Agbar Announces Strategic Investment in Western Water Company.

SAN DIEGO--(BUSINESS WIRE)--Oct. 9, 1998--Sociedad General de Aguas de Barcelona, S.A., one of the world's leading water distribution companies, has agreed to make a major strategic investment in Western Water Company, a California-based water wholesaler.

The two companies jointly announced the transaction following approval by their administrative bodies today.

Agbar, as Aguas de Barcelona is known in Spain, is based in Barcelona, and is Spain's largest private drinking water distribution company. Agbar is involved in the entire water cycle -- resource development, supply, treatment, conveyance, customer service, wastewater treatment and recycling.

Agbar manages more than half of the private water distribution market in Spain, a country with hydrologic characteristics strikingly similar to those prevalent in the western United States. As in the American West, Spain develops water resources in mountain areas of precipitation and conveys the water over substantial distances to serve urban populations in arid and semi-arid regions.

Spain also maintains a significant public/private system of aqueducts, reservoirs and treatment facilities to manage through intermittent drought cycles in a manner similar to the practices in the western United States.

"We are pleased to initiate this strategic partnership with Western Water Company," said Juan Ras, Agbar's Director General Adjunto in charge of its water business and international expansion efforts.

"Western Water Company's assets, business plan and philosophy make a comfortable fit with Agbar's. We have long planned to expand into the United States, and we believe that Western Water Company is positioned as the leading private resource company in the developing water market. As in any good business partnership, we expect to both share and expand our base of expertise," he added.

"Agbar's expertise in every aspect of the water cycle in climatic and geographic areas similar to our service territory makes them an ideal partner for the next phase of Western Water Company's growth cycle," said Michael Patrick George, president and chief executive officer of Western Water Company.

"Agbar brings the equity capital we need for our growth as well as the experience, credibility and expertise to assist in solving the complex resource management problems facing our customers."

Under a Strategic Relationship Agreement approved by the Boards of both companies, Agbar will purchase by the end of October $10 million of Series D Preferred shares of Western Water Company and is expected to make up to three subsequent $5 million purchases of Series D Preferred shares to fund investments by Western Water Company, as opportunities arise, over the next two years.

The full $25 million investment will make Agbar Western Water Company's largest shareholder with a stake of close to 20%. The first $10 million of Series D Preferred shares are convertible into Western Water common stock at a price of $8.99 per share.

The conversion price of subsequent purchases of Series D Preferred shares will be set at a price equal to a 19% premium to the trailing 60 day average closing price of Western Water common stock at the time such Series D Preferred shares are issued, subject to certain limits. The initial $10 million of Series D Preferred shares will pay a 7.5% dividend. The dividend rate on future issuances of Series D Preferred shares will be set in accordance with an agreed upon formula.

Agbar will carry out this investment through its affiliate Interagua S.A., with the participation of Endesa (the leading Spanish electrical power distribution group) and Argentaria (one of the largest Spanish bank groups) with whom it has joint international expansion agreements.

As part of the Strategic Relationship Agreement, Juan Ras will be elected to the Western Water Company Board of Directors. In addition, as an integral part of the strategic relationship, the companies plan to exchange executives for training and professional development purposes.

The Strategic Relationship Agreement was negotiated with the assistance of J.P. Morgan, Agbar's financial advisor for its expansion in the United States.

Western Water Company is a leading water resource company in the wholesale, non-regulated water market in the western United States. Its principal activities include the acquisition, development and marketing of water supplies in key market areas throughout the semi-arid southwestern part of the United States.

Agbar, along with its subsidiaries and affiliates, provides water service to more than 30 million people in eight countries around the globe, principally in Europe and Latin America. The Agbar family of companies employs nearly 24,000 people and had aggregate operating income of more than 300 billion pesetas (approximately US$2.2 billion at recent conversion rates) in 1997.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Western Water Company's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the company's Annual Report or Form 10-K for the most recently ended fiscal year.