all been duly authorized by
all necessary action of the Parties.
4.4 Other Debt. None of the Parties are in default in the payment of
any other Indebtedness or under any Material agreement, mortgage, deed of trust,
security agreement or lease. Except as previously disclosed in writing to the
Lender, none of the Parties have any Indebtedness for borrowed money.
4.5 Litigation. Except as previously disclosed in writing to the Lender
and for matters in which less than $100,000.00 are in controversy, there is no
litigation or administrative proceeding pending or, to the knowledge of the
parties, threatened against, nor any outstanding judgment, order or decree
affecting, the Parties or any of the Property owned by the Parties.
4.6 Title. The Borrower has good and marketable title to all of its
assets, free and clear of any Lien except for property tax liens which are not
delinquent and mechanics' liens which are not Material or are bonded or
otherwise secured to the reasonable satisfaction of the Lender.
4.7 Taxes. The Parties have filed all tax returns required to have been
filed and paid all taxes due, except those for which extensions have been
obtained and those which are being contested in good faith and for which
reserves deemed adequate by the Lender have been established therefor. None of
the Parties are aware of any pending investigation by any taxing authority which
in the event of an adverse determination would have a Material adverse impact
upon the financial condition or the business prospects of the Parties.
4.8 Subsidiaries. The Borrower has no Subsidiaries.
4.9 ERISA. No reportable Event (as defined in Section 4043(b) of ERISA)
has occurred with respect to any Plan. Each Plan complies with all applicable
provisions of ERISA, and the Borrower has filed all reports required by ERISA
and the Code to be filed with respect to each Plan. The Borrower has no
knowledge of any Event which could result in a liability of the Borrower to the
Pension Benefit Guaranty Corporation. The Borrower has met all requirements with
respect to funding any Plan proposed by ERISA or the Code. Since the effective
date of Title IV of ERISA, there have not been any nor are there any Events or
conditions now existing that would permit any Plan to be terminated under
circumstances which would cause the lien provided under Section 4068 of ERISA to
attach to any assets of the Borrower. The value of the Plan's benefits
guaranteed under Title IV of ERISA on the date hereof does not exceed the value
of such Plan's assets allocable to such benefits as of the date of this
Agreement and shall not be permitted to do so hereafter.
4.10 Representations by Others. All written statements made by the
Parties or in connection with any Loan Document shall constitute representations
and warranties of the Parties hereunder.
4.11 Survival of Representations, etc. All written representations and
warranties made by the Parties shall survive the delivery of the Note to the
Lender and the making of the Loan, and no investigation at any time made by or
on behalf of the Lender shall diminish the Lender's rights to rely thereon.
5. Affirmative Covenants.
The Parties covenant and agree with the Lender that prior to (a) the
termination of this Agreement, (b) the payment in full of the Loan and (c) the
termination of all obligations, if any, of the Lender to advance monies to or on
behalf of the Borrower, the Parties will do, and if necessary cause to be done,
each and all of the following:
5.1 Taxes, Existence, Regulations, Property, etc. At all times (a) pay
when due all taxes and governmental charges of every kind upon the Parties or
against the income, profits, or Property of the Parties, unless and only to the
extent that the same shall be contested in good faith and reserves deemed
adequate by the Lender have been established therefor; (b) do all things
necessary to preserve the existence, qualifications, rights, and franchises of
the Borrower in all states where such qualification is necessary or desirable;
(c) comply with all applicable legal requirements in respect of the conduct of
the business and the ownership of the Property of the Parties; and (d) cause the
Property of the Parties to be protected, maintained, and kept in good repair and
make all replacements and additions to the Property as may be reasonably
necessary to conduct the business properly and efficiently.
5.2 Financial Statements and Information. Furnish, or cause to be
furnished, to the Lender each of the following in form, substance and detail
satisfactory to the Lender: (a) as soon as available and in any event within one
hundred five (105) days after the end of each fiscal year, Annual Unaudited
Financial Statements of the Borrower; (b) as soon as available and in any event
within forty-five (45) days after the end of each calendar quarter, Quarterly
Unaudited Financial Statements of the Borrower; (c) within ten (10) days of the
date due, copies of the Guarantor's 10Q statements for the most recent period;
and (d) as soon as available and in any event within one hundred five (105) days
after the end of each fiscal year, Annual Audited Financial Statements of the
Guarantor.
5.3 Inspection. Permit the Lender and the Lender's designated agent to
inspect the Borrower's assets, examine the Borrower's files, books and records
and make and take away copies thereof, and discuss the Borrower's affairs with
the Borrower's officers and accountants, all at such times and intervals and to
such extent as the Lender may reasonably desire. The Lender shall not disclose
any confidential information gained from any such inspection except to the
Lender's directors, officers, employees, attorneys, accountants and regulators
or as otherwise necessary in the Lender's ordinary course of business.
5.4 Further Assurances. Promptly execute and deliver any and all other
and further instruments which may be reasonably requested by the Lender to cure
any defect in the execution and delivery of any Loan Document or more fully to
describe significant aspects of the Parties' agreements set forth in the Loan
Documents or so intended to be.
5.5 Books and Records. Maintain books of record and account in
accordance with Generally Accepted Accounting Principles.
5.6 Insurance. Maintain insurance with such insurers, on the Parties'
assets, in an amount of not less than $10,000,000.00 and against such risks as
are reasonably satisfactory to the Lender and furnish the Lender satisfactory
evidence thereof promptly upon request. These insurance provisions are
cumulative of the insurance provisions of the Security Documents. The Borrower
shall cause the Lender to be named as a beneficiary and/or loss payee as to
hazard insurance (as required by the Lender) of such insurance and shall provide
the Lender with copies of the insurance certificate of the insured that the
insurance required by this Section may not be non-renewed without thirty (30)
days' prior written notice to the Lender.
5.7 Debt to worth Ratio. Cause the Borrower to maintain at all times a
Debt to Worth Ratio of not more than 2.2 to 1.0, as determined as of the last
day of each fiscal year.
5.8 Coverage Ratio. Cause the Borrower to maintain at all times a
Coverage Ratio of not less than 1.3 to 1.0, as determined as of the last day of
each fiscal year.
5.9 Pay Indebtedness. Pay, renew or extend the principal and interest
on all Material Indebtedness owed by the Parties as the same shall become due
and payable.
5.10 ERISA. At all times cause the Borrower to immediately upon
acquiring knowledge of any Reportable Event (as defined in Section 4043(b) of
ERISA) or of any "prohibited transaction", as such term is defined in the Code,
in connection with the Plan, furnish the Lender a statement executed by the
president or chief financial officer of the Borrower setting forth the details
thereof and the action which the Borrower proposes to take with respect thereto
and, when known, any action taken by the Internal Revenue Service or the
Department of Labor with respect thereto.
5.11 Subordination of Indebtedness to Affiliates. Cause all Affiliates
of the Borrower, including the Guarantor, to subordinate the payment of any
Indebtedness owed by the Borrower to such Affiliates to the payment of the Loan,
in form and substance satisfactory to the Lender. The Borrower shall provide the
Lender with copies of all notes or other agreements which evidence or secure any
such Indebtedness. However, the Lender consents to the application of the Loan
proceeds to the Borrower's current Indebtedness to Affiliates.
5.12 Notice of Certain Matters. Notify the Lender immediately upon
acquiring knowledge of the occurrence of any of the following:
(a) the institution or threatened institution of any lawsuit or
administrative proceedings affecting the Borrower or the Guarantor
excluding tort claims fully covered by insurance or litigation with
an aggregate claim not in excess of $100,000.00, as to Borrower,
and $250,000.00 as to the Guarantor;
(b) the occurrence of any Material adverse change in the assets,
liabilities or financial condition of, or any significant adverse
change has occurred in the business or affairs of, the Borrower or
the Guarantor;
(c) the occurrence of any Event of Default or any Default.
5.13 Interest Rate Swap. Cause the Borrower to enter into an interest
rate swap agreement with the Lender or its Affiliate by December 15, 2002 in a
minimum amount of $5,000,000.00 and for a minimum term of five (5) years;
provided, however, the Lender's sole remedy for a default under this Section
5.13 shall be to retain the Deposit described in Section 2.3 of this Agreement.
6. Negative Comments.
The Parties covenant and agree with the Lender that prior to (i) the
termination of this Agreement, (ii) the payment in full of the Loan and (iii)
the termination of all obligations, if any, of the Lender to advance monies to
or on behalf of the Borrower, or either of them, the Borrower will not, without
the prior written consent of the Lender, do or allow to be done any of the
following:
6.1 Mergers, Consolidation, and Dispositions and Acquisitions of
Assets. In any single transaction or series of transactions with an aggregate
value of greater than $500,000.00, directly or indirectly: (a) liquidate or
dissolve; (b) be a party to any merger or consolidation; (c) sell, convey, or
lease all or any substantial part of its Property, except for sale of inventory
in the ordinary course of business; or (d) acquire all or substantially all of
the Property of any Person.
6.2 Redemption, Dividends and Distributions. At any time (a) redeem or
otherwise acquire, directly or indirectly, any of its equity capital; (b) pay
any dividends in excess of fifty percent (50%) of the Borrower's net income,
after tax, during any fiscal year; and (c) make any other distribution of any
Property or cash to shareholders as such, except for the application of the Loan
proceeds to pay Indebtedness owed to Affiliates as described in Section 5.11 of
this Agreement.
6.3 Nature of Business; Management. Change the nature of its business
or enter into any business which is substantially different from the business in
which it is presently engaged or permit any substantial change in its executive
management.
6.4 Books and Records. Change the method by which the Borrower
maintains its books and records, except as required by Generally Accepted
Accounting Principles.
6.5 Change in Ownership. Allow a change in ownership of twenty-five
percent (25%) or more of the common stock of the Borrower during the term of the
Loan.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. If any of the following events shall occur, then
the Lender may do any or all of the following subject to the express notice and
cure rights described in the Note: (1) declare the Loan to be immediately due
and payable, together with all accrued interest thereon, without notice of any
kind, notice of acceleration or of intention to accelerate, presentment and
demand or protest, all of which are hereby expressly waived (except for the
express notice and cure rights described in the Note); (2) terminate all
commitments to advance funds to the Borrower; (3) accelerate the maturity of the
Loan to a date as early as the date of the notice; (4) exercise its rights of
offset against each Account and all other Property of the Borrower in the
possession of the Lender, which right is hereby granted by the Borrower to the
Lender; and (5) exercise any and all other rights pursuant to the Loan
Documents:
(a) The Borrower fails to pay or prepay any principal of or interest on
the Loan or any commitment fee or any other obligation hereunder within five (5)
days of the date due; or
(b) The Borrower (i) fails to pay at maturity, or within any applicable
period of grace, any principal or interest on any other borrowed money
obligation or if the holder of such other obligation declares, or may declare,
such obligation due prior to its stated maturity because of a default
thereunder; or shall fail to observe or perform any Material term, covenant or
agreement contained in any agreement or obligation by which the Borrower is
bound, or (ii) is in default under or in violation of any agreement or
obligation by which the Borrower is bound; or
(c) Any representation or warranty made by the Parties herein or
otherwise in connection with this Agreement proves to have been incorrect, false
or misleading in any significant respect when made; or
(d) The Parties violate any covenant, agreement, or condition contained
in this Agreement or the other Loan Documents and such violation is not cured
within the express notice and cure period described in the Note (or a cure
commenced within such period and diligently pursued to completion where the cure
reasonably required more than fifteen (15) days); or
(e) A final and nonappealable judgment, or final and nonappealable
judgments in the aggregate, for the payment of money in excess of $500,000.00 is
rendered against the Borrower and the same shall remain undischarged for a
period of thirty (30) days during which execution shall not be effectively
stayed; or
(f) The Borrower or any other Person claims, or any court finds or
rules, that the Lender does not have a valid Lien as provided for herein on any
Material security which may have been provided by the Borrower, or such other
Person; or
(g) The Borrower sells, encumbers, or abandons (except as otherwise
expressly permitted by the Loan Documents) any significant portion of the
Property now or hereafter subject to any of the Security Documents; or any levy,
seizure or attachment is made thereof
or thereon; or such Property is lost, stolen, substantially damaged or
destroyed, and such loss or damage is not reimbursed by adequate insurance
proceeds; or
(h) Any order is entered in any proceeding against the Borrower
decreeing the dissolution, liquidation or split-up of the Borrower, and such
order remains in effect for twenty (20) days; or
(i) The Borrower makes an assignment for the benefit of creditors or
becomes insolvent or fails generally to pay its debts as they become due, or
petitions or applies to any tribunal for the appointment of a trustee,
custodian, receiver, (or other similar official) of the Borrower or of all or
any substantial part of the Property of the Borrower or commences a voluntary
case or any other proceedings relating to the Borrower under any bankruptcy,
reorganization, compromise arrangement, insolvency, readjustment of debt,
dissolution, or liquidation or similar law (herein called the "bankruptcy law")
of any jurisdiction; or
(j) Any such petition or application is filed, or any such proceedings
are commenced, against the Borrower and the Borrower by any act or omission
indicates its approval, consent, or acquiescence, or an order for relief is
entered in an involuntary case under the federal bankruptcy laws as now or
hereafter constituted, or an order, judgment or decree is entered appointing any
such trustee, custodian, receiver, liquidator, or similar official or
adjudicating the Borrower bankrupt or insolvent, or approving the petition in
any such proceedings, and such order, judgment, or decree remains in effect for
twenty (20) days; or
(k) A Material adverse change occurs in the Property, liabilities or
financial condition of, or any significant adverse change in the business or
affairs of, the Parties (or any of them); or
(l) The Parties conceal, remove, or permit to be concealed or removed,
any part of their Property, with intent to hinder, delay or defraud their
creditors or any of them, or makes or suffers a transfer of any of their
Property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or shall have made any transfer of their Property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid.
7.2 Other Remedies. In addition to and cumulative of any rights or
remedies provided for in this Agreement or any of the other Loan Documents, upon
the occurrence of any of the events described in Section 7.1 hereof, the Lender
may at any time proceed to protect and enforce its rights hereunder, by any
appropriate proceedings, and the Liens evidenced by the Security Documents shall
be subject to foreclosure in any manner provided for therein or provided for by
law as the Lender may elect. The Lender may also proceed either by the specific
performance of any covenant or agreement contained in this Agreement or the
other Loan Documents or to enforce the payment of the Loan or to enforce any
other legal or equitable right provided under this Agreement or the other Loan
Documents, or otherwise existing under any law in favor of the holders of
Indebtedness.
7.3 Remedies Cumulative. No remedy, right or power of the Lender is
intended to be exclusive of any other remedy, right or power, and each and every
remedy, right and power shall be cumulative and in addition to every other
remedy, right and power given hereunder or now or hereafter existing at law or
in equity or by statute or otherwise.
8. Miscellaneous.
8.1 No Waiver. No failure to exercise and no delay on the part of the
Lender in exercising any power or right in connection herewith or under any
other Loan Document shall operate as a waiver, nor shall any single or partial
exercise of any such right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No course of dealing
between the Borrower and the Lender shall operate as a waiver of any right of
the Lender. No modification or waiver of any provision of this Agreement or any
other Loan Document shall be effective unless the same shall be in writing and
signed by the Person against whom enforcement thereof is to be sought.
8.2 Governing Law. Unless otherwise specified therein, each Loan
Document shall be governed by and construed in accordance with the laws of the
State of Texas and The United States of America. The Parties hereby irrevocably
agree that any legal proceeding against the Lender arising out of or in
connection with this Agreement or the other Loan Documents shall be brought in
the District Courts of Travis County, Texas, or in the United States District
Court for the Western District of Texas, Austin Division.
8.3 Usury Not Intended; Refund of Any Excess Payments. It is the intent
of the Parties in the execution and performance of this Agreement to contract in
strict compliance with the usury laws of the State of Texas and The United
States of America from time to time in effect. In furtherance thereof, the
Lender and the Parties stipulate and agree that none of the terms and provisions
contained in this Agreement or the other Loan Documents shall ever be construed
to create a contract to pay for the use, forbearance, or detention of money with
interest at a rate in excess of the Highest Lawful Rate and that for purposes
hereof "interest" shall include the aggregate of all charges which constitute
interest under such laws that are contracted for, reserved, taken, charged, or
received under this Agreement. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Highest Lawful Rate, the
Parties and the Lender shall, to the maximum extent permitted under applicable
law, (a) treat all advances as but a single extension of credit (and the Parties
and the Lender agree that such is the case and that provision herein for
multiple advances is for convenience only), (b) characterize any nonprincipal
payment as an expense, fee, or premium rather than as interest, (c) exclude
voluntary prepayments and the effects thereof, and (d) "spread" the total amount
of interest throughout the entire contemplated term of the Loan. The provisions
of this paragraph shall control over all other provisions of the Loan Documents
which may be in apparent conflict herewith.
8.4 Expenses. Any provision to the contrary notwithstanding, and
whether or not the transactions contemplated by this Agreement shall be
consummated, the Parties shall pay on demand all reasonable out-of-pocket
expenses (including, without limitation, the fees and expenses of counsel for
the Lender) in connection with the negotiation, preparation,
execution, filing, recording, refiling, re-recording, modification,
supplementing, and waiver of the Loan Documents and the making and collection of
the Loan. The obligations of the Parties under this and the following section
shall survive the termination of this Agreement and/or the payment of the Loan.
8.5 Indemnification. The Borrower agrees to indemnify, defend, and hold
the Lender harmless from and against any and all loss, liability, obligation,
damage, penalty, judgment, claim, deficiency, and expense (including interest,
penalties, attorneys' fees, and amounts paid in settlement) to which the Lender
may become subject arising out of or based upon the Loan Documents or the Loan,
excluding those to the extent caused by the Lender's own acts or omissions.
8.6 Entire Agreement. This Agreement and the Loan Documents embody the
entire Agreement and understanding between the Parties and the Lender relating
to the subject matter hereof and supersedes all prior proposals, negotiations,
agreements, and understandings relating to such subject matter. The Parties
certify that they are not relying on any representation, warranty, covenant, or
agreement except for those set forth in this Agreement and the other Loan
Documents. All written representations made by the Parties to the Lender
respecting the subject matter hereof shall survive the execution of this
Agreement.
8.7 Severability. If any provision of any Loan Document shall be
invalid, illegal, or unenforceable in any respect under any applicable law, the
validity, legality, and enforceability of the remaining provisions shall not be
affected or impaired thereby.
8.8 Loan Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any of the other Loan Documents, this
Agreement shall prevail and control.
8.9 Commitment. The Lender has no commitment to lend sums to the
Borrower other than as specifically set forth herein.
8.10 Notices. All notices, demands and requests made under any provision
of this Agreement shall be in writing and shall be deemed to have been properly
delivered as of the time of delivery if personally delivered, the date of
receipt or refusal indicated on the return receipt, if sent by United States
certified mail, return receipt requested, and postage prepaid, or one (1)
business day after the time of delivery to Federal Express (or comparable
express delivery system) if sent by such method with all costs prepaid. All
notices, demands and requests shall be addressed to the Lender at 500 Marquette
NW, 14th Floor, Albuquerque, New Mexico 87102, Attention: Elizabeth Allbright,
to the Borrower at 2700 Pecan Street West, Suite 423, Pflugerville, Texas 78660,
Attention: William Jasura, Chief Financial Officer, or to such other address
that either the Lender or the Borrower may designate to the other by written
notice sent in the manner required hereby.
8.11 Sale or Assignment. The Lender reserves the right, in its sole
discretion, without notice to the Borrower, or any of the other Parties, to sell
participants or assign its interest, or both, in all or any part of the Loan
evidenced by this Agreement, or the other Loan
Documents. No such sale or assignment shall relieve the Lender of any obligation
of the Lender under the Loan Documents.
BANK OF THE WEST
By: /s/ ELIZABETH R. ALLBRIGHT
------------------------------
Name: Elisabeth R. Allbright
Title: Vice President
WINDERMERE UTILITY CO., INC.
a Texas Corporation
By: /s/ MICHAEL O. QUINN
------------------------
Name: Michael O. Quinn
Title: President
SOUTHWEST WATER COMPANY, a
Delaware corporation
By: /s/ THOMAS C. TEKULVE
-------------------------
Name: Thomas C. Tekulve
Title: Vice President Finance and Treasurer
ATTACHMENTS:
Exhibit A - Note
PROMISSORY NOTE
$10,000,000.00 August 9, 2002
For value received, WINDERMERE UTILITY CO., INC., a Texas corporation (the
"Makers," whether one or more), promise to pay to the order of BANK OF THE WEST
(the "Lender"), at 500 Marquette NW, 14th Floor, Albuquerque, New Mexico 87102,
or such other location as the Lender designates to the makers in writing, the
principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or the
outstanding principal amount advanced hereunder, whichever is less, in legal and
lawful money of the United States of America, with interest thereon as
hereinafter specified.
TERMS OF PAYMENT:
Principal shall be due and payable in quarterly installments of $125,000.00
each, commencing on November 9, 2002 and continuing thereafter on February 9,
May 9, August 9 and November 9 of each year until August 9, 2012 (the "Maturity
Date"), when the entire amount hereof, principal and interest then remaining
unpaid, shall be then due and payable. Interest, computed upon the unpaid
principal balance hereof, shall be due and payable quarterly as it accrues, on
the same dates as, but in addition to, said payments of principal; interest
being calculated on the unpaid principal to the date each payment is received
and the payment made credited first to the discharge of the interest accrued and
the balance to the reduction of the principal.
PAYMENT ON NON-BUSINESS DAYS:
If any payment hereunder falls due on a Saturday, Sunday or public holiday
on which commercial banks in Albuquerque, New Mexico are permitted or required
by law to be closed, the time for such payment shall be extended to the next day
on which the Lender is open for business, and such extension of time shall be
included in the calculation of interest accruing and payable hereunder.
LATE PAYMENT CHARGE:
The Makers agree to pay to the Lender a late payment service charge in an
amount equal to five percent (5%) of any regularly scheduled principal and
accrued interest installment which is not received by the Lender within fifteen
(15) days after the installment is due; provided however, such late payment
service charge shall not apply to the principal and interest installment due on
the Maturity Date.
RATE OF INTEREST:
Prior to maturity (whether by acceleration or otherwise) interest on the
outstanding and unpaid principal balance hereof shall be computed in accordance
with the specific
provisions of the Loan Agreement dated of even date herewith between the Makers
and the Lender (the "Loan Agreement").
INTEREST AFTER DEFAULT:
Upon default, including failure to pay upon final maturity, the Lender, at
its option, may, if permitted under applicable law, increase the variable
interest rate on this Note to six percent (6.00%) over the Adjusted LIBOR, as
defined in the Loan Agreement (the "Past Due Rate"). The interest rate will not
exceed the Maximum Lawful Rate permitted by applicable law. Prior to maturity,
the Past Due Rate shall not be charged on any balance owed under the Note after
the Borrower successfully cures any default in accordance with the express
notice and cure rights described in this Note.
As used herein, the term "Maximum Lawful Rate" shall mean the greater of
(i) the highest non-usurious rate of interest permitted by applicable United
States law, or (ii) a rate per annum equal to the applicable weekly ceiling
described in Chapter 303 of the Texas Finance Code, as amended, as such weekly
ceiling is in effect from time to time, but in no event greater than
twenty-eight percent (28.00%) per annum. Unless precluded by law, changes in the
Maximum Lawful Rate created by statute or governmental action during the term of
this Note shall be immediately applicable to this Note on the effective date of
such changes. If the applicable law ceases to provide for a Maximum Lawful Rate,
the Maximum Lawful Rate shall be equal to eighteen percent (18%) per annum.
PREPAYMENT:
Prior to August 9, 2007, the Borrower shall only have the right to prepay
this Note upon payment of a prepayment premium to the Lender on the date of the
prepayment. The prepayment premium shall be equal to two percent (2.00%) of the
unpaid principal balance of this Note if made prior to August 9, 2005 and one
percent (1.00%) of the unpaid principal balance of this Note if made between
August 9, 2005 and August 9, 2007.
At any other time, the Makers reserve the right to prepay this Note or any
portion hereof without penalty or premium; however, all prepayments must be made
at the end of the applicable Interest Period (as defined in the Loan Agreement).
Interest shall be calculated on the unpaid principal to the date of any
prepayment and any such prepayment shall be applied first toward the payment of
accrued interest and next to the principal installments of this Note in the
direct order of maturity beginning with the earliest date.
SECURITY FOR PAYMENT:
Payment of this Note is secured by, and this Note is entitled to the
benefits of, all security agreements, assignments, deeds of trust, mortgages and
lien instruments executed by the Makers (or any of them), or other similar
instruments, guaranties, endorsements or other agreements, executed by any other
person or entity (the "Collateral Agreements," whether one or more) to secure,
guarantee or otherwise provide for the payment hereof, in favor of or for the
benefit of the Lender, including any previously executed and any now or
hereafter
executed. Without limiting the foregoing, the Collateral Agreements include (i)
a Deed of Trust, Security Agreement and Financing Statement dated of even date
herewith executed by the Makers to Meade Bauer, Trustee for the benefit of the
Lender, which instrument covers certain real property (the "Real Property")
located in Travis and Williamson Counties, Texas, and (ii) a security agreement
dated of even date herewith executed by the Makers, as debtor, in favor of the
Lender, as secured party, covering certain collateral as more particularly
described therein.
USE OF PROCEEDS:
This Note represents funds advanced and to be advanced to the Makers at the
Makers' special instance and request, the receipt of a portion which is hereby
acknowledged, which funds are to refinance certain improvements on the Real
Property pursuant to the terms of the Loan Agreement.
REPRESENTATIONS AND WARRANTIES:
WINDERMERE UTILITY CO., INC. expressly represents and warrants to the
Lender that it is a corporation duly organized and existing in good standing
under the laws of the State of Texas; that it possesses full power and authority
to conduct its business as now conducted and as presently proposed to be
conducted; that the execution and delivery of this Note will not contravene any
provisions of its articles of incorporation or by-laws; that the officer
executing this Note is the legally elected, qualified and acting officer of said
corporation and is expressly authorized to execute this Note by resolution of
the board of directors of said corporation.
LIMITATION OF INTEREST:
All agreements and transactions among the Makers and the Lender, whether
now existing or hereafter arising, whether contained herein or in any other
instrument, and whether written or oral, are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof, late payment, prepayment, or otherwise, shall the amount of
interest contracted for, charged or received by the Lender from the Makers for
the use, forbearance, or detention of the principal indebtedness or interest
hereof, which remains unpaid from time to time, exceed the Maximum Lawful Rate,
it particularly being the intention of the parties hereto to conform strictly to
the applicable usury laws of the State of Texas (or applicable United States law
to the extent that it permits the Lender to contract for, charge or receive a
greater amount of interest than under Texas law). Any interest payable hereunder
or under any other instrument relating to the indebtedness evidenced hereby that
is in excess of the Maximum Lawful Rate, shall, in the event of acceleration of
maturity, late payment, prepayment, or otherwise, be applied to a reduction of
the unpaid indebtedness hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of such unpaid indebtedness, such
excess shall be refunded to the Makers. To the extent not prohibited by
applicable law, determination of the Maximum Lawful Rate shall at all times be
made by amortizing, prorating, allocating and spreading in equal parts during
the full term of this loan, all interest at any time contracted for,
charged or received from the Makers in connection with this loan, so that the
actual rate of interest on account of such indebtedness is uniform throughout
the term thereof.
SUCCESSORS AND ASSIGNS:
As used herein, the term "Lender" shall include the successors and assigns
of the Lender and any subsequent owner and holder of this Note, and the term
"Makers" shall include co-makers, endorsers, guarantors, sureties and their
respective successors and assigns.
DEFAULT AND COLLECTION:
Subject to the express notice and cure rights described in this Note, it is
expressly provided that, upon default in the punctual payment of this Note, or
any part hereof, principal or interest, as the same shall become due and
payable, or if the Lender deems itself insecure, either because the prospect of
timely payment of this Note becomes impaired, or because the prospect of timely
performance of any of the Collateral Agreements becomes impaired, at the option
of the Lender, the entire indebtedness evidenced hereby shall be matured, and in
the event default is made in the prompt payment of this Note when due or
declared due, and the same is placed in the hands of an attorney for collection,
or suit is brought on the same, or the same is collected through probate,
bankruptcy or other judicial proceedings, then the Makers jointly and severally
agree and promise to pay all reasonable attorney's fees, court costs and
collection costs incurred by the Lender.
NOTICE AND CURE RIGHTS:
In the event of any default under the Collateral Agreements or this Note,
or if the Lender deems itself insecure, the Makers shall be entitled to receive
written notice of any such default and a period of fifteen (15) days after such
notice is sent by the Lender within which to cure such default prior to the
Lender being entitled to exercise any remedy which may arise due to the
occurrence of such default, other than the right to withhold making further
advances of funds during the period any such default remains uncured. However,
nothing herein shall obligate the Lender to give the Makers more than one (1)
notice of default during any ninety (90) day period.
WAIVERS AND CONSENTS:
Except for the express notice and cure provisions contained in this Note,
each of the Makers waives presentment for payment, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, dishonor and
diligence in collecting and the bringing of suit against any other party, and
agrees to all renewals, extensions, partial payments, releases and substitutions
of security, in whole or in part, with or without notice, before or after
maturity. The Lender may remedy any default, without waiving the same, or may
waive any default without waiving any prior to subsequent default.
GOVERNING LAWS AND VENUE:
This Note is governed by and is to be construed and enforced in accordance
with the laws of the State of Texas and of the United States. The Makers agree
and consent to the jurisdiction of the District Courts of Travis County, Texas,
and of the United States District Court for the Western District of Texas
(Austin Division) and acknowledge that such courts shall constitute proper and
convenient forums for the resolution of any actions among the Makers and the
Lender with respect to the subject matter hereof, and agree that such courts
shall be the exclusive forums for the resolution of any actions among the Makers
and the Lender with respect to the subject matter hereof.
WINDERMERE UTILITY CO., INC., a
Texas corporation
By: /s/ MICHAEL O. QUINN
------------------------
Name: Michael O. Quinn
Title: President