Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
DUQUESNE LIGHT HOLDINGS, INC.,
CASTOR HOLDINGS LLC
and
CASTOR MERGER SUB INC.
Dated as of July 5, 2006
TABLE OF CONTENTS
ARTICLE I THE MERGER...........................................................1
Section 1.1 The Merger......................................................1
Section 1.2 Effects of the Merger...........................................2
Section 1.3 Effective Time of the Merger....................................2
ARTICLE II TREATMENT OF SHARES.................................................2
Section 2.1 Effect on Capital Stock of the Company and the Merger Sub.......2
Section 2.2 Surrender of Shares.............................................3
Section 2.3 Treatment of Company Stock Awards...............................5
Section 2.4 Withholding Rights..............................................6
Section 2.5 Adjustments to Prevent Dilution.................................7
ARTICLE III THE CLOSING........................................................7
Section 3.1 Closing.........................................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................7
Section 4.1 Organization and Qualification..................................7
Section 4.2 Subsidiaries; Corporate Documents.............................. 9
Section 4.3 Capitalization................................................. 9
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance..10
Section 4.5 Reports and Financial Statements...............................13
Section 4.6 Real Property..................................................14
Section 4.7 Internal Controls and Procedures...............................16
Section 4.8 Litigation; Undisclosed Liabilities; Restrictions on
Dividends; No General Liens....................................17
Section 4.9 No Dissenters Rights...........................................18
Section 4.10 Tax Matters...................................................18
Section 4.11 Employee Benefits; ERISA......................................19
Section 4.12 Labor and Employee Relations..................................22
Section 4.13 Environmental Protection......................................23
Section 4.14 Material Contracts............................................26
Section 4.15 Intellectual Property.........................................28
Section 4.16 Absence of Certain Changes or Event...........................29
Section 4.17 Vote Required.................................................29
Section 4.18 Opinion of Financial Advisor..................................29
Section 4.19 Insurance.....................................................29
Section 4.20 Brokers and Finders...........................................30
Section 4.21 Regulatory Proceedings........................................30
Section 4.22 Regulation as a Utility.......................................30
Section 4.23 Approvals.....................................................31
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Section 4.24 No Additional Representations of Parent or Merger Sub.........31
Section 4.25 No Other Representations of the Company.......................31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.........32
Section 5.1 Organization and Qualification.................................32
Section 5.2 Authority; Non-Contravention; Statutory Approvals; Compliance..32
Section 5.3 No Prior Activities............................................34
Section 5.4 Litigation.....................................................34
Section 5.5 No Vote Required...............................................35
Section 5.6 Financing......................................................35
Section 5.7 Ownership of Company Common Stock..............................35
Section 5.8 Brokers and Finders............................................35
Section 5.9 Approvals......................................................36
Section 5.10 No Additional Representations of Company and Company
Subsidiaries...............................................................36
Section 5.11 No Other Representations of the Parent and the Merger Sub.....36
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER.............................36
Section 6.1 Covenants of the Company.......................................36
Section 6.2 Risk Management................................................39
ARTICLE VII ADDITIONAL AGREEMENTS.............................................40
Section 7.1 Access to Company Information..................................40
Section 7.2 Proxy Statement................................................41
Section 7.3 Regulatory Matters.............................................42
Section 7.4 Approval of the Company Shareholders...........................44
Section 7.5 Directors' and Officers' Indemnification.......................44
Section 7.6 Public Announcements...........................................46
Section 7.7 Employee Agreements and Workforce Matters......................47
Section 7.8 Employee Benefit Plans.........................................47
Section 7.9 Acquisition Proposals..........................................49
Section 7.10 Post-Merger Operations........................................51
Section 7.11 Expenses......................................................52
Section 7.12 Further Assurances............................................52
Section 7.13 Takeover Statutes.............................................52
Section 7.14 Financing.....................................................52
Section 7.15 Rate Cases, Etc...............................................55
ARTICLE VIII CONDITIONS.......................................................55
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.....55
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Section 8.2 Conditions to Obligation of the Parent to Effect the Merger....56
Section 8.3 Conditions to Obligation of the Company to Effect the Merger...58
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..................................60
Section 9.1 Termination....................................................60
Section 9.2 Effect of Termination..........................................62
Section 9.3 Termination Fee; Expenses......................................62
Section 9.4 Amendment......................................................64
Section 9.5 Waiver.........................................................64
ARTICLE X GENERAL PROVISIONS..................................................64
Section 10.1 Non-Survival; Effect of Representations and Warranties........64
Section 10.2 Notices.......................................................64
Section 10.3 Entire Agreement..............................................66
Section 10.4 Severability..................................................66
Section 10.5 Interpretation................................................66
Section 10.6 Counterparts; Effect..........................................66
Section 10.7 No Third Party Beneficiaries..................................66
Section 10.8 Governing Law.................................................66
Section 10.9 Venue.........................................................67
Section 10.10 Waiver of Jury Trial and Certain Damages.....................67
Section 10.11 Assignment...................................................67
Section 10.12 No Specific Enforcement......................................67
Section 10.13 Obligations of the Parent and of the Company.................67
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INDEX OF PRINCIPAL TERMS
Term Page
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2005 10-K.....................................................................12
2006 FERC Rate Case...........................................................39
2006 PaPUC Rate Case..........................................................39
Acquisition Agreement.........................................................50
Acquisition Proposal..........................................................49
Acquisition Transaction.......................................................49
Adverse Merger Effects........................................................57
Affected Employees............................................................47
Agreement......................................................................1
Amendment.....................................................................49
Assets........................................................................36
Associate Company.............................................................44
BCL............................................................................2
Business Plan.................................................................37
Cancelled Shares...............................................................4
Certificates...................................................................4
Closing........................................................................7
Closing Date...................................................................7
Code...........................................................................6
Company........................................................................1
Company Awards.................................................................6
Company Common Stock...........................................................2
Company Disclosure Schedule....................................................7
Company Financial Statements..................................................14
Company Material Adverse Effect................................................8
Company Meeting...............................................................44
Company Plans.................................................................19
Company Preferred Stock........................................................9
Company Reports...............................................................13
Company Required Consents.....................................................11
Company Required Statutory Approvals..........................................11
Company SEC Reports...........................................................13
Company Series A Preferred Stock...............................................9
Company Shareholders' Approval................................................29
Company Subsidiary.............................................................8
Confidentiality Agreement.....................................................41
Debt Financing................................................................35
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Debt Financing Commitment.....................................................35
Default Amount................................................................63
Disinterested Approval........................................................60
Disinterested Common Stock....................................................60
Effective Time.................................................................2
Environmental Claim...........................................................24
Environmental Laws............................................................25
Environmental Permits.........................................................24
Equity Contribution Agreement.................................................35
Equity Financing..............................................................35
ERISA.........................................................................19
ERISA Affiliate...............................................................19
Exchange Act...................................................................6
Existing D&O Coverage.........................................................45
Exon-Florio...................................................................57
FERC...........................................................................8
Final Order...................................................................55
Financing.....................................................................35
Financing Commitments.........................................................35
FPA...........................................................................13
GAAP..........................................................................14
Governmental Authority........................................................12
Hazardous Materials...........................................................25
HSR Act.......................................................................42
Indemnified Liabilities.......................................................45
Indemnified Parties...........................................................45
Indemnified Party.............................................................45
Initial Termination Date......................................................60
Intellectual Property.........................................................28
IT Assets.....................................................................29
knowledge......................................................................8
Leased Real Property..........................................................14
Lender........................................................................35
Lien..........................................................................14
Liens.........................................................................14
Light Company..................................................................3
Material Contracts............................................................27
Maximum Amount................................................................46
Merger.........................................................................1
Merger Consideration...........................................................3
Merger Sub.....................................................................1
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Merger Sub Common Stock........................................................3
Options........................................................................5
Owned Real Property...........................................................14
PaPUC..........................................................................8
Parent.........................................................................1
Parent Material Adverse Effect................................................32
Parent Required Statutory Approvals...........................................33
Paying Agent...................................................................3
PBGC..........................................................................20
PCBs..........................................................................25
Person.........................................................................6
PUHCA.........................................................................13
Real Property.................................................................14
Real Property Lease...........................................................15
Release.......................................................................25
Representatives...............................................................40
Risk Management Policies......................................................40
Savings Plan..................................................................49
SEC...........................................................................13
Securities Act................................................................13
Severance Policy..............................................................48
SOX...........................................................................14
Stock Purchase Agreement.......................................................1
Subsidiary.....................................................................8
Superior Proposal.............................................................51
Surviving Corporation..........................................................2
Takeover Statute..............................................................52
Tax...........................................................................18
Tax Return....................................................................19
Title IV Company Plan.........................................................20
Trade Secrets.................................................................28
Treasury Regulations..........................................................19
Violation.....................................................................11
WARN Act......................................................................23
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EXECUTION COPY
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THIS AGREEMENT AND PLAN OF MERGER, dated as of July 5, 2006 (this
"Agreement"), is entered into by and among Duquesne Light Holdings, Inc., a
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Pennsylvania corporation (the "Company"), Castor Holdings LLC, a Delaware
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limited liability company (the "Parent") and Castor Merger Sub Inc., a
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Pennsylvania corporation and a wholly owned subsidiary of the Parent (the
"Merger Sub").
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WHEREAS, the Company and the Parent have determined that it would be
in the best interests of their respective corporations and in the best interests
of their respective shareholders to effect the transactions contemplated by this
Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
the Company, the Parent and the Merger Sub have approved this Agreement and the
merger of the Merger Sub with and into the Company whereby the Company will
become a wholly owned subsidiary of the Parent (the "Merger");
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WHEREAS, the Company and certain members of Parent, simultaneously
with the execution of this Agreement, are entering into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), pursuant to which the Company will
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issue and sell, and such members of Parent will purchase, subject to the terms
and conditions set forth therein, certain shares of Company Common Stock (as
hereinafter defined) and/or certain securities of the Company convertible into
shares of Company Common Stock; and
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
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of this Agreement, at the Effective Time (as defined in Section 1.3), the
separate existence of the Merger Sub shall cease and the Merger Sub shall be
merged with and into the Company in accordance with the laws of the Commonwealth
of Pennsylvania. The Company shall be the Surviving Corporation (as defined
below) in the Merger, shall continue its corporate existence under the laws of
the Commonwealth of Pennsylvania and, following the Effective Time, the
Company shall become a wholly owned subsidiary of the Parent and shall succeed
to and assume all of the rights and obligations of the Merger Sub in accordance
with the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL").
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The effects and consequences of the Merger shall be as set forth in Section 1.2.
The surviving corporation after the Merger is sometimes referred to herein as
the "Surviving Corporation."
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Section 1.2 Effects of the Merger. At the Effective Time, (a) the
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Articles of Incorporation of the Merger Sub in effect immediately prior to the
Effective Time shall be the articles of incorporation of the Surviving
Corporation after the Effective Time until thereafter amended, (b) the by-laws
of the Merger Sub in effect immediately prior to the Effective Time shall be the
by-laws of the Surviving Corporation after the Effective Time until duly
amended, and (c) the Merger shall have all of the effects provided by the BCL.
As of the Effective Time, each of the directors of the Company shall resign and
the directors of the Merger Sub at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the articles of
incorporation and the by-laws of the Surviving Corporation. The officers of the
Company at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors have been duly
elected or appointed and qualified.
Section 1.3 Effective Time of the Merger. Subject to the provisions of
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this Agreement, on the Closing Date (as defined in Section 3.1), articles of
merger shall be executed and filed by the Company and the Merger Sub with the
Department of State of the Commonwealth of Pennsylvania pursuant to the BCL. The
Merger shall become effective upon the filing of the articles of merger in the
Department of State of the Commonwealth of Pennsylvania or upon the effective
date specified in articles of merger so filed, whichever is later (the
"Effective Time").
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ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect on Capital Stock of the Company and the Merger Sub.
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As of the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any of the capital stock of the Company or the Merger Sub:
(a) Conversion of Capital Stock of the Company. Each share of
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common stock, without par value, of the Company (the "Company Common Stock")
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issued and outstanding as of the Effective Time (other than shares of Company
Common Stock to be cancelled in accordance with Section 2.1(b)), shall be
cancelled and, subject to the provisions of Section 2.1(b) and Section 2.1(c),
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shall be converted into the right to receive cash in the amount of $20 per
share (the "Merger Consideration"), payable, without interest, to the holder of
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such share of Company Common Stock, upon surrender, in accordance with Section
2.2 hereof, of the certificate formerly evidencing such share. In the event that
any Preferred Shares (as defined in and issued pursuant to the Stock Purchase
Agreement) are outstanding as of the Effective Time, each such Preferred Share
shall be cancelled and converted into the right to receive cash in the amount of
$20,000 per share, payable without interest, to the holder of such Preferred
Share, upon surrender, in accordance with the same procedures described in
Section 2.2 with respect to Company Common Stock, of the certificate formerly
evidencing such share, and in such event, the Merger Consideration shall include
the foregoing cash amounts.
(b) Cancellation of Certain Shares of Company Common Stock.
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Except as provided in Section 2.1(d), each share of Company Common Stock that is
(i) owned by the Company as treasury stock or (ii) owned by the Parent or by any
wholly owned Subsidiary (as defined in Section 4.1) of the Company or the
Parent, in each case immediately prior to the Effective Time, shall be cancelled
and retired without any conversion thereof and no payment or distribution shall
be made with respect thereto.
(c) Capital Stock of the Merger Sub. Each share of common
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stock, par value $0.01 per share, of the Merger Sub (the "Merger Sub Common
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Stock") issued and outstanding immediately prior to the Effective Time shall
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remain issued and outstanding after the Merger as a share of the Surviving
Corporation, which shall thereafter constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation. No capital stock of the
Merger Sub will be issued or used in the Merger.
(d) Conversion of Company Common Stock held by Light Company.
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Each share of Company Common Stock held by Duquesne Light Company
("Light Company") shall be converted into the right to receive the Merger
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Consideration.
Section 2.2 Surrender of Shares.
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(a) Deposit with Paying Agent. Prior to the Effective Time,
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the Company and the Parent shall mutually designate a bank or trust company to
act as agent (the "Paying Agent") for the holders of shares of Company Common
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Stock in connection with the Merger to receive the funds to which holders of
shares of Company Common Stock shall become entitled pursuant to Section 2.1(a).
Such funds shall be deposited with the Paying Agent by the Parent immediately
prior to or after the Effective Time and shall be invested by the Paying Agent
as directed by the Parent.
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(b) Exchange Procedures. As soon as practicable after the
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Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates (the "Certificates") which as of the Effective Time
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represented outstanding shares of Company Common Stock (the "Cancelled Shares")
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that were cancelled or converted and became instead the right to receive the
Merger Consideration pursuant to Section 2.1: (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon actual delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Paying Agent and
such other provisions upon which the Parent and the Company may agree) and (ii)
instructions for use in effecting the surrender of the Certificates (or
affidavits of loss in lieu thereof) in exchange for the Merger Consideration.
Upon surrender of a Certificate (or an affidavit of loss in lieu thereof) to the
Paying Agent for cancellation (or to such other agent or agents as may be
appointed by mutual agreement of the Parent and the Company), together with a
duly executed letter of transmittal and such other documents as the Paying Agent
may require, the holder of such Certificate shall be entitled to receive the
Merger Consideration (after giving effect to any required tax withholdings as
provided in Section 2.4) in exchange for each share of Company Common Stock
formerly evidenced by such Certificate, which such holder has the right to
receive pursuant to the provisions of this Article II. In the event of a
transfer of ownership of Cancelled Shares which is not registered in the
transfer records of the Company, the Merger Consideration may be given to a
transferee if the Certificate (or affidavit of loss in lieu thereof)
representing such Cancelled Shares is presented to the Paying Agent accompanied
by all documents required to evidence and effect such transfer and by evidence
satisfactory to the Paying Agent that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 2.2, each
Certificate (or affidavit of loss in lieu thereof) shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration as contemplated by this Section 2.2. No
interest shall be paid or will accrue on the Merger Consideration payable to
holders of Certificates pursuant to the provisions of this Article II.
(c) Closing of Transfer Books; Rights of Holders of Company
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Common Stock. From and after the Effective Time, the stock transfer books of the
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Company shall be closed and no registration of any transfer of any capital stock
of the Company shall thereafter be made on the records of the Company. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be cancelled and exchanged for the Merger Consideration, as provided
in this Section 2.2. From and after the Effective Time, the holders of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company Common Stock,
except as otherwise provided herein or by applicable law.
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(d) Termination of Paying Agent. At any time commencing six
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months after the Effective Time, the Parent shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of shares of Company Common Stock
(including, without limitation, all interest and other income received by the
Paying Agent in respect of all funds made available to it), and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any Merger Consideration that may be payable upon due
surrender of the Certificates held by them. Notwithstanding the foregoing,
neither the Parent, the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a share of Company Common Stock for any Merger
Consideration delivered in respect of such share to a public official pursuant
to any abandoned property, escheat or other similar law.
(e) Lost, Stolen or Destroyed Certificates. In the event any
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Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the holder of shares of Company Common Stock claiming
such Certificate to be lost, stolen or destroyed and, if required by the Parent,
the posting by such holder of a bond in customary amount and upon such terms as
may be required by the Parent as indemnity against any claim that may be made
against it or the Surviving Corporation with respect to such Certificate, the
Paying Agent will pay the Merger Consideration (after giving effect to any
required tax withholdings as provided in Section 2.4) to such holder in exchange
for such lost, stolen or destroyed Certificate.
Section 2.3 Treatment of Company Stock Awards.
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(a) Options. Prior to the Effective Time, the Company shall
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take all actions necessary to provide, effective as of the Effective Time, for
the cancellation, on the terms and conditions set forth in this Section 2.3 and
without any payment therefor except as otherwise provided in this Section 2.3,
of all stock options (whether or not then exercisable) on Company Common Stock
outstanding at the Effective Time under the Company's Long-Term Incentive Plan
or otherwise (the "Options"). As of the Effective Time, each such Option
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(whether vested or unvested) shall be cancelled (and to the extent formerly so
exercisable shall no longer be exercisable) and shall entitle each holder
thereof, in cancellation and settlement therefor, to receive a payment, if any,
in cash from the Company (less any applicable withholding taxes), promptly
following the Effective Time, equal to the product of (i) the total number of
shares of Company Common Stock then issuable upon the exercise of such Option
(whether or not then vested or exercisable) and (ii) the amount, if any, by
which the Merger Consideration exceeds the exercise price per share with respect
to such Option.
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(b) Other Awards. Prior to the Effective Time, the Company
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shall take all actions necessary to provide for the full vesting, effective
immediately before the Effective Time, of each award (the "Company Awards")
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(including each share of restricted stock, stock equivalents and stock units,
but excluding Options) outstanding immediately before the Effective Time that
was granted under any plan, program, agreement or arrangement maintained by the
Company to provide for grants of equity-based awards; provided that, to the
extent a performance-based Company Award does not already by its terms provide
for vesting upon the consummation of any transactions contemplated by this
Agreement, such Company Award shall vest in accordance with the foregoing
provisions of this Section 2.3(b) at the target performance level.
(c) Required Action. At or prior to the Effective Time, the
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Company, the board of directors of the Company and the compensation committee of
the board of directors of the Company, as applicable, shall adopt any
resolutions and take any actions, including obtaining consents and
acknowledgements of participants, which are necessary to effectuate the
provisions of Section 2.3(a) and (b). The Company shall take all actions
necessary to ensure that from and after the Effective Time neither Parent nor
the Surviving Corporation will be required to deliver Company Common Stock or
other capital stock of the Company to any Person pursuant to or in settlement of
Options or Company Awards. The Company shall also take all action reasonably
necessary to approve the disposition of the Options in accordance with this
Section 2.3 so as to exempt such dispositions under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
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Section 2.4 Withholding Rights. Each of the Surviving Corporation, the
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Company and the Parent shall be entitled to deduct and withhold from the Merger
Consideration or other payments pursuant to this Agreement to any holder of
shares of Company Common Stock or other Person (as defined below) such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended (the "Code"), and
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the rules and regulations promulgated thereunder, or any provision of state,
local or foreign Tax (as defined in Section 4.10) law. To the extent that
amounts are so withheld by the Surviving Corporation, the Company or the Parent,
as the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company Common
Stock or other Person in respect of which such deduction and withholding was
made by the Surviving Corporation, the Company or the Parent, as the case may
be. As used in this Agreement, the term "Person" shall mean any natural person,
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corporation, general or limited partnership, limited liability company, joint
venture, trust, association or entity of any kind.
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Section 2.5 Adjustments to Prevent Dilution. In the event that the
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Company changes the number of Company Common Stock or securities convertible or
exchangeable into or exercisable for Company Common Stock issued and outstanding
prior to the Effective Time as a result of a reclassification, stock split
(including a reverse stock split), stock dividend or distribution,
recapitalization, merger, issuer tender or exchange offer, or other similar
transaction (other than the issuance of securities contemplated by the Stock
Purchase Agreement and, in the event the Stock Purchase Agreement is terminated
or in the event the proceeds to the Company pursuant to the Stock Purchase
Agreement are less than $150 million, any securities issued by the Company as
contemplated by Section 6.1 of the Company Disclosure Schedule), the Merger
Consideration shall be equitably adjusted.
ARTICLE III
THE CLOSING
Section 3.1 Closing. The closing of the Merger (the "Closing")
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shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP,
1440 New York Avenue, NW, Washington, DC 20005 at 10:00 a.m., local time, on the
fifteenth business day immediately following the date on which the last of the
conditions set forth in Article VIII hereof is fulfilled or waived (other than
any conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of those conditions at the Closing), or at
such other time, date and place as the Company and the Parent shall mutually
agree (the "Closing Date").
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent as follows:
Section 4.1 Organization and Qualification. The Company and each of
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the Company Subsidiaries (as defined below) is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Except as set forth in Section 4.1 of the schedule delivered by the Company
prior to entering into this Agreement (the "Company Disclosure Schedule"), the
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Company and each of the Company Subsidiaries has all requisite power and
authority to own, lease and operate its assets and properties to the extent
owned, leased and operated and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its assets and properties makes such qualification necessary other than in such
jurisdictions where the failure to be so qualified or in good standing would
not, individually or in the aggregate, reasonably be expected to result
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in a Company Material Adverse Effect (as defined below). As used in this
Agreement, (a) the term "Subsidiary" of a Person shall mean any other Person of
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which at least a majority of the voting power represented by the outstanding
capital stock or other voting securities or interests having voting power under
ordinary circumstances to elect directors or similar members of the governing
body of such corporation or entity or fifty percent (50%) or more of the equity
interests in such corporation or entity shall at the time be owned or
controlled, directly or indirectly, by such Person and/or by one or more of its
Subsidiaries; (b) the term "Company Subsidiary" shall mean a Subsidiary of the
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Company and (c) the term "Company Material Adverse Effect" shall mean any
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material adverse effect on the business, assets, liabilities, properties,
financial condition or results of operations of the Company and the Company
Subsidiaries taken as a whole; provided, however, that the term "Company
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Material Adverse Effect" shall not include (i) any such effect resulting from
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any change, including any change in law, rule, or regulation of any Governmental
Authority (as defined in Section 4.4(c)), that applies generally to similarly
situated Persons, (ii) any such effect relating to or resulting from general
changes in the electric utility industry, (iii) any such effect relating to or
resulting from the 2006 FERC Rate Case (as defined in Section 7.15) before the
Federal Energy Regulatory Commission ("FERC") or the 2006 PaPUC Rate Case (as
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defined in Section 7.15) before the Pennsylvania Public Utility Commission
("PaPUC"), (iv) any such effect relating to or resulting from changes to
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accounting standards, principles or interpretations, (v) any such effect
resulting from the announcement of the execution of this Agreement or the
consummation of the transactions contemplated hereby, including any such change
resulting therefrom in the market value of the Company Common Stock or the
Company's credit rating, or from any action, suit or proceeding relating to this
Agreement or the transactions contemplated hereby, including any such action,
suit or proceeding alleging a breach of fiduciary duty in connection with the
execution, delivery, approval or consummation of the transactions contemplated
by this Agreement, or (vi) any such effect resulting from any action taken by
any of the parties outside the ordinary course of its business that is required
to be taken in order to comply with any provision of this Agreement, including,
to the extent applicable, Section 6.1 hereof (provided, however, that Parent may
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consider, in determining whether a Company Material Adverse Effect has occurred,
the extent to which the aggregate cost of power purchases made by the Company or
the Light Company for the period between the date hereof and the Closing Date
exceeds the aggregate amount of such costs anticipated to be incurred in respect
of such period pursuant to the Business Plan (as defined in Section 6.1)). As
used in this Agreement, the term "knowledge" when referring to the knowledge of
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the Company or any Company Subsidiary shall mean the actual knowledge of an
executive officer of the Company after reasonable inquiry of those employees who
are reasonably likely to possess the relevant information.
8
Section 4.2 Subsidiaries; Corporate Documents.
---------------------------------
(a) Section 4.2(i) of the Company Disclosure Schedule sets forth
a complete list, as of the date hereof, of all of the Company Subsidiaries and
their respective jurisdictions of incorporation or organization and the
jurisdictions in which they are qualified to do business, and Section 4.2(ii) of
the Company Disclosure Schedule sets forth each of the Company's Subsidiaries
and the ownership interest of the Company in each such Subsidiary, as well as
the ownership interest of any other Person or Persons in each such Subsidiary,
and the Company's or its Subsidiaries' capital stock, equity interest or other
direct or indirect ownership interest in any other Person other than securities
in a publicly traded company held for investment by the Company or any of its
Subsidiaries and consisting of less than 1% of the outstanding capital stock of
such company. The Company does not own, directly or indirectly, any minority
interest in any Person that requires an additional filing by the Parent under
HSR Act. Except as set forth in Section 4.2 of the Company Disclosure Schedule,
all of the issued and outstanding shares of capital stock or other securities of
each Company Subsidiary are duly authorized, validly issued, fully paid and
nonassessable, and are owned, directly or indirectly, beneficially and of record
by the Company free and clear of any liens, claims, security interests and other
encumbrances of any nature whatsoever.
(b) Prior to the date hereof, the Company has made available to
the Parent true, complete and correct copies of the Company's and its
Subsidiaries' certificates of incorporation and by-laws or comparable governing
documents, each as amended to the date hereof, and each as so made available is
in full force and effect. Prior to the date hereof, the Company has made
available to the Parent true, complete and correct copies of the minutes of all
meetings of the stockholders, the boards of directors and each committee of the
boards of directors of the Company and Light Company since December 31, 2003.
Section 4.3 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
187,500,000 shares of Company Common Stock, without par value; and 4,000,000
shares of preferred stock, without par value ("Company Preferred Stock"), of
-----------------------
which 1,000,000 shares have been designated Preferred Stock, Series A
(Convertible) ("Company Series A Preferred Stock"). At the close of business on
--------------------------------
July 3, 2006, (i) 79,614,546 shares of Company Common Stock were issued and
outstanding (including 1,176,838 shares held by the Light Company ESOP) and (ii)
no shares of Company Series A Preferred Stock were issued and outstanding. All
outstanding shares of Company Common Stock have been duly authorized and are
9
validly issued, fully paid and nonassessable. As of the date hereof, except as
set forth in Section 4.3 of the Company Disclosure Schedule, the Company has no
capital stock or other securities (including securities convertible into, or
exercisable or exchangeable for, capital stock) of the Company reserved for
issuance and there are no preemptive or other outstanding rights, options,
warrants, calls, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, commitments, arrangements, agreements or rights of
any character to which the Company or any Company Subsidiary is a party or by
which any of them are bound obligating the Company or any Company Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other securities or rights (including securities or
rights convertible into, or exercisable or exchangeable for, additional shares
of capital stock) of the Company or any Company Subsidiary, or obligating the
Company or any Company Subsidiary to grant, extend or enter into any such
preemptive or other outstanding rights, options, warrants, calls, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
commitments, arrangements, agreements or rights. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
(b) The authorized capital stock of Light Company consists of
(i)90,000,000 shares of common stock, par value $1.00 per share, of which 10
shares are issued and outstanding and all of which are duly authorized, validly
issued, fully paid and nonassessable and owned by the Company free and clear of
any Liens, (ii) 4,000,000 shares of preferred stock, par value $50.00 per share,
of which, as of the close of business on July 3, 2006, 2,709,419 shares were
issued and outstanding and (iii) 8,000,000 shares of preference stock, par value
$1.00 per share, of which, as of the close of business on July 3, 2006, 346,783
shares were issued and outstanding.
Section 4.4 Authority; Non-Contravention; Statutory Approvals;
--------------------------------------------------
Compliance.
- ----------
(a) Authority. The Company has all requisite corporate power
---------
and authority to enter into this Agreement and, subject to the receipt of the
Company Shareholders' Approval (as defined in Section 4.17) and the applicable
Company Required Statutory Approvals (as defined in Section 4.4(c)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject only to obtaining the Company Shareholders'
Approval. This Agreement has been duly executed and delivered by the Company
10
and, assuming the due authorization, execution and delivery hereof by the other
signatories hereto, constitutes the legal, valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(b) Non-Contravention. Except as set forth in Section 4.4(b)(i)
-----------------
of the Company Disclosure Schedule, the execution and delivery of this Agreement
by the Company does not, and the consummation of the transactions contemplated
hereby will not, violate or result in a material breach of any provision of,
constitute a material default (with or without notice or lapse of time or both)
under, result in the termination or modification of, accelerate the performance
required by, result in a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or result in the
creation of any material lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or any of the Company Subsidiaries
(any such violation, breach, default, right of termination, modification,
cancellation or acceleration, loss or creation, is referred to herein as a
"Violation" with respect to the Company and such term when used in Article V has
---------
a correlative meaning with respect to the Parent) pursuant to any provisions of
(i) any debt instruments relating to outstanding indebtedness for borrowed money
in amounts in excess of $5 million, the articles of incorporation, by-laws or
similar governing documents of the Company or any of the Company Subsidiaries,
(ii) the preferred stock and preference stock of the Company and Light Company,
(iii) subject to obtaining the Company Required Statutory Approvals and the
receipt of the Company Shareholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any Governmental Authority (as defined in Section 4.4(c)) applicable to the
Company or any of the Company Subsidiaries or any of their respective properties
or assets or (iv) subject to obtaining the third-party consents set forth in
Section 4.4(b)(ii) of the Company Disclosure Schedule (the "Company Required
----------------
Consents"), any Material Contract or material note, bond, mortgage, indenture,
- --------
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
the Company Subsidiaries is a party or by which they or any of their respective
properties or assets may be bound or affected, except in the case of clauses
(iii) or (iv) for any such Violation which, individually or in the aggregate,
would not reasonably be expected to result in a Company Material Adverse Effect
or to prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement.
(c) Statutory Approvals. Except as described in Section 4.4(c) of
-------------------
the Company Disclosure Schedule (the "Company Required Statutory Approvals"), no
------------------------------------
declaration, report, filing or registration with, or notice to or
11
authorization, consent or approval of, any court, federal, state, local or
foreign governmental or regulatory body (including a national securities
exchange or other self-regulatory body), authority or other legislative,
executive or judicial entity (each, a "Governmental Authority") is necessary for
----------------------
the execution and delivery of this Agreement by the Company, the consummation by
the Company of the transactions contemplated hereby, except those that the
failure of which to obtain, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect (it being
understood that references in this Agreement to "obtaining" such Company
Required Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law) or to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement.
(d) Compliance. Except as set forth in Section 4.4(d)(i),
----------
Section 4.8, Section 4.10, Section 4.11, Section 4.12 or Section 4.13 of the
Company Disclosure Schedule, or as disclosed in the Company's annual report on
Form 10-K for the year ended December 31, 2005 (the "2005 10-K") or any Company
---------
SEC Reports (as defined in Section 4.5) filed after the date of the 2005 10-K
and prior to the date hereof, neither the Company nor any of the Company
Subsidiaries is in violation of, is, to the knowledge of the Company, under
investigation with respect to any violation of, or has been given notice of or
been charged with any violation of, any law, statute, order, award, rule,
regulation, ordinance or judgment of any Governmental Authority, except for any
such violations which, individually or in the aggregate, would not reasonably be
expected to result in a Company Material Adverse Effect or to prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement. Except as set forth in Section 4.4(d)(ii) or
Section 4.13 of the Company Disclosure Schedule, or as disclosed in the 2005
10-K or any Company SEC Reports filed after the date of the 2005 10-K and prior
to the date hereof, the Company and the Company Subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted except
those that the absence of which, individually and in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect or to
prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement. Except as set forth in Section
4.4(d)(iii) of the Company Disclosure Schedule, neither the Company nor any of
the Company Subsidiaries is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result in a default
by the Company or any Company Subsidiary under (i) their respective articles of
incorporation or by-laws or similar governing documents or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
12
license, approval or other instrument to which it is a party or by which the
Company or any Company Subsidiary is bound or to which any of their respective
property is subject, except in the case of clause (ii) for possible violations,
breaches or defaults which, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect or to
prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement.
(e) Board Approval. The board of directors of the Company has
--------------
(A) determined that the Merger is fair to, and in the best interests of the
Company and its stockholders, approved and declared advisable this Agreement and
the Merger and the other transactions contemplated hereby and resolved to
recommend adoption of this Agreement to the holders of the Company Common Stock
and (B) directed that this Agreement be submitted to the holders of the Company
Common Stock for their adoption. The board of directors of the Company has taken
all action so that the Parent will not be an "interested stockholder" or
prohibited from entering into or consummating a "business combination" with the
Company (in each case as such terms are used in Section 2555 of the BCL) as a
result of the execution of this Agreement or the consummation of the
transactions in the manner contemplated hereby.
Section 4.5 Reports and Financial Statements. Since December 31, 2003,
--------------------------------
the Company and the Company Subsidiaries have filed or furnished, as applicable,
on a timely basis (taking into account all applicable grace periods) all forms,
statements, certifications, reports and documents required to be filed or
furnished by it under the Securities Act of 1933, as amended (the "Securities
----------
Act"), the Exchange Act, the Public Utility Holding Company Act of 1935, as
- ---
amended and in effect prior to its repeal effective February 8, 2006 ("PUHCA"),
-----
the Energy Policy Act of 2005, the Federal Power Act (the "FPA"), the
---
Communications Act of 1934 and applicable state public utility laws and
regulations (collectively, the "Company Reports"). The Company Reports have
---------------
complied, as of their respective dates, or if not yet filed or furnished, will
comply, with all applicable requirements of the appropriate statutes and the
rules and regulations thereunder, except for such failures which, individually
or in the aggregate, would not reasonably be expected to result in a Company
Material Adverse Effect. As of their respective dates, (or, if amended prior to
the date hereof, as of the date of such amendment), each form, certification,
report, schedule, registration statement, definitive proxy statement and
document filed with or furnished to the Securities and Exchange Commission (the
"SEC") by the Company or Light Company pursuant to the requirements of the
---
Securities Act or the Exchange Act since December 31, 2003 (collectively, the
"Company SEC Reports") did not, or if not yet filed or furnished, will not,
-------------------
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
13
the Company SEC Reports, at the time of its filing or being furnished, complied
in all material respects, or if not yet filed or furnished, will comply in all
material respects, with the applicable requirements of the Securities Act, the
Exchange Act and the Sarbanes-Oxley Act of 2002 ("SOX") and any rules and
---
regulations promulgated thereunder applicable to the Company SEC Reports. Each
of the Company and Light Company is in compliance in all material respects with
the applicable listing and corporate governance rules and regulations of the
NYSE. Each of the audited consolidated financial statements and unaudited
interim financial statements of the Company included in or incorporated by
reference into the Company SEC Reports (including the related notes and
schedules) (collectively, the "Company Financial Statements") has been, and in
----------------------------
the case of Company SEC Reports filed after the date hereof will be, prepared in
accordance with United States generally accepted accounting principles ("GAAP"),
----
consistently applied during the periods involved (except as may be indicated
therein or in the notes thereto and subject, in the case of unaudited
statements, to normal year-end audit adjustments) and fairly presents, or, in
the case of Company SEC Reports after the date hereof, will fairly present, in
each case in accordance with GAAP, the consolidated financial position of the
Company and the Company Subsidiaries as of the dates thereof and the results of
its operations and cash flows for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments.
Section 4.6 Real Property.
-------------
(a) Except as set forth in Section 4.6 of the Company
Disclosure Schedule, the Company or one of the Company Subsidiaries has (x) good
and marketable fee title to all real property owned (or reflected as owned on
the Company Financial Statements) by Company or any Company Subsidiary (the
"Owned Real Property") and (y) valid title to the leasehold estate (as lessee)
-------------------
in all real property and interests in real property leased or subleased by
Company or any Company Subsidiary as lessee or sublessee (the "Leased Real
-----------
Property", and together with the Owned Real Property, the "Real Property"), in
- -------- -------------
each case free and clear of all mortgages, liens, security interests, pledges,
charges, easements, rights of way, options, claims, restrictions or encumbrances
of any kind (each a "Lien" or collectively, the "Liens"), except:
---- -----
(i) Liens for Taxes (as defined in Section 4.10 below) that
are not yet due and payable or, if due and payable, are not delinquent
and may thereafter be paid without penalty;
(ii) Liens that secure indebtedness as reflected on the
Company Financial Statements or indebtedness listed on Section 4.6 of
the Company Disclosure Schedule;
14
(iii) easements, covenants, conditions, rights of way,
encumbrances, restrictions, defects of title and other similar matters
of public record (other than such matters that, individually or in the
aggregate, do not materially adversely impair the current use or value
of the Real Property);
(iv) zoning, planning, building and other applicable laws
regulating the use, development and occupancy of real property and
permits, consents and rules under such laws;
(v) Liens that have been placed by a third party on the fee
title of Leased Real Property or property over which Company or any
Company Subsidiary has easement rights, and subordination or similar
agreements relating thereto;
(vi) Liens that, individually or in the aggregate, do not
materially adversely impair the continued use, operation, value or
marketability of the specific parcel of Owned Real Property to which
they relate or the conduct of the business of the Company and the
Company Subsidiaries as presently conducted; and
(vii) Subleases identified in Section 4.6 of the Company
Disclosure Schedule and indebtedness secured by property subleased
under subleases identified in Section 4.6 of the Company Disclosure
Schedule.
(b) Neither Company nor any Company Subsidiary is
obligated under, or a party to, any option, right of first refusal or other
contractual right to sell, assign or dispose of any Owned Real Property or
any portion thereof or interest therein that, in each case, is valued in excess
of $100,000.
(c) (i) Each lease or sublease for real property under
which Company or any Company Subsidiary is a lessee or sublessee (each, a "Real
----
Property Lease") is in full force and effect and is the valid and binding
- --------------
obligation of Company or such Company Subsidiary, enforceable against Company or
such Company Subsidiary in accordance with its terms and, to the knowledge of
the Company, the other party or parties thereto, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting rights of creditors generally and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding at law or
in equity), (ii) no notices of default under any Real Property Lease have been
sent or received by Company or any Company Subsidiary and (iii) neither Company
nor any Company Subsidiary is in default in any material respect under any Real
15
Property Lease, and, to the knowledge of the Company, no landlord thereunder is
in default in any material respect, except in each case, as do not materially
adversely impair the use, occupancy or value of the Real Property or prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement.
(d) None of the rights or obligations of Company or any
Company Subsidiary, or the lessor or sublessor, under any material Real Property
Lease will be subject to termination, modification or acceleration of
performance under any Real Property Lease as a result of the consummation of the
Merger and the other transactions contemplated by this Agreement. To the
knowledge of the Company, no event has occurred which, with notice, lapse of
time or both, would constitute a breach or default under any Real Property Lease
by any of the Company or the Company Subsidiaries.
(e) With respect to the Real Property, neither Company nor any
Company Subsidiary has received any written notice of, nor to the knowledge of
the Company does there exist as of the date of this Agreement, any pending,
threatened or contemplated condemnation or similar proceedings, or any sale or
other disposition of any Real Property or any part thereof in lieu of
condemnation that, individually or in the aggregate, would reasonably be
expected to materially adversely impair the use, occupancy or value of any Real
Property. The Company and Company Subsidiaries have lawful rights of use and
access to all Real Property necessary to conduct their businesses substantially
as presently conducted.
Section 4.7 Internal Controls and Procedures. The Company has
--------------------------------
established and maintains "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) that are
reasonably designed (but without making any representation or warranty as to the
effectiveness of any such controls or procedures so designed) to ensure that
material information (both financial and non-financial) relating to the Company
and the Company Subsidiaries required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC, and that such information is accumulated and communicated to the
Company's principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure and to make the certifications of the "principal
executive officer" and the "principal financial officer" of the Company required
by Section 302 of SOX with respect to such reports. Each of the principal
executive officer of the Company and the principal financial officer of the
Company (or each former principal executive officer of the Company and each
former principal financial officer of the Company, as applicable) has made all
certifications required by Sections 302 and 906 of SOX and the rules and
regulations promulgated thereunder with respect to the Company SEC Reports and
16
the statements contained in such certifications are true and accurate in all
material respects as of the date hereof. Except as set forth in Section 4.7 of
the Company Disclosure Schedule, there are no "significant deficiencies" or
"material weaknesses" (as defined by SOX) in the design or operation of the
Company's internal controls and procedures which could adversely affect the
Company's ability to record, process, summarize and report financial data.
Section 4.8 Litigation; Undisclosed Liabilities; Restrictions on
----------------------------------------------------
Dividends; No General Liens. Except as disclosed in the 2005 10-K or any Company
- ---------------------------
SEC Reports filed after the date of the 2005 10-K and prior to the date hereof
or as set forth in Section 4.4, Section 4.8, Section 4.10, Section 4.12 or
Section 4.13 of the Company Disclosure Schedule, (a) there are no pending or, to
the knowledge of the Company, threatened claims, suits, actions or proceedings
before any court, governmental department, commission, agency, instrumentality
or authority or any arbitrator, nor are there, to the knowledge of the Company,
any investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against, relating to or affecting the Company or any of the Company Subsidiaries
which, individually or in the aggregate, have resulted in since December 31,
2005 or would reasonably be expected to result in a Company Material Adverse
Effect or prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement, (b) there have not been any
significant developments since December 31, 2005 with respect to claims, suits,
actions, proceedings, investigations or reviews that, individually or in the
aggregate, have resulted in since December 31, 2005 or would reasonably be
expected to result in a Company Material Adverse Effect or prevent, materially
delay or materially impair the consummation of the transactions contemplated by
this Agreement and (c) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to the Company or any
of the Company Subsidiaries except for such that, individually or in the
aggregate, have not resulted in since December 31, 2005 or would not reasonably
be expected to result in a Company Material Adverse Effect. Except for matters
reflected as liabilities or reserved against in the balance sheet (or notes
thereto) as of December 31, 2005, included in the Company Financial Statements,
as of the date of this Agreement, neither the Company nor any Company Subsidiary
has any liabilities or obligations (whether absolute, accrued, contingent, fixed
or otherwise, or whether due or to become due) of any nature and whether or not
required by GAAP to be reflected on a consolidated balance sheet of the Company
and its consolidated Subsidiaries (including the notes thereto), except
liabilities or obligations (i) that were incurred since December 31, 2005 in the
ordinary course of business consistent in kind and amount with past practice, or
(ii) that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 4.8 of the Company Disclosure Schedule, and except as may be
set forth in any Company Required Statutory Approval or Parent Required
Statutory Approval, there are no restrictions (contractual or regulatory)
limiting the ability of the Light Company from making distributions, dividends
or other return of capital to the Company. Neither the Company nor Light Company
has granted a general lien to secure indebtedness over its general intangibles,
accounts receivable and/or deposit accounts; it being understood that this
representation is not intended to address statutory or contractual rights of set
off.
17
Section 4.9 No Dissenters Rights. The Merger will not entitle any
--------------------
holder of Company Common Stock to any "dissenters rights" as such term is used
under the BCL.
Section 4.10 Tax Matters. Except as set forth in Section 4.10 of the
-----------
Company Disclosure Schedule, and except as to matters that would not reasonably
be expected, considered individually or in the aggregate with other matters, to
result in a Company Material Adverse Effect: (i) the Company and each of the
Company Subsidiaries have timely filed (or there have been filed on their
behalf) with appropriate taxing authorities all Tax Returns (as defined below)
required to be filed by them on or prior to the date hereof, such Tax Returns
are correct, complete and accurate in all respects, and all Taxes (as defined
below) shown as due on such Tax Returns have been paid; (ii) there are no
audits, claims, assessments, levies, administrative or judicial proceedings
pending against the Company by any taxing authority; (iii) there are no liens
for Taxes upon any property or assets of the Company or any of the Company
Subsidiaries, except for liens for Taxes not yet due and payable, or liens for
Taxes which are being contested in good faith; and are reserved for in
accordance with GAAP in the appropriate Company SEC Reports; (iv) there are no
outstanding requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment or collection of any Taxes or
deficiencies against the Company or any of the Company Subsidiaries; (v) all
Taxes that the Company or any Company Subsidiaries is obligated to withhold from
amounts owing to any employee, creditor or third party have been paid over to
the appropriate taxing authorities in a timely manner, to the extent due and
payable; and (vi) neither the Company nor any company Subsidiary has been a
party to any distribution occurring during the two-year period prior to the date
of this Agreement in which the parties to such distribution treated the
distribution as one to which Section 355 of the Code applied, except for
distributions occurring among members of the same group of affiliated
corporations filing a consolidated federal income tax return. Except as set
forth in Section 4.10 of the Company Disclosure Schedule, neither the Company
nor any Company Subsidiary has participated in any "listed transactions" or
"reportable transactions" within the meaning of Treasury Regulations Section
1.6011-4, and neither the Company nor any Company Subsidiary has been a
"material advisor" to any such transactions within the meaning of Section 6111
of the Code. As used in this Agreement: (i) the term "Tax" includes all federal,
---
state, local and foreign income, profits, franchise, gross receipts,
18
environmental, customs duty, capital stock, severance, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect thereto; (ii) the term "Tax Return" includes all returns and
----------
reports (including elections, declarations, disclosures, schedules, estimates
and information returns) required to be supplied to a Tax authority relating to
Taxes, including any amendments to such returns and reports; and (iii) the term
"Treasury Regulations" means the regulations promulgated by the U.S. Department
--------------------
of the Treasury pursuant to the Code. Except as would not reasonably be
expected, considered individually or in the aggregate with other matters, to
result in a Company Material Adverse Effect, none of the Company or any of the
Company Subsidiaries are subject to any obligations to any counterparties in
respect of the lease transactions identified on Section 4.6(b) and (c) of the
Company Disclosure Schedule, other than obligations that are recourse only to
the interest of the Company and the Company Subsidiaries in the leased property
(and the collateral securing the counterparty's obligation to pay rent) or
obligations that, through decisions that are solely within the Company's
control, will become recourse only to such leased property.
Section 4.11 Employee Benefits; ERISA.
------------------------
(a) Company Plans. Section 4.11(a) of the Company Disclosure
-------------
Schedule contains a true and complete list of each deferred compensation and
each bonus or other incentive compensation, stock purchase, stock option and
other equity compensation plan, program, policy, agreement or arrangement; each
severance or termination pay, medical, surgical, hospitalization, life insurance
and other "welfare" plan, fund or program (within the meaning of Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each
-----
profit-sharing, stock bonus or other "pension" plan, fund or program (within the
meaning of Section 3(2) of ERISA); each employment, termination or severance
contract, arrangement, policy or agreement; and each other employee benefit
plan, fund, program, policy, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated (an "ERISA
-----
Affiliate"), that together with the Company would be deemed a "single employer"
- ---------
within the meaning of Section 4001(b) of ERISA, or to which the Company or an
ERISA Affiliate is a party, for the benefit of any employee or former employee
of the Company or any Company Subsidiary (the "Company Plans").
-------------
(b) Deliveries. With respect to each Company Plan, the Company
----------
has heretofore delivered or made available to the Parent true and complete
copies of (i) each of the Company Plans and any amendments thereto; (ii) if the
Company Plan is funded through a trust or any third party funding vehicle, a
copy of the trust or other funding agreement; and (iii) the most recent
determination letter received from the Internal Revenue Service with respect to
each Company Plan intended to qualify under Section 401 of the Code.
19
(c) Absence of Liability. No liability under Title IV of ERISA
--------------------
has been incurred by the Company or any ERISA Affiliate that has not been
satisfied in full and, to the knowledge of the Company, no condition exists that
presents a material risk to the Company or any ERISA Affiliate of incurring any
such liability, other than liability for premiums due the Pension Benefit
Guaranty Corporation ("PBGC") (which premiums have been paid when due). No
----
notice of a "reportable event," within the meaning of Section 4043 of ERISA for
which the reporting requirement has not been waived or extended, other than
pursuant to PBGC Reg. Section 4043.33 or 4043.66, has been required to be filed
for any Company Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof or will be required to be filed in connection with the
transactions contemplated by this Agreement. No notices have been required to be
sent to participants and beneficiaries or the PBGC under Section 302 or 4011 of
ERISA or Section 412 of the Code.
(d) Present Value of Accrued Benefits. Except as set forth in
---------------------------------
Section 4.11(d) of the Company Disclosure Schedule, with respect to each Company
Plan subject to Title IV of ERISA (a "Title IV Company Plan"), the present value
---------------------
of accrued benefits under such plan, based upon the actuarial assumptions used
for funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan did not exceed, as of its latest valuation
date, the then current value of the assets of such plan allocable to such
accrued benefits.
(e) Funding. No Title IV Company Plan has incurred any
-------
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each Title IV Company Plan ended prior to the Closing Date. All
contributions required to be made with respect to any Company Plan as of the
date hereof have been timely made and all obligations in respect of each Company
Plan have been accrued and reflected in the Company Financial Statements to the
extent required by GAAP.
(f) Multiemployer Plans. No Title IV Company Plan is a
-------------------
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, nor is any
Title IV Company Plan a plan described in Section 4063(a) of ERISA.
(g) No Violations. Each Company Plan has been operated and
-------------
administered in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code. As of the date
hereof, there is no material pending or, to the knowledge of the Company
threatened, litigation relating to the Company Plans. Neither the Company nor
any of its Subsidiaries has engaged in a transaction with respect to any Company
Plan that, assuming the taxable period of such transaction expired as of the
date hereof, could subject the Company or any Company Subsidiary to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in
an amount which would be material. Neither the Company nor any of its
20
Subsidiaries has incurred or reasonably expects to incur a tax or penalty
imposed by Section 4980 of the Code or Section 502 of ERISA or any liability
under Section 4071 of ERISA.
(h) Section 401(a) Qualification. Each Company Plan intended to
----------------------------
be "qualified" within the meaning of Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service covering all tax law
changes prior to the Economic Growth and Tax Relief Reconciliation Act of 2001
and the Company is not aware of any circumstances likely to result in the loss
of the qualification of such Company Plan under Section 401(a) of the Code.
(i) Post-Employment Benefits. Except as set forth in Section
------------------------
4.11(i) of the Company Disclosure Schedule, no Company Plan provides medical,
surgical, vision, hospitalization, death or similar benefits (whether or not
insured) for employees or former employees of the Company or any Company
Subsidiary for periods extending beyond their respective dates of retirement or
other termination of service, other than (i) coverage mandated by applicable
law, (ii) death benefits under any "pension plan," or (iii) benefits the full
cost of which is borne by the current or former employee (or his beneficiary).
Except as limited by applicable terms of collective bargaining agreements to
which the Company or any Company Subsidiary is a party or is otherwise bound,
the Company or its Subsidiaries may amend or terminate any such plan at any
time without incurring any liability thereunder other than in respect of claims
incurred prior to such amendment or termination.
(j) Reserved.
--------
(k) Effect of Change of Control. Except as set forth in Section
---------------------------
4.11(k) of the Company Disclosure Schedule, neither the execution of this
Agreement, stockholder approval of this Agreement nor the consummation of the
transactions contemplated hereby will (w) result in payments under any of the
Benefit Plans that would not be deductible under Section 162(m) or Section 280G
of the Code, (x) entitle any employees of the Company or any of its Subsidiaries
to severance pay or any increase in severance pay upon any termination of
employment after the date hereof, (y) accelerate the time of payment or vesting
or result in any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or result in any
other material obligation pursuant to, any of the Company Plans, or (z) except
as limited by applicable terms of collective bargaining agreements to which the
Company or any Company Subsidiary is a party or is otherwise bound, limit or
restrict the right of the Company or, after the consummation of the transactions
contemplated hereby, the Parent, to merge, amend or terminate any of the Company
Plans. There has been no amendment to, announcement by the Company or any of its
Subsidiaries relating to, or change in employee participation or coverage under,
any Company Plan which would increase materially the expense of maintaining such
21
plan above the level of the expense incurred therefor for the most recently
completed fiscal year of the Company.
(l) Claims. Except as set forth in Section 4.11(l) of the
------
Company Disclosure Schedule, there are no pending, or to the knowledge of the
Company threatened, claims by or on behalf of any Company Plan, by any employee
or beneficiary covered under any such Company Plan, or otherwise involving any
such Company Plan (other than routine claims for benefits).
Section 4.12 Labor and Employee Relations. Except as set forth
----------------------------
in Section 4.12 of the Company Disclosure Schedule:
(i) there are no collective bargaining agreements binding on
the Company or the Company Subsidiaries;
(ii) none of the employees of the Company or the Company
Subsidiaries is represented by a labor union, and, to the knowledge of
the Company, no petition has been filed, nor has any proceeding been
instituted by any employee or group of employees with any labor
relations board or commission seeking recognition of a collective
bargaining representative;
(iii) to the knowledge of the Company, (a) there is no
organizational effort currently being made or threatened by or on
behalf of any labor organization or trade union to organize any
employees of the Company or the Company Subsidiaries, and (b) no
demand for recognition of any employees of the Company or the Company
Subsidiaries has been made by or on behalf of any labor organization
or trade union;
(iv) there is no pending or, to the knowledge of the
Company, threatened employee strike, work stoppage, slowdown,
picketing or material labor dispute with respect to any employees of
the Company or the Company Subsidiaries which would reasonably be
expected to result in a Company Material Adverse Effect;
22
(v) the Company and the Company Subsidiaries are (a) in
compliance in all material respects with all federal and state laws
respecting employment and employment practices, terms and conditions
of employment, collective bargaining, immigration, wages, hours and
benefits, non-discrimination in employment, workers compensation, the
collection and payment of withholding and/or payroll taxes and similar
taxes (except for any non-compliance which, individually or in the
aggregate, would not reasonably be expected to result in a Company
Material Adverse Effect), including but not limited to the Civil
Rights Act of 1964, the Age Discrimination in Employment Act of 1967,
the Equal Employment Opportunity Act of 1972, the Employee Retirement
Income Security Act of 1974, the Equal Pay Act, the National Labor
Relations Act, the Americans with Disabilities Act of 1990, the
Vietnam Era Veterans Reemployment Act, and any and all similar
applicable state and local laws, and all material applicable
requirements of the Occupational Safety and Health Act of 1970 within
the United States and comparable regulations and orders thereunder;
and (b) to the knowledge of the Company, neither the Company nor any
of the Company Subsidiaries has committed a material unfair labor
practice as defined in the National Labor Relations Act;
(vi) each of the Company and the Company Subsidiaries is,
and during the 90-day period prior to the date of this Agreement, has
been in compliance in all material respects with the Worker Adjustment
Retraining Notification Act of 1988, as amended ("WARN Act"), or any
--------
similar state or local law.
Section 4.13 Environmental Protection.
------------------------
(a) Except as set forth in Section 4.13 of the Company Disclosure
Schedule or in the 2005 10-K or any Company SEC Reports filed after the 2005
10-K and prior to the date hereof:
(i) Compliance. The Company and each of the Company
----------
Subsidiaries are in compliance with all applicable Environmental Laws
(as defined in Section 4.13(b)(ii)) except where the failure to so
comply is not reasonably likely to have a Company Material Adverse
Effect, and neither the Company nor any of the Company Subsidiaries
has received any communication (written or oral) from any Person or
Governmental Authority that alleges that the Company or any of the
Company Subsidiaries is not in such compliance with applicable
Environmental Laws.
23
(ii) Environmental Permits. The Company and each of the
---------------------
Company Subsidiaries have obtained or have applied for all
environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary
---------------------
for the construction of their facilities or the conduct of their
operations except where the failure to so obtain is not reasonably
likely to have a Company Material Adverse Effect, and all such
Environmental Permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency
approval, and the Company and the Company Subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits,
except where failure to so comply is not reasonably likely to have a
Company Material Adverse Effect.
(iii) Environmental Claims. There is no Environmental Claim
--------------------
(as defined in Section 4.13(b)(i)) which is reasonably likely to have
a Company Material Adverse Effect pending (A) against the Company or
any of the Company Subsidiaries, or (B) against any real or personal
property or operations which the Company or any of the Company
Subsidiaries owns, leases or manages, in whole or in part.
(iv) Releases. The Company has no knowledge of any Releases
--------
(as defined in Section 4.13(b)(iv)) of any Hazardous Material (as
defined in Section 4.13(b)(iii)) that would be reasonably likely to
form the basis of any Environmental Claim against the Company or any
of the Company Subsidiaries, except for any Environmental Claim which
is not reasonably likely to have a Company Material Adverse Effect.
(v) Exclusive Representations and Warranties. This Section
----------------------------------------
4.13(a) contains the sole and exclusive representations and warranties
of the Company with respect to environmental matters.
(b) Definitions. As used in this Agreement:
-----------
(i) "Environmental Claim" means any and all administrative
-------------------
or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance
or violation (written or oral) by any Person (including any
Governmental Authority), alleging potential liability (including,
without limitation, potential responsibility for or liability for
enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages,
property damages, personal injuries or penalties) arising out of,
based on or resulting from (A) the presence, Release or threatened
Release into the environment of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by
24
the Company or any of the Company Subsidiaries; (B) circumstances
forming the basis of any violation or alleged violation of any
Environmental Law; or (C) any and all claims by any third party
seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local
-------------------
laws, rules and regulations relating to pollution, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human
health as it relates to the environment including, without limitation,
laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or
------------------
petroleum products, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls ("PCBs"); (B) any chemicals,
----
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar
import under any Environmental Law; and (C) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in
which the Company or any of the Company Subsidiaries is subject (for
purposes of this Section 4.13).
(iv) "Release" means any release, spill, emission, leaking,
-------
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property.
25
Section 4.14 Material Contracts. Except as set forth in Section
------------------
4.14 of the Company Disclosure Schedule, or as disclosed in the 2005 10-K or any
Company SEC Reports filed after the 2005 10-K and prior to the date hereof, as
of the date of this Agreement, neither the Company nor any of the Company
Subsidiaries is a party to or bound by:
(i) any Contract required to be filed as an exhibit to the
Company's Annual Report on Form 10-K pursuant to Item 601(b)(10) of
Regulation S-K under the Securities Act;
(ii) any Contract that is reasonably likely to require (x)
annual payments or other transfers of value to or from the Company and
its Subsidiaries of more than $5 million or (y) aggregate payments or
other transfers of value to or from the Company and its Subsidiaries
of more than $5 million (other than Contracts relating to purchases of
transformers or related infrastructure);
(iii) any wholesale purchase and sale Contracts for electric
power;
(iv) any Contract to which the Company or the Company
Subsidiaries is a party, or by which any of them is bound, that (x)
the ultimate contracting party of which is a Governmental Authority
(including any subcontract with a prime contractor or other
subcontractor who is a party to any such contract), (y) requires
annual payments or other transfers of value to or from the Company and
its Subsidiaries of more than $1 million, and (z) is not set to expire
or terminate in accordance with its terms on or before December 31,
2006;
(v) any Contract relating to the sale of a business by the
Company or any Company Subsidiary pursuant to which the Company or any
Company Subsidiary has any potential indemnity or other payment
obligation of more than $5 million;
(vi) other than with respect to any partnership that is
wholly-owned by the Company or any wholly-owned Subsidiary of the
Company, any partnership, joint venture or other similar agreement or
arrangement relating to the formation, creation, operation, management
or control of any partnership or joint venture material to the Company
or any of its Subsidiaries or in which the Company owns more than a
15% voting or economic interest, or any interest valued at more than
$5 million without regard to percentage voting or economic interest;
26
(vii) any non-competition Contract or other Contract that
(I) purports to limit in any material respect either the type of
business in which the Company or its Subsidiaries (or, after the
Effective Time, Parent or its Subsidiaries) may engage or the manner
or locations in which any of them may so engage in any business, (II)
could require the disposition of any material assets or line of
business of the Company or its Subsidiaries or, after the Effective
Time, Parent or its Subsidiaries, (III) grants "most favored nation"
status that, following the Merger, would apply to Parent and its
Subsidiaries, including the Company and its Subsidiaries or (IV)
prohibits or limits the right of the Company or any of its
Subsidiaries to make, sell or distribute any products or services or
use, transfer, license, distribute or enforce any of their respective
Intellectual Property rights;
(viii) any swap, cap, floor, collar, futures contract,
forward contract, option and any other derivative financial
instrument, contract or arrangement, based on any commodity, security,
instrument, asset, rate or index of any kind or nature whatsoever,
whether tangible or intangible, including electricity, natural gas,
crude oil and other commodities, currencies, interest rates and
indices, but excluding the forward contracts included in the awards
and options granted or issued under any of the Company Plans, and
forward contracts for physical delivery, physical output of assets and
physical load obligations; and
(ix) any Contract with provisions that may be affected by a
ratings downgrade below "investment grade" (the Contracts described in
clauses (i)-(ix) together with all exhibits and schedules to such
Contracts, as amended through the date hereof, being the "Material
--------
Contracts")
---------
(b) A true and correct copy of each Material Contract has
previously been made available to the Parent and each such Contract is a valid
and binding agreement of the Company or one of its Subsidiaries, as the case may
be, and is in full force and effect, and neither the Company nor any of its
Subsidiaries nor, to the knowledge of the officers of the Company, any other
party thereto is in default or breach in any respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment.
27
Section 4.15 Intellectual Property.
---------------------
(a) Except as to matters that, individually or in the aggregate,
would not reasonably be expected to result in a Company Material Adverse Effect:
(i) the Company and its Subsidiaries have sufficient rights to use all
Intellectual Property used in its business as presently conducted; (ii)
to the knowledge of the Company, the conduct of the Company and Light Company
does not and has not in the past three (3) years infringed or otherwise violated
the Intellectual Property rights of any third party; (iii) there is no
litigation, opposition, cancellation, proceeding, objection or claim pending,
asserted in writing or, to the Company's knowledge, threatened against the
Company or Light Company concerning the ownership, validity, registrability,
enforceability, infringement or use of, or licensed right to use, any
Intellectual Property used by the Company or Light Company; (iv) to the
Company's knowledge, no person is violating any Intellectual Property right that
the Company or Light Company holds exclusively; and (v) the Company and Light
Company have taken commercially reasonable measures to protect the
confidentiality of all Trade Secrets that are owned, used or held by the Company
or Light Company. For purposes of this Agreement, "Intellectual Property" means
---------------------
all (i) trademarks, service marks, brand names, collective marks, Internet
domain names, logos, symbols, trade dress, trade names, and other indicia of
origin, all applications and registrations for the foregoing, and all goodwill
associated therewith and symbolized thereby, including all renewals of same;
(ii) inventions, to the extent patentable, and all patents, registrations,
invention disclosures and applications therefor, including divisions,
continuations, continuations-in-part and renewal applications, and including
renewals, extensions and reissues; (iii) confidential business information,
trade secrets and know-how, including processes, schematics, business methods,
formulae, drawings, prototypes, models, designs, unpatentable discoveries and
inventions, customer lists and supplier lists (collectively, "Trade Secrets");
-------------
and (iv) published and unpublished works of authorship, whether copyrightable or
not (including without limitation databases and other compilations of
information), copyrights therein and thereto, and registrations and applications
therefor, and all renewals, extensions, restorations and reversions thereof.
(b) The IT Assets operate and perform in all material
respects in accordance with their documentation and functional specifications
and otherwise as required by the Company or Light Company in connection with its
business as presently conducted, and have not materially malfunctioned or failed
within the past three (3) years. The Company and Light Company have implemented
reasonable backup, security and disaster recovery technology consistent with
industry practices. The Company and Light Company take reasonable measures
28
consistent with industry practices to ensure the confidentiality of customer
financial and other confidential information and to comply with its privacy
policy. For purposes of this Agreement, "IT Assets" means the Company's and the
---------
Subsidiaries' computers, computer software, firmware, middleware, servers,
workstations, routers, hubs, switches, data communications lines, and all other
information technology equipment, and all associated documentation.
Section 4.16 Absence of Certain Changes or Event. Except as
-----------------------------------
disclosed in the Company SEC Reports filed prior to the date hereof, as
expressly contemplated by this Agreement, or as set forth in Section 4.16 of the
Company Disclosure Schedule, since December 31, 2005, the Company and each of
the Company Subsidiaries have conducted their respective businesses only in the
ordinary course of business consistent with past practice and there has not been
any change or development or combination of developments affecting the Company
or any Company Subsidiary, of which the Company has knowledge, that would
reasonably be expected to result in a Company Material Adverse Effect.
Section 4.17 Vote Required. Subject to Section 8.3(e), the approval of
-------------
the Merger by a majority of the votes cast by the holders of outstanding shares
of Company Common Stock (the "Company Shareholders' Approval") is the only vote
------------------------------
of the holders of any class or series of the capital stock of the Company or any
of the Company Subsidiaries required to approve this Agreement, the Merger and
the other transactions contemplated hereby.
Section 4.18 Opinion of Financial Advisor. The Company has
----------------------------
received the opinion of Lehman Brothers, dated July 3, 2006, to the effect that
the Merger Consideration is fair from a financial point of view to the holders
of Company Common Stock, a copy of which opinion has been delivered to the
Parent. It is agreed and understood that such opinion may not be relied on by
the Parent or the Merger Sub.
Section 4.19 Insurance. Except as set forth in Section 4.19 of
---------
the Company Disclosure Schedule, all material fire and casualty, general
liability, business interruption, product liability, and property damage
insurance policies maintained by the Company or any Company Subsidiary are with
reputable insurance carriers, provide adequate coverage for all insurable risks
incident to the business of the Company, each such Company Subsidiary and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by Persons engaged in similar businesses, owning
similar properties and assets or subject to the same or similar perils or
hazards, except for any such failures to maintain insurance policies that,
individually or in the aggregate, have not resulted in since December 31, 2005
or would not reasonably be expected to result in a Company Material Adverse
Effect. The Company and Company Subsidiaries maintain insurance in character and
amount as may be required pursuant to their Contracts and are in compliance with
applicable law with respect to their insurance in all material respects. Neither
the Company nor any Company Subsidiary has received, as of the date hereof, any
notice of cancellation or termination with respect to any material insurance
policy. All material insurance policies of the Company and each Company
Subsidiary are in full force and effect and all premiums due prior to Closing
with respect to such policies have been paid. To the knowledge of the Company,
(x) any material claim relating to litigation against the Company or any Company
Subsidiary and as to which a complaint has been served upon the Company or any
29
Company Subsidiary and for which the Company may be entitled to insurance
coverage and (y) any material claim not relating to litigation against the
Company or any Company Subsidiary for which the Company may be entitled to
insurance coverage has been reported to the applicable insurance carriers.
Section 4.20 Brokers and Finders. The Company has not entered
-------------------
into any agreement or arrangement entitling any agent, broker, investment
banker, financial advisor or other firm or Person to any broker's or finder's
fee or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement, except Lehman Brothers, whose
fees and expenses will be paid by the Company in accordance with the Company's
agreement with such firm. The Company has made available to the Parent
disclosure regarding the amount of any such fee.
Section 4.21 Regulatory Proceedings. As of the date hereof,
----------------------
except as set forth in the Company Reports filed prior to the date hereof or as
set forth in Section 4.21 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries, all or part of whose rates or services are
regulated by a Governmental Authority, (i) has rates which have been or are
being collected subject to refund, pending final resolution of any proceeding
pending before a Governmental Authority or on appeal to the courts or (ii) is a
party to any proceeding before a Governmental Authority or on appeal from orders
of a Governmental Authority which, in each case, have resulted in or would
reasonably be expected to result in a Company Material Adverse Effect.
Section 4.22 Regulation as a Utility. (a) Except for (i) Light
-----------------------
Company, which is a "public utility" within the meaning of Section 201(e) of the
FPA and regulated as an electric utility by the PaPUC, (ii) Duquesne Light
Energy, LLC, which is an Electric Generation Supplier licensed by the PaPUC,
(iii) Duquesne Power, LLC, which is an Exempt Wholesale Generator under Section
32 of PUHCA and is a public utility under Section 205 of the FPA by virtue of
having market-based rate authority, (iv) Monmouth Energy, Inc., which is an
Exempt Wholesale Generator under Section 32 of PUHCA and is a public utility
under Section 205 of the FPA by virtue of having market-based rate authority,
(v) Duquesne Keystone, LLC, which is an Exempt Wholesale Generator under Section
32 of PUHCA and is a public utility under Section 205 of the FPA by virtue of
having market-based rate authority, and (vi) Duquesne Conemaugh, LLC, which is
an Exempt Wholesale Generator under Section 32 of PUHCA and is a public under
Section 205 of the FPA by virtue of having market-based rate authority, neither
the Company nor any Company Subsidiary is subject to regulation as a utility or
public service company (or similar designation) by the FERC, any state in the
United States or in any foreign country.
30
(b) Neither the Company nor any Company Subsidiary owns, holds or
controls nuclear materials or nuclear related facilities that are subject to the
regulation of the Nuclear Regulatory Commission under the Atomic Energy Act.
Section 4.23 Approvals. As of the date hereof, to the Company's
---------
knowledge, and excluding any facts or circumstances relating to the Parent,
Merger Sub and their respective identities, qualifications and capabilities,
there are no facts or circumstances relating to the Company, the Company
Subsidiaries or the business or the Business Plan of the Company or its
Subsidiaries that are reasonably likely to prevent or materially delay the
receipt of the Company Required Statutory Approvals.
Section 4.24 No Additional Representations of Parent or Merger
-------------------------------------------------
Sub. The Company acknowledges that none of the Parent, the Merger Sub, their
- ---
respective affiliates or any other Person acting on behalf of any of them has
made any representation or warranty, express or implied, including any
representation as to the accuracy or completeness of any information regarding
the Parent, the Merger Sub, any of their respective affiliates or businesses, in
each case except as expressly set forth in this Agreement or as and to the
extent required by this Agreement to be disclosed on the Parent Disclosure
Schedule hereto. The Company further agrees that none of the Parent, the Merger
Sub, their respective affiliates or any other Person acting on behalf of any of
them will have or be subject to any liability, except in the case of fraud or as
specifically set forth in this Agreement, to the Company or any other Person
resulting from the distribution to the Company, for the Company's use, of any
information, document or material made available to the Company in expectation
of the transactions contemplated by this Agreement.
Section 4.25 No Other Representations of the Company. Except for
---------------------------------------
the representations and warranties contained in this Article IV, neither the
Company nor any other Person acting on behalf of the Company makes any
representation or warranty, express or implied, regarding the Company or any
Company Subsidiary.
31
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
MERGER SUB
The Parent and Merger Sub, jointly and severally, represent and warrant
to the Company as follows:
Section 5.1 Organization and Qualification. Parent is a limited
------------------------------
liability company and Merger Sub is a corporation and each of Parent and Merger
Sub are duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, as the case may be. As used
in this Agreement, (a) the term "Parent Disclosure Schedule" means the schedule
--------------------------
delivered by the Parent prior to the date hereof, (b) the term "Parent Material
---------------
Adverse Effect" shall mean any material adverse effect on the ability of the
- --------------
Parent and the Merger Sub to consummate the transactions contemplated by this
Agreement. As used in this Agreement, the term "knowledge" when referring to the
---------
knowledge of the Parent or the Merger Sub shall mean the actual knowledge of an
executive officer of the Parent after reasonable inquiry of those persons who
are reasonably likely to possess the relevant information.
Section 5.2 Authority; Non-Contravention; Statutory
---------------------------------------
Approvals; Compliance.
- ---------------------
(a) Authority. Each of the Parent and the Merger Sub has
---------
all requisite corporate or limited liability company power and authority to
enter into this Agreement and, subject to the receipt of the applicable the
Parent Required Statutory Approvals (as defined in Section 5.2(c)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation by each of the Parent and the Merger Sub of
the transactions contemplated hereby have been duly authorized by all necessary
corporate or limited liability company action on the part of the Parent and the
Merger Sub. This Agreement has been duly executed and delivered by each of the
Parent and the Merger Sub and, assuming the due authorization, execution and
delivery hereof by the other signatories hereto, constitutes the valid and
binding obligation of each of the Parent and the Merger Sub enforceable against
it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(b) Non-Contravention. The execution and delivery of
-----------------
this Agreement by each of the Parent and the Merger Sub does not, and the
consummation of the transactions contemplated hereby will not, result in a
Violation pursuant to any provisions of (i) the certificate of incorporation,
certificate of formation, by-laws, limited liability company operating agreement
or similar governing documents, as applicable, of the Parent or the Merger Sub
and (ii) subject to obtaining the Parent Required Statutory Approvals (as
defined in Section 5.2(c)), any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to the Parent or the Merger Sub or any of their respective
properties or assets or (iii) any of the Financing Commitments (as defined
below) or any of the definitive agreements relating to the Financings (as
defined below) except in the case of clause (ii) for any such Violation which,
individually or in the aggregate, would not reasonably be expected to result in
32
a Parent Material Adverse Effect or to prevent, materially delay or materially
impair the consummation of the transactions contemplated by this Agreement.
(c) Statutory Approvals. Except as described in Section
-------------------
5.2(c) of the Parent Disclosure Schedule (the "Parent Required Statutory
-------------------------
Approvals"), no declaration, report, filing or registration with, or notice to
- ---------
or authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by the Parent or the
Merger Sub, or the consummation by the Parent or the Merger Sub of the
transactions contemplated hereby, except those that the failure of which to
obtain, individually or in the aggregate, would not reasonably be expected to
result in a Parent Material Adverse Effect (it being understood that references
in this Agreement to "obtaining" such Parent Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such notices;
obtaining such authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law) or to prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement.
(d) Compliance. Neither the Parent, nor the Merger Sub
----------
is under investigation with respect to any violation of, or has been given
notice of or been charged with any violation of, any law, statute, order, award,
rule, regulation, ordinance or judgment of any Governmental Authority, except
for any such violations which, individually or in the aggregate, would not
reasonably be expected to result in a Parent Material Adverse Effect or to
prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement. Each of the Parent and the Merger
Sub have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted except those that the absence of which, individually or in
the aggregate, would not reasonably be expected to result in a Parent Material
33
Adverse Effect or to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement. Neither the
Parent nor the Merger Sub is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result in a default
by the Parent or the Merger Sub under (i) their respective certificates of
incorporation, certificate of formation, by-laws, limited liability company
agreement or similar governing documents, as applicable, or (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which they are respectively a party or
by which the Parent or the Merger Sub is bound or to which any of their
respective property is subject, except for possible violations, breaches or
defaults which, individually or in the aggregate, are not reasonably likely to
have a Parent Material Adverse Effect, prevent, materially delay or materially
impair the consummation of the transactions contemplated by this Agreement.
Section 5.3 No Prior Activities. Except in connection with its
-------------------
organization, incorporation, capitalization or negotiation and consummation of
this Agreement, the Equity Contribution Agreement (as defined in Section 5.6),
and the transactions contemplated hereby and thereby, neither the Parent nor
Merger Sub has incurred any obligation or liability or engaged in any business
or activity of any type or kind whatsoever and each of the Parent and Merger Sub
has conducted and will conduct its respective operations only as contemplated
hereby. The Parent has no Subsidiaries other than Merger Sub. Except for the
Financings, there are no notes, bonds, mortgages, indentures, deeds of trust, or
other debt instruments to which the Parent or the Merger Sub is a party or by
which the Parent or the Merger Sub or any of their respective properties or
assets are bound.
Section 5.4 Litigation. There are no pending or, to the
----------
knowledge of the Parent or the Merger Sub, threatened claims, suits, actions or
proceedings before any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, nor are there, to the knowledge
of the Parent and the Merger Sub, any investigations or reviews by any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator pending or threatened against, relating to or affecting the Parent or
the Merger Sub which, individually or in the aggregate, have resulted in or
would reasonably be expected to result in a Parent Material Adverse Effect or to
prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement, and (b) there are no judgments,
decrees, injunctions, rules or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator applicable to
the Parent or the Merger Sub except for such that, individually or in the
aggregate, have not resulted in or would not reasonably be expected to result in
a Parent Material Adverse Effect or prevent, materially delay or materially
impair the consummation of the transactions contemplated by this Agreement.
34
Section 5.5 No Vote Required. No vote of the holders of any
----------------
class or series of the capital stock of the Parent or the Merger Sub is
necessary to approve this Agreement, the Merger or any of the other transactions
contemplated hereby.
Section 5.6 Financing. The Financing Commitments (as defined
---------
below) are sufficient (i) to pay the Merger Consideration in accordance with
Article II hereof and to consummate the Merger and the other transactions
contemplated hereby, and (ii) to pay all fees and expenses required to be paid
by the Parent and Merger Sub in connection with the transactions contemplated by
this Agreement. The Parent has delivered to the Company true and complete copies
of (i) the commitment letter, dated as of the date hereof, between the Parent
and the bank or banks identified on Section 5.6 of the Parent Disclosure
Schedule (such bank or banks, the "Lender") (the "Debt Financing Commitment"),
------ -------------------------
pursuant to which the Lender has committed, subject to the terms thereof, to
lend the amounts set forth therein (the "Debt Financing"), and (ii) the Equity
--------------
Contribution Agreement, dated as of the date hereof, among Parent and its
members (the "Equity Contribution Agreement" and together with the Debt
-----------------------------
Financing Commitment, the "Financing Commitments"), pursuant to which such
---------------------
parties have committed, subject to the terms thereof, to invest the cash amounts
set forth therein (the "Equity Financing" and together with the Debt Financing,
----------------
the "Financing"). Prior to the date of this Agreement, (i) none of the Financing
---------
Commitments have been amended or modified, and (ii) the respective commitments
contained in the Financing Commitments have not been withdrawn or rescinded in
any respect. As of the date of this Agreement, the Financing Commitments are in
full force and effect.
Section 5.7 Ownership of Company Common Stock. As of the date
---------------------------------
hereof, other than with respect to the Stock Purchase Agreement, neither the
Parent, the Merger Sub nor any of their respective affiliates (as such term is
defined in Rule 12b-2 under the Exchange Act, excluding for the purposes of this
Section 5.7 officers and directors of the Parent and the Merger Sub) (i)
beneficially owns (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
shares of capital stock of the Company.
Section 5.8 Brokers and Finders. The Parent has not entered into
-------------------
any agreement or arrangement entitling any agent, broker, investment banker,
financial advisor or other firm or Person to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except Macquarie Securities (USA) Inc., whose
fees and expenses will be paid by the Parent in accordance with the Parent's
agreement with such firm.
35
Section 5.9 Approvals. As of the date hereof, none of the
---------
Parent's officers know of any facts or circumstances relating to the Parent or
Merger Sub or their respective affiliates that are reasonably likely to prevent
or materially delay the receipt of the Parent Required Statutory Approvals.
Section 5.10 No Additional Representations of Company and
--------------------------------------------
Company Subsidiaries. The Parent and Merger Sub acknowledge that none of the
- --------------------
Company, any Company Subsidiary, their respective affiliates or any other Person
acting on behalf of any of them has made (i) any representation or warranty,
express or implied, including any implied representation or warranty as to the
condition, merchantability, suitability or fitness for a particular purpose of
any of the Assets (as defined below) of or held by the Company or any Company
Subsidiary, or (ii) any representation or warranty, express or implied, as to
the accuracy or completeness of any information regarding the Company, the
Company Subsidiaries, any of their respective affiliates or businesses, in each
case except as expressly set forth in this Agreement or as and to the extent
required by this Agreement to be disclosed on the Company Disclosure Schedule
hereto. The Parent and Merger Sub further agree that none of the Company, any
Company Subsidiary, their respective affiliates or any other Person acting on
behalf of any of them will have or be subject to any liability, except in the
case of fraud or as specifically set forth in this Agreement, to the Parent,
Merger Sub or any other Person resulting from the distribution to the Parent,
for the Parent's use, of any information, document or material made available to
the Parent in certain "data rooms" (whether electronic or otherwise), management
presentations or any other form in expectation of the transactions contemplated
by this Agreement. As used in this Agreement, the term "Assets" shall mean all
of the Company's and Company Subsidiaries' right, title and interest in and to
the business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal, and constituting, or used in connection with, or
related to, the business owned by the Company or a Company Subsidiary or in
which the Company or a Company Subsidiary has any interest.
Section 5.11 No Other Representations of the Parent and the
----------------------------------------------
Merger Sub. Except for the representations and warranties contained in this
- ----------
Article V, none of the Parent, Merger Sub or any other Person acting on behalf
of the Parent or Merger Sub makes any representation or warranty, express or
implied, regarding the Parent or Merger Sub.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Covenants of the Company. After the date hereof and
------------------------
prior to the Effective Time or earlier termination of this Agreement, the
Company agrees, each as to itself and to each of the Company Subsidiaries, (A)
36
to conduct its business in a manner substantially consistent in all material
respects with the business plan for the Company and its Subsidiaries dated as of
the date hereof and delivered concurrently herewith to the Parent (the "Business
--------
Plan")(provided, however, that in doing so, the Company makes no representation
- ---- -------- -------
or warranty that any projections set forth in, or results expected by, the
Business Plan will be achieved nor does the Company covenant that it will
ultimately achieve an such projections or expected results) and (B) as follows,
except (i) as set forth in Section 6.1 of the Company Disclosure Schedule, (ii)
as otherwise expressly permitted by this Agreement, (iii) as contemplated by the
Business Plan, (iv) as may be reasonably responsive to requirements of
applicable law, or (v) to the extent the Parent shall otherwise consent in
writing, which consent shall not be unreasonably withheld, conditioned or
delayed:
36
(a) the business of the Company and each Company Subsidiary shall
be conducted in the ordinary and usual course in substantially the same manner
as heretofore conducted and, to the extent consistent therewith, the Company and
each Company Subsidiary shall use their respective commercially reasonable
efforts to preserve their business organizations intact and maintain their
existing relations and goodwill with customers, suppliers, creditors,
regulators, lessors, employees and business associates; provided, however, that
-------- -------
the Company and/or wholly-owned, direct or indirect, Company Subsidiaries may
enter into intercompany transactions and intercompany reorganizations that do
not have adverse effects on the Company or such Company Subsidiaries (other than
the fact that any such transaction or reorganization has taken place);
(b) the Company shall not and shall cause the Company
Subsidiaries not to (i) issue, sell, pledge, dispose of or encumber any capital
stock owned by it in any of the Company Subsidiaries; (ii) amend its articles of
incorporation, charter or by-laws; (iii) split, combine, subdivide or reclassify
its outstanding shares of capital stock; (iv) declare, set aside or pay any
dividend payable in cash, stock or property in respect of any capital stock
other than regular quarterly cash dividends on Company Common Stock in amounts
no greater than those set forth in the Business Plan (provided, however, that
-------- -------
any such dividend for the quarter during which the Closing occurs shall be
prorated based on the number of days in such quarter preceding the Closing Date)
and dividends on any preferred stock or preference stock of Light Company; (v)
repurchase, redeem or otherwise acquire (except for (A) mandatory sinking fund
obligations existing on the date hereof, and (B) redemptions, purchases,
acquisitions or issuances required by the respective terms of any Company Plan,
in the ordinary course of the operation of such plans consistent with past
practice), or permit any of its Subsidiaries to purchase or otherwise acquire,
any shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock, or (vi) fund
the Company's dividend reinvestment plan with shares of Company Common Stock
owned by the Company as treasury stock; provided, however, that this Section
-------- -------
6.1(b) shall not restrict any dividends from any wholly-owned, direct or
indirect, Company Subsidiary nor shall it restrict the Company's ability to
dissolve, liquidate or wind-up any wholly-owned, direct or indirect, Company
Subsidiary that the Company deems to be no longer useful and the dissolution,
liquidation or winding-up of which would not result in any adverse effect on the
Company or any such Company Subsidiary (other than the fact that any such
dissolution, liquidation or winding up has taken place);
(c) neither the Company nor any Company Subsidiary shall (i)
issue, sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any other property or assets (other than (A) shares
37
issuable pursuant to options outstanding on the date hereof under the Company
Plans and additional options or rights to acquire shares required by the terms
of any Company Plan as in effect on the date hereof in the ordinary course of
the operation of such Company Plan and (B) issuances of securities in connection
with grants or awards of stock-based compensation made in accordance with
Section 6.1(d) hereof; (ii) other than in the ordinary and usual course of
business, and except for long-term indebtedness incurred in connection with the
refinancing of existing indebtedness either at its maturity or at a lower cost
of funds, transfer, lease, license, guarantee, sell, mortgage, pledge, dispose
of or encumber any other material property or material assets (including capital
stock of any Company Subsidiary) or incur, assume or modify any indebtedness or
other material liability; or (iii) make any commitments for, make or authorize
any capital expenditures;
(d) neither the Company nor any Company Subsidiary shall
terminate, establish, adopt, enter into, make any new grants or awards of
stock-based compensation or other benefits under, amend or otherwise modify any
Company Plan or increase the salary, wage, bonus or other compensation of any
directors, officers or employees, or grant any new severance or termination pay
not in existence on the date hereof or enter into any new severance agreement
not in existence on the date hereof except (i) for grants or awards to
directors, officers and employees under existing Company Plans in such amounts
and on such terms as are consistent with past practice, (ii) in the normal and
usual course of business (which shall include normal periodic performance
reviews and related plans and the provision of individual Company Plans
consistent with past practice for newly hired, appointed, or promoted officers
and employees and the adoption of Company Plans for employees of new Company
Subsidiaries in amounts and on terms consistent with past practice) or (iii) for
actions necessary to satisfy existing contractual obligations under Company
Plans existing as of the date hereof, or as required by law;
38
(e) the Company shall, and shall cause the Company Subsidiaries
to, maintain insurance in such amounts and against such risks and losses as are
consistent in all material respects with the insurance maintained by the Company
and the Company Subsidiaries as of the date hereof;
(f) the Company shall, and shall cause the Company Subsidiaries
to, maintain in effect all material governmental permits, franchises and other
authorizations pursuant to which the Company or any Company Subsidiaries
operate;
(g) neither the Company nor any Company Subsidiaries shall
voluntarily make, propose or consent to any changes in the Company's or Company
Subsidiaries' (1) regulated rates or charges, (2) standards or service
or (3) regulatory accounting, other than pursuant to, and in amounts not less
favorable to the Company and Company Subsidiaries than requested in, the filing
of the proceeding at the FERC expected to be initiated by the Company or the
Light Company in 2006 to increase rates, charges or revenue requirements for
transmission, distribution or generation services (the "2006 FERC Rate Case")
-------------------
and the filing of the proceeding at the PaPUC initiated by the Company or the
Light Company in April 2006 to increase or otherwise change rates, charges or
revenue requirements for transmission, distribution or generation services (the
"2006 PaPUC Rate Case"); provided, however, that for purposes of this Section
-------------------- -------- -------
6.1(g), Parent's right to consent hereunder is conditioned upon the exercise of
such consent right by no more than two individuals designated by Parent who
shall have the authority to bind Parent in respect of such matters.
(h) the Company shall not, and shall not cause or allow the
Company Subsidiaries to, make or change any material Tax elections, change or
consent to any material change in the Company's or such Company Subsidiary's
method of accounting for Tax purposes, settle or compromise any material Tax
liability, claim or assessment, or file any material amended Tax Return; and
(i) neither the Company nor any Company Subsidiary shall
authorize or enter into an agreement to do any of the actions prohibited by the
foregoing.
Section 6.2 Risk Management. The Company will continue to follow
---------------
the Company's Governing Policy for Risk Management, as approved on July 22, 2004
and amended on May 26, 2005, and, as applicable, the Duquesne Power, LLC Policy,
Control and Procedures Manual for Risk Management, as approved on January 18,
39
2006 (collectively, the "Risk Management Policies") in respect of its Material
------------------------
Contracts and any new Material Contracts entered into after the date hereof. In
addition, the Company shall consult with the Parent prior to taking any action
with respect to a Material Contract that is subject to the Risk Management
Policies and generally in respect of activities subject to the Risk Management
Policies; provided, however, that in connection with any such consultation,
-------- -------
Parent shall not be entitled to direct or manage any decisions or activities of
the Company. The Company shall afford a representative of Parent an opportunity
to observe in person or by telephone in all meetings of the Company's Risk
Management Committee; provided, however, that in connection with any such
-------- -------
observation, Parent shall not be entitled to direct or manage any decisions or
activities of the Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Company Information. Upon reasonable
-----------------------------
notice, the Company shall, and shall cause the Company Subsidiaries to, afford
to the officers, directors, employees, accountants, counsel, investment bankers,
financial advisors and other representatives (collectively, "Representatives")
---------------
of the Parent reasonable access, upon reasonable advance notice, during normal
business hours throughout the period prior to the Effective Time, to all of its
employees, properties, books, contracts, commitments and records (including,
but not limited to, tax returns) and, during such period, the Company shall, and
shall cause the Company Subsidiaries to, furnish promptly to the Parent and its
Representative, (i) access to each report, schedule and other document filed or
received by the Company or any of the Company Subsidiaries pursuant to the
requirements of federal or state securities laws or filed with or sent to the
SEC, FERC, the Department of Justice, the Federal Trade Commission or any other
federal or state regulatory agency or commission and (ii) access to all
information concerning the Company, the Company Subsidiaries, and their
respective directors, officers and shareholders and such other matters as may
be reasonably requested by the Parent or its Representatives in connection with
any filings, applications or approvals required or contemplated by this
Agreement or for any other reason related to the transactions contemplated by
this Agreement; provided, however, that in no event shall the Company or any
-------- -------
Company Subsidiary be obligated to provide any access or information if the
Company or the Company Subsidiary reasonably determines, in good faith after
consultation with counsel, that providing such access or information is likely
to violate applicable law, cause either the Company or any Company Subsidiary to
breach a confidentiality obligation to which it is bound or jeopardize any
recognized privilege available to either the Company or any Company Subsidiary.
The Parent agrees to indemnify and hold the Company and the Company Subsidiaries
harmless from any and all claims and liabilities, including costs and expenses
for loss, injury to or death of any Representative of the Parent, and any damage
to or destruction of any property owned by the Company or any of the Company
Subsidiaries or others (including claims or liabilities for loss of use of any
property) resulting from the action of any of the Representatives of the
Parent (other than as directed by the Company or any Company Subsidiary or any
of their respective Representatives) during any visit to the business or
property sites of the Company or the Company Subsidiaries prior to the Closing
Date, whether pursuant to this Section 7.1 or otherwise. During any visit to
the business or property sites of the Company or any of the Company
Subsidiaries, the Parent shall, and shall cause its Representatives accessing
such properties to, comply with all applicable laws and all of the Company's and
the Company Subsidiaries' safety and security procedures and conduct itself in
a manner that would not be reasonably expected to interfere with the operation,
maintenance or repair of the assets of the Company or such Company Subsidiary.
Notwithstanding anything to the contrary herein, the Parent shall not have the
40
right to conduct environmental sampling or testing on any of the properties of
the Company or the Company Subsidiaries. Each party shall, and shall cause its
Subsidiaries and Representatives to, hold in strict confidence all documents and
information concerning the other furnished to it in connection with the
transactions contemplated by this Agreement in accordance with the
Confidentiality Agreement, dated November 28, 2005, entered into by and between
the Company and Macquarie Securities (USA) Inc. (the "Confidentiality
---------------
Agreement").
- ---------
Section 7.2 Proxy Statement. The proxy statement, any amendment
---------------
thereof or supplement thereto, to be sent to the shareholders of the Company in
connection with the Merger (the "Proxy Statement") will comply in all material
---------------
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder. The Company will prepare and file with the SEC, as
promptly as is reasonably practicable after the date hereof, and in any event
not later than thirty (30) days after the date hereof, the Proxy Statement in a
form that complies in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder. Each of the
Parent and the Merger Sub shall furnish to the Company all information
concerning itself which is required or customary for inclusion in the Proxy
Statement. The Company and the Parent each agrees to respond as promptly as is
practicable to any comments of the SEC on the Proxy Statement and to mail the
Proxy Statement to holders of Company Common Stock promptly after the Company
learns that the Proxy Statement will not be reviewed or that the SEC staff has
no further comments thereon. The information provided by any party hereto for
use in or incorporation by reference in the Proxy Statement shall be true and
correct in all material respects, at the dates mailed to Shareholders of the
Company and at the time of the Company Meeting (as defined below), without
omission of any material fact which is required to make such information not
false or misleading. No representation, covenant or agreement is made by any
party hereto with respect to information supplied by any other party for
inclusion in the Proxy Statement. If at any time prior to the Effective Time any
information relating to the Company, the Parent or the Merger Sub, or any of
their respective affiliates, officers or directors, should be discovered by the
Company, the Parent or the Merger Sub which should be set forth in an amendment
or supplement to the Proxy Statement, so that the Proxy Statement would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such information
shall promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and,
to the extent required by law, disseminated to the shareholders of the Company.
41
Section 7.3 Regulatory Matters.
------------------
(a) HSR Filings. Each party hereto shall, as soon as
-----------
reasonably practicable after the date hereof, file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations promulgated
-------
thereunder with respect to the transactions contemplated hereby. Such parties
will use their reasonable best efforts to respond on a timely basis to any
requests for additional information made by either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall
--------------------------
cooperate and use its reasonable best efforts to promptly prepare and file all
necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to use all commercially reasonable
efforts to obtain all necessary permits, consents, approvals and authorizations
of all Governmental Authorities necessary or advisable to obtain the Company
Required Statutory Approvals and the Parent Required Statutory Approvals prior
to the Initial Termination Date (as defined in Section 9.1(c)) (as the same may
be extended hereunder); provided, however, that the Company and Parent shall
-------- -------
file the Company Required Statutory Approvals and the Parent Required Statutory
Approvals, respectively, as promptly as is reasonably practicable after the
date hereof, and in no event later than sixty (60) days after the date hereof.
Each party hereto shall cooperate and use all commercially reasonable efforts to
obtain as promptly as reasonably practicable all necessary permits, consents,
approvals and authorizations of all Governmental Authorities necessary or
advisable to obtain the Company Required Statutory Approvals and the Parent
Required Statutory Approvals. Each party shall have the right to review a
reasonable time in advance and to provide comments on any filing made after the
date hereof and until the Initial Termination Date (as the same may be extended
hereunder) by the other party or a Subsidiary of any party with any Governmental
Authority with respect to the Merger, the 2006 PaPUC Rate Case or the 2006 FERC
Rate Case and the party or Subsidiary making such filing shall give reasonable
consideration to any changes suggested for such filing. In addition, the
Company shall consult with Parent prior to making any regulatory filing with the
PaPUC or FERC; provided, however, that in connection with any such consultation
-------- -------
42
Parent shall not be entitled to direct or manage any decisions or activities of
the Company. Parent agrees that if actions to maintain the credit ratings of
Light Company at current levels appear to be advisable that Parent will endeavor
to work with the Company and Parent's members in good faith to procure the
agreement of its members to take or approve actions to maintain that rating.
(c) The Company and the Parent each shall, upon request by the
other, furnish the other with all true and accurate information concerning
itself, its Subsidiaries, directors, officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the Proxy
Statement, or any other statement, filing, notice or application made by or on
behalf of the Parent, the Company or any of their respective Subsidiaries to any
Governmental Authority in connection with the Merger and the transactions
contemplated by this Agreement.
(d) The Company and the Parent each shall promptly provide the
other party with copies of all filings made by any of the Company, the Parent or
any of their Subsidiaries with any federal or state court, administrative
agency, commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby. The Company and the Parent
each shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of any notices or other communications received
by the Parent or the Company, as the case may be, or any of its Subsidiaries,
from any third party and/or any Governmental Authority with respect to the
Merger and the other transactions contemplated by this Agreement. The Company
and the Parent each shall give prompt notice to the other of any change that
would reasonably be expected to result in a Company Material Adverse Effect or
the Parent Material Adverse Effect, respectively.
(e) In the event any claim, action, suit, investigation, legal or
administrative proceeding is commenced by any Governmental Authority or Person
(other than to the Company, the Parent or any of their Subsidiaries) that
questions the validity or legality of this Agreement, or the Merger or the other
transactions contemplated by this Agreement or claims damages in connection
therewith, the Company and the Parent each agree to cooperate and use their
reasonable best efforts to defend against and respond thereto.
(f) Nothing in this Agreement provides for, at the time of the
Closing or thereafter, any of the following:
43
(i) transfers of facilities between Light Company and Parent
or Company or any affiliate or subsidiary of Parent or Company (an
"Associate Company");
-----------------
(ii) new issuances of securities by Light Company for the
benefit of an Associate Company;
(iii) new pledges or encumbrances of assets of Light Company
for the benefit of an Associate Company; or
(iv) the execution of new affiliate contracts between Light
Company and an Associate Company other than non-power goods and
services agreements subject to review under sections 205 and 206 of
the FPA.
(g) Notwithstanding any other provision of this Agreement, in
connection with Parent's obligations set forth in this Section 7.3, Parent and
Merger Sub shall not be required to cause any member of Parent or any director,
officer, employee, general partner, limited partner, member or manager of any
member of Parent, in each case in his, her or its individual capacity, to take
any action, undertake any divestiture or restrict its conduct other than to
provide responsive information required to make any submission or application to
a Governmental Authority and to otherwise cooperate in connection with any such
submission or application as is necessary and customary under the circumstances.
Parent agrees that if actions to maintain the credit ratings of Light Company at
current levels appear to be advisable that Parent will endeavor to work with the
Company and Parent's members in good faith to procure the agreement of its
members to take or approve actions to maintain that rating.
Section 7.4 Approval of the Company Shareholders. The Company
------------------------------------
shall, as soon as reasonably practicable after the date hereof, (i) take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Meeting") for the purpose of securing the Company
---------------
Shareholders' Approval, (ii) distribute to its shareholders the Proxy Statement
in accordance with applicable federal and state law and with its articles of
incorporation and by-laws, (iii) subject to Section 7.9, recommend to its
shareholders the approval of the Merger, this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with the Parent with respect
to each of the foregoing matters.
Section 7.5 Directors' and Officers' Indemnification.
----------------------------------------
(a) Indemnification. From and after the Effective Time,
---------------
the Surviving Corporation shall, to the fullest extent permitted by applicable
44
law, indemnify, defend and hold harmless each Person who is now, or has been at
any time prior to the date hereof, or who becomes prior to the Effective Time,
an officer or director of the Company or any Company Subsidiary (each an
"Indemnified Party" and collectively, the "Indemnified Parties") against (i) all
----------------- -------------------
losses, expenses (including reasonable attorney's fees and expenses), claims,
damages or liabilities or, subject to the proviso of the next succeeding
sentence, amounts paid in settlement, arising out of actions or omissions
occurring at or prior to the Effective Time (and whether asserted or claimed
prior to, at or after the Effective Time) to the extent that they are based on
or arising out of the fact that such Person is or was a director, officer or
employee of the Company or any Company Subsidiary (the "Indemnified
-----------
Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based
- -----------
on or arise out of or pertain to the transactions contemplated by this
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) the Surviving
Corporation shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Surviving Corporation, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request, reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the business corporation law of the Surviving Corporation's state
of incorporation, (ii) the Surviving Corporation and the Indemnified Parties
will cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the business corporation law of the
Surviving Corporation's state of incorporation and the certificate of
incorporation or by-laws of the Surviving Corporation shall be made by
independent counsel mutually acceptable to the Surviving Corporation and the
Indemnified Party; provided, however, that the Surviving Corporation shall not
-------- -------
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). The Indemnified Parties as a group may
retain only one law firm with respect to each related matter except to the
extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of such Indemnified Party and any other Indemnified
Party or Indemnified Parties.
(b) Insurance. The Parent shall cause the Surviving
---------
Corporation to purchase a six-year extended reporting period endorsement
("reporting tail coverage") under the Company's existing directors' and
officers' liability insurance coverage (the "Existing D&O Coverage"), provided
---------------------
that such reporting tail coverage shall extend the director and officer
liability coverage in force as of the date hereof from the Effective Time on
terms, that in all material respects, are no less advantageous to the intended
beneficiaries thereof than the existing directors' and officers' liability
insurance; provided, that the cost for such policy does not exceed 300% of the
--------
45
2006 premium for the Existing D&O Coverage (the "Maximum Amount"), and if it
--------------
does the Surviving Corporation shall purchase the greatest coverage available
for the Maximum Amount.
(c) Successors. In the event the Surviving Corporation, the
----------
Parent or any of their respective successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, then and in either
such case, proper provisions shall be made so that the successors, assigns
and/or transferees of the Surviving Corporation or the Parent shall assume the
obligations set forth in this Section 7.5.
(d) Survival of Indemnification. To the fullest extent permitted
---------------------------
by law, from and after the Effective Time, all rights to indemnification as of
the date hereof in favor of the employees, agents, directors and officers of the
Company, the Company Subsidiaries with respect to their activities as such prior
to, on or after the Effective Time, as provided in their respective articles of
incorporation and by-laws in effect on the date thereof, or otherwise in effect
on the date hereof, shall survive the Merger and shall continue in full force
and effect for a period of not less than six (6) years from the Effective Time,
provided that, in the event any claim or claims are asserted or made within such
survival period, all such rights to indemnification in respect to any claim or
claims shall continue until final disposition of such claim or claims.
(e) Benefit. The provisions of this Section 7.5 are intended to
-------
be for the benefit of, and shall be enforceable by, each Indemnified Party, his
or her heirs, executors or administrators and his or her representatives.
Section 7.6 Public Announcements. Except as may be required by law or
--------------------
by obligations pursuant to any listing agreement with or rules of any national
securities exchange, the Company and the Parent shall consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to (i) the Merger and the other transactions contemplated by this
Agreement and (ii) material corporate and financial information relating to the
Company. Each of the Company and Parent will, to the extent practicable, provide
the other, reasonably in advance of its use, with drafts of any press release or
other widely disseminated presentation or other information, in each case
relating to the Merger or material corporate and financial information relating
to the Company, and give reasonable consideration to the comments of the other
thereon. In connection with the foregoing, the Company and the Parent may share
any such drafts with their respective investors and representatives provided
that any such investors or representatives are bound by an obligation to
maintain the confidentiality of such information sufficient to satisfy the
requirements of Regulation FD promulgated under the Securities Act. Each of the
Company and Parent will advise the other in advance of the timing of any such
press release, presentation or other information relating to the Merger and will
provide the other with a final copy of the same simultaneously with its public
release.
46
Section 7.7 Employee Agreements and Workforce Matters.
-----------------------------------------
(a) Certain Employee Agreements. The Parent shall cause the
---------------------------
Surviving Corporation and its Subsidiaries to honor, without modification, all
collective bargaining agreements in effect as of the date hereof, and the Parent
shall cause the Surviving Corporation and its Subsidiaries to honor all
contracts and agreements of the parties in effect as of the date hereof that
apply to any current or former employee or current or former director or
consultant of the parties hereto; provided, however, that, except to the extent
-------- -------
otherwise provided in Section 7.8, this undertaking is not intended to prevent
the Surviving Corporation or any of its Subsidiaries from enforcing such
contracts, agreements and collective bargaining agreements in accordance with
their terms, including, without limitation, any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective bargaining
agreement or commitment, or portion thereof.
(b) Workforce Matters. The Parent shall cause any workforce
-----------------
reductions carried out following the Effective Time by the Surviving Corporation
and its Subsidiaries to be in accordance with all applicable collective
bargaining agreements and all laws and regulations governing the employment
relationship and termination thereof including, without limitation, the WARN Act
and regulations promulgated thereunder, including, without limitation, the
aggregation of employment losses thereunder, and any comparable state or local
law.
Section 7.8 Employee Benefit Plans.
----------------------
(a) Continued Employment; Service Credit. The Parent shall cause
------------------------------------
the Surviving Corporation, as of the Closing Date, to continue the employment of
all employees of the Company and the Company Subsidiaries who were employees
immediately prior to the Closing Date (the "Affected Employees"). The Parent
------------------
shall cause all service under any Company Plan that was recognized, accrued or
credited under such Company Plan immediately preceding the Effective Time to
continue to be recognized, accrued or credited for all relevant purposes under
such Company Plan as of and at all times following the Effective Time. Subject
to obligations under applicable law and applicable collective bargaining
agreements, the Parent shall cause all Affected Employees to be credited with
all service for the Company or the Company Subsidiaries (and all other service
credited by the Company or the Company Subsidiary) under (x) all employee
benefit plans, programs and policies (if any) of the Parent or its direct or
indirect Subsidiaries (including the Surviving Corporation) in which the
Affected Employees first become participants on or after the Effective Time, for
purposes of eligibility and vesting but not for benefit accrual purposes or
eligibility for early retirement purposes under defined benefit pension plans
and not to the extent crediting such service would result in duplication of
benefits and (y) any severance or vacation plans of the Parent or its direct or
indirect Subsidiaries (including the Surviving Corporation) for purposes of
47
determining the amount of each Affected Employee's severance and vacation
benefits. The Parent shall, and shall cause its direct or indirect Subsidiaries
(including the Surviving Corporation), or shall use its reasonable efforts to
cause its insurance carrier, to, (i) waive all limitations as to preexisting
conditions exclusions and waiting periods with respect to participation and
coverage requirements applicable to each Affected Employee under any welfare
benefit plan in which the Affected Employee participates on or after the Closing
Date, except to the extent of limitations or waiting periods that are already in
effect with respect to the Affected Employee as of the Closing Date and that
have not been satisfied as of the Closing Date and (ii) credit each Affected
Employee for any co-payments and deductibles paid prior to the Closing Date in
satisfying any applicable deductible or out-of-pocket requirements for the year
in which the Closing Date occurs under any welfare plan in which the Affected
Employee participates on and after the Closing Date. Nothing in this Section
7.8(a) shall be deemed to create any right of employment with respect to any
Affected Employee.
(b) Continuation of Benefits. Subject to applicable law and
------------------------
obligations under applicable collective bargaining agreements, the Parent shall
cause the Surviving Corporation to maintain for a period of at least one year
after the Closing Date, without interruption, such employee compensation and
benefit plans, programs and policies (other than stock or equity based plans and
policies so long as any such plans and policies are replaced with plans or
policies of equivalent value) as will provide compensation and benefits to each
Affected Employee that in the aggregate are no less favorable than those
provided pursuant to such employee compensation and benefit plans, programs and
policies of the Company and the Company Subsidiaries as in effect on the Closing
Date; provided, however, that the Parent shall, for one year following the
------- -------
Closing Date, continue (or cause the Surviving Corporation to continue) the
Company's severance pay policy (the "Severance Policy") in full force and effect
----------------
to the same extent that such Severance Policy is in effect on the date of this
Agreement. Except as required by applicable law or any applicable collective
bargaining agreement, nothing contained herein shall obligate the Parent, the
Surviving Corporation or any of their Affiliates to (i) maintain any particular
Company Plan, (ii) maintain any particular type of Company Plan or (iii) retain
the employment of any particular employee.
(c) Severance and Change of Control Payments. Promptly following
----------------------------------------
the Closing, the Company shall make full and prompt payment of all severance
and/or change of control payments due pursuant to the terms of all applicable
severance agreements and/or change of control agreements listed on Section
4.11(k) of the Company Disclosure Schedule to each individual who (i) has such a
severance agreement and/or change of control agreement with the Company or a
Company Subsidiary, (ii) is an employee of the Company or a Company Subsidiary
immediately prior to the Closing Date and (iii) is entitled to a severance
and/or change of control payment pursuant to the terms of his or her respective
severance agreement and/or change of control agreement.
48
(d) Communications. Prior to making any material written
--------------
communications to the directors, officers or employees of the Company or any of
its Subsidiaries, or material oral communications to a group of directors,
officers or employees, pertaining to compensation or benefit matters that are
affected by the transactions contemplated by this Agreement, the Company shall
provide the Parent with a copy of the intended communication, the Parent shall
have a reasonable period of time to review and comment on the communication, and
the Parent and the Company shall cooperate in providing any such mutually
agreeable communication.
(e) ESOP Matters. Promptly following the date of this Agreement,
------------
the Company shall submit an application to the appropriate District Director of
the Internal Revenue Service requesting a favorable determination with respect
to a proposed amendment (the "Amendment") to the Duquesne Light Holdings, Inc.
---------
401(k) Savings Plan (the "Savings Plan"). The Amendment shall be submitted with
------------
such determination application, and shall provide for the items set forth in
Section 7.8(e) of the Company Disclosure Schedule effective as of the Closing.
Section 7.9 Acquisition Proposals.
---------------------
(a) Non-Solicitation. Except as expressly contemplated by this
----------------
Section 7.9, the Company shall not, nor shall it permit any Company Subsidiaries
to, nor shall it authorize or permit any of its Representatives to, directly or
indirectly through another Person, (i) solicit, initiate or encourage (including
by way of furnishing information except information relating to the existence of
these provisions), or take any other action designed to facilitate, directly or
indirectly, any inquiries or the making of any proposal with respect to a
merger, reorganization, share exchange, consolidation or similar transaction
involving, or all or any significant portion of assets or any equity securities
of the Company or any of the Company Subsidiaries (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal" and any such
--------------------
transaction or purchase being hereinafter referred to as an "Acquisition
-----------
Transaction") or (ii) participate in any discussions (except as to the existence
- -----------
of these provisions) or negotiations relating to any Acquisition Proposal or
Acquisition Transaction; provided, however, that if, prior to securing the
-------- -------
49
Company Shareholders' Approval, the Board of Directors of the Company determines
in good faith, based on the advice of outside counsel, that it is necessary to
do so to avoid a breach of its duties under state corporate law applicable to
the conduct of directors, the Company may, in response to an Acquisition
Proposal which was not solicited by it or which did not otherwise result from a
breach of this Section 7.9(a), and subject to the Company's compliance with
Section 7.9(c), (A) furnish information with respect to it and the Company
Subsidiaries to any Person pursuant to a customary confidentiality agreement (as
determined after consultation with its outside counsel), the benefits of the
terms of which, if more favorable to the other party to such confidentiality
agreement than those in place with the Parent, shall be extended to the Parent,
and (B) participate in negotiations regarding such Acquisition Proposal.
(b) Procedures. Except as expressly permitted by this Section
----------
7.9(b), neither the Board of Directors of the Company, nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the Parent, the approval or recommendation by such Board of
Directors or such committee thereof of the Merger or the adoption and approval
of the matters to be considered at the Company Meeting, (ii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition Proposal
other than the Merger, or (iii) cause or permit the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement or understanding (an "Acquisition Agreement") related to any
---------------------
Acquisition Proposal. Notwithstanding the foregoing, in the event that there
exists a Superior Proposal (as defined below), the Board of Directors of the
Company may, prior to securing the Company Shareholders' Approval, subject to
this and the following sentences of this Section 7.9(b), withdraw or modify its
approval or recommendation of the Merger or the approval of the matters to be
considered at the Company Meeting, and/or the Board of Directors of the Company
may, prior to securing the Company Shareholders' Approval (subject to this and
the following sentences of this Section 7.9(b)), approve or recommend such
Superior Proposal or terminate this Agreement (and, subject to Article IX
hereof, concurrently with such termination, if it so chooses, cause the Company
to enter into an Acquisition Agreement with respect to such Superior Proposal),
but only if (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Board of Directors of the Company authorizes the
Company to enter into a binding written Acquisition Agreement concerning an
Acquisition Transaction that constitutes a Superior Proposal and the Company
notifies the Parent in writing that it intends to enter into such an Acquisition
Agreement, attaching such Acquisition Agreement to such notice and specifying
any material terms and conditions not included in the Acquisition Agreement and
further identifying the party making the Superior Proposal, and (iii) the Parent
does not make, within five (5) business days of receipt of written notification
from the Company of the Company's intention to enter into a binding Acquisition
Agreement for a Superior Proposal, an offer that the Board of Directors of the
Company believes, in good faith after consultation with its financial advisors,
is at least as favorable, from a financial point of view, to its shareholders as
50
the Superior Proposal. The Company agrees (i) that it will not enter into a
binding Acquisition Agreement referred to in clause (ii) above until at least
the sixth business day after it has provided the notice to the Parent required
hereby and (ii) to notify the Parent promptly, if its intention to enter into
the written Acquisition Agreement referred to in its notification shall change
at any time after giving such notification. For purposes of this Agreement, a
"Superior Proposal" means any bona fide written proposal made by a third party
-----------------
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than fifty percent (50%) of the equity securities of the
Company entitled to vote generally in the election of directors or all or
substantially all of the consolidated assets of the Company and otherwise on
terms which the Board of Directors of the Company determines in its good faith
judgment (x) (based on the written opinion of a financial advisor of nationally
recognized reputation (which opinion shall be provided to the Parent)) to be
more favorable from a financial point of view to the Company's shareholders
after consideration of the Merger and the transactions contemplated hereby, (y)
to be more favorable to the Company than the Merger and the transactions
contemplated hereby after taking into account any additional constituencies
(including shareholders) and other pertinent factors permitted under the laws of
the Commonwealth of Pennsylvania, and (z) to constitute a transaction that is
reasonably likely to be consummated on the terms proposed by the party making
the proposal, taking into account all legal, financial, regulatory and other
aspects of the proposal.
(c) Notification. In addition to the obligations of the parties
------------
set forth in paragraphs (a) and (b) of this Section 7.9, if the Company has
received an Acquisition Proposal, it shall immediately advise the Parent hereto
orally and in writing of such Acquisition Proposal, any request for information,
the material terms and conditions of such request or Acquisition Proposal and
the identity of the Person making such request or Acquisition Proposal. If the
Company has received an Acquisition Proposal, it shall keep the Parent
reasonably informed of the status and details (including amendments or proposed
amendments) of any such Acquisition Proposal.
(d) Exchange Act Exception. Nothing contained herein shall
----------------------
prohibit the Company from taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) under the Exchange Act with respect to an
Acquisition Proposal by means of a tender or exchange offer.
Section 7.10 Post-Merger Operations.
----------------------
(a) Corporate Offices. The Surviving Corporation shall maintain
-----------------
its operating headquarters and the operating headquarters of Light Company in
the Pittsburgh, Pennsylvania area for a period of at least five years following
the Merger (unless required to relocate such headquarters as a result of a
decision issued by the PaPUC).
51
(b) Corporate Contributions. After the Effective Time and for a
-----------------------
period of five years thereafter, the Surviving Corporation shall provide
corporate contributions and community support in Southwestern Pennsylvania at
levels substantially comparable to the levels of charitable contributions and
community support provided by the Company in such region as set forth in the
Company's budget for 2006.
Section 7.11 Expenses. Subject to Section 9.3, all costs and expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses; provided, however,
-------- -------
that the expenses incurred for experts, other than legal counsel, retained for
the purpose of advising and supporting joint regulatory filings shall be shared
equally by the Company and Parent.
Section 7.12 Further Assurances. Each party will, and will cause its
------------------
Subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof.
Section 7.13 Takeover Statutes. If any "fair price," "moratorium,"
-----------------
"control share acquisition" or other similar anti-takeover statute or
regulation, including, without limitation, Sections 2541 et. seq., 2551 et. seq.
and 2561 et seq. of the BCL (each, a "Takeover Statute") is or may become
----------------
applicable to the Merger or the other transactions contemplated by this
Agreement, each of the Parent and the Company and its Board of Directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize (to
the greatest extent practicable) the effects of such Takeover Statute on such
transactions.
Section 7.14 Financing.
---------
(a) Notwithstanding anything contained in this Agreement to the
contrary, the Parent expressly acknowledges and agrees that the Parent's and
Merger Sub's obligations hereunder are not conditioned in any manner upon the
Parent or Merger Sub obtaining any financing. The Parent shall keep the Company
apprised of all material developments or changes relating to the Financing
Commitments and the Financing contemplated thereby. The failure, for any reason,
of the Parent and the Merger Sub to have sufficient cash available on the
Closing Date to pay the Merger Consideration in accordance with Article II
hereof and/or the failure to so pay the Merger Consideration on the Closing Date
shall constitute a willful and material breach of this Agreement. In addition,
for the avoidance of doubt, the existence of any conditions contained in the
Financing Commitments or the Financing (including the Equity Contribution
Agreement) shall not constitute, nor be construed to constitute, a condition to
the consummation of the transactions contemplated by this Agreement.
52
(b) The Parent shall use its best reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to arrange, and close upon concurrently with the
Closing, the Debt Financing on the terms and conditions described in or
comparable to the Debt Financing Commitment (provided that the Parent may
terminate and replace or amend the Debt Financing Commitment to add lenders,
lead arrangers, bookrunners, syndication agents or similar entities who had not
executed the Debt Financing Commitment as of the date hereof or otherwise so
long as the terms would not adversely impact the ability of the Parent to
consummate the transactions contemplated by this Agreement or otherwise prevent
or materially delay or materially impair the consummation of the transactions
contemplated hereby) including using its reasonable best efforts to (i) maintain
in effect the Debt Financing Commitment, (ii) satisfy on a timely basis all
conditions applicable to the Parent or Merger Sub to obtaining the Debt
Financing, (iii) enter into definitive agreements with respect thereto on terms
and conditions contemplated by the Debt Financing Commitment or any replacement
commitments or on other terms that would not adversely impact the ability of the
Parent to consummate the transactions contemplated by this Agreement and (iv)
consummate the Debt Financing at or prior to Closing. If any portion of the Debt
Financing becomes unavailable on the terms and conditions contemplated in the
Debt Financing Commitment, the Parent shall use its reasonable best efforts to
arrange to obtain alternative financing from alternative sources in an amount
sufficient to consummate the transaction contemplated by this Agreement as
promptly as practicable following the occurrence of such event. The Parent shall
give the Company prompt notice of any material breach of the Debt Financing
Commitment of which the Parent becomes aware or any termination of the Debt
Financing Commitment. The Parent shall keep the Company informed on a
reasonably current basis in reasonable detail of the status of the efforts to
arrange the Debt Financing and provide copies of all documents related to the
Debt Financing (other than any ancillary documents subject to confidentiality
agreements) to the Company.
(c) The Parent shall use its best reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to arrange, and close upon concurrently with the
Closing, the Equity Financing on the terms and conditions described in or
comparable to the Equity Contribution Agreement (provided that the Parent may,
53
subject to the terms of the Equity Contribution Agreement, terminate and replace
or amend the Equity Contribution Agreement to add lenders, lead arrangers,
bookrunners, syndication agents, or similar entities who had not executed the
Equity Contribution Agreement. As of the date hereof or otherwise so long as the
terms would not adversely impact the ability of the Parent to consummate the
transactions contemplated by this Agreement or otherwise prevent or materially
delay or materially impair the consummation of the transactions contemplated
hereby) including using its reasonable best efforts to (i) maintain in effect
the Equity Contribution Agreement, (ii) satisfy on a timely basis all conditions
applicable to the Parent or Merger Sub to obtaining the Equity Financing, (iii)
enter into definitive agreements with respect thereto on terms and conditions
contemplated by the Equity Contribution Agreement or any replacement commitments
or on other terms that would not adversely impact the ability of the Parent to
consummate the transactions contemplated by this Agreement and (iv) consummate
the Equity Financing at or prior to Closing. If any portion of the Equity
Financing becomes unavailable on the terms and conditions contemplated in the
Equity Contribution Agreement, the Parent shall use its reasonable best efforts
to arrange to obtain alternative financing from alternative sources in an amount
sufficient to consummate the transaction contemplated by this Agreement as
promptly as practicable following the occurrence of such event. The Parent shall
give the Company prompt notice of any material breach of the Equity Contribution
Agreement of which the Parent becomes aware or any termination of the Equity
Contribution Agreement. The Parent shall keep the Company informed on a
reasonably current basis in reasonable detail of the status of the efforts to
arrange the Equity Financing and provide copies of all documents related to the
Equity Financing (other than any ancillary documents subject to confidentiality
agreements) to the Company.
(d) The Company shall, and shall cause the Company Subsidiaries
to, at the Parent's sole expense (and provided that such requested cooperation
does not unreasonably interfere with the ongoing operations of the Company and
the Subsidiaries) use its and their reasonable best efforts to provide such
cooperation as may be reasonably requested by the Parent in connection with the
Financings, including using reasonable best efforts to (i) cause appropriate
officers and employees to be available, on a customary basis and upon reasonable
notice, to meet (including in Australia) with ratings agencies and prospective
lenders and investors in presentations, meetings, and due diligence sessions,
(ii) assist with the preparation of disclosure documents in connection
therewith, (iii) provide financing sources with reasonable access to the
properties, books and records of the Company and Company Subsidiaries, execute
and deliver any customary pledge or security documents or other customary
definitive financing documents and certificates as may be reasonably requested
by the Parent, and (iv) direct its independent accountants and counsel to
provide customary and reasonable assistance to the Parent.
54
Section 7.15 Rate Cases, Etc. The Parent and Merger Sub (x)
---------------
acknowledge that the Company and/or the Light Company, has initiated the 2006
PaPUC Rate Case and intends to initiate the 2006 FERC Rate Case, and (y) agree
that any effects relating to or resulting from any of the foregoing (including
any filings made or proceedings brought by third parties in response to or in
connection with the foregoing) shall neither result in a Company Material
Adverse Effect nor otherwise affect the obligations of the Parent and Merger Sub
to consummate the Merger and the other transactions contemplated by this
Agreement. The Company agrees not to consent to an extension of the time period
during which the PaPUC is required to act upon the 2006 PaPUC Rate Case.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
- ------
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5 by the joint action
of the parties hereto:
(a) Shareholder Approval. The Company Shareholders' Approval
--------------------
shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary
-------------
or permanent injunction or other order by any court of competent jurisdiction
preventing consummation of the Merger shall have been issued and be continuing
in effect, and the Merger and the other transactions contemplated hereby shall
not have been prohibited under any applicable federal or state law or
regulation.
(c) Statutory Approvals. The Company Required Statutory Approvals
-------------------
and the Parent Required Statutory Approvals shall have been obtained at or prior
to the Effective Time, such approvals shall have become Final Orders (as defined
below). A "Final Order" means action by the relevant regulatory authority which
-----------
has not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
55
Section 8.2 Conditions to Obligation of the Parent to Effect the
----------------------------------------------------
Merger. The obligation of the Parent to effect the Merger shall be further
- ------
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Parent in writing pursuant to Section
9.5:
(a) Performance of Obligations of the Company. The Company
-----------------------------------------
(and/or its appropriate Subsidiaries) will have performed in all material
respects its agreements and covenants contained in or contemplated by this
Agreement which are required to be performed by it at or prior to the Effective
Time.
(b) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in Sections 4.1, 4.4 and 4.5(a) shall be
true and correct in all material respects as of the date hereof and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time which only need to be
true and correct as of such date or time). All other representations and
warranties of the Company set forth in this Agreement shall be true and correct
(i) on and as of the date hereof and (ii) on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except for representations and warranties that expressly
speak only as of a specific date or time which need only be true and correct as
of such date or time) except in each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct (without giving effect to
any materiality qualification or standard contained in any such representations
and warranties) which, individually or in the aggregate, have not resulted in
and would not reasonably be expected to result in a Company Material Adverse
Effect.
(c) Closing Certificates. The Parent shall have received a
--------------------
certificate signed by an executive officer of the Company, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) Company Material Adverse Effect. No Company Material Adverse
-------------------------------
Effect shall have occurred that is continuing.
(e) Company Required Consents. The Company Required Consents set
-------------------------
forth in Section 8.2(e) of the Company Disclosure Schedule shall have been
obtained and all other Company Required Consents, the failure of which to obtain
would individually or in the aggregate have a Company Material Adverse Effect,
shall have been obtained.
56
(f) Exon-Florio. Review and investigation of the Merger under the
-----------
Exon-Florio provisions of the Omnibus Trade and Competitiveness Act of 1988, as
amended ("Exon-Florio"), shall have been terminated and the President of the
-----------
United States (or other authority that may become authorized to so act) shall
have taken no action authorized under Exon-Florio with respect to the Merger.
(g) Statutory Approvals. The Company Required Statutory Approvals
-------------------
and the Parent Required Statutory Approvals (i) shall have been obtained and
shall have become Final Orders, (ii) in the case of any such approval obtained
from the PaPUC, there shall be no petition for rehearing or reconsideration or
other appeal or application for review pending (except, in each case for those
petitions, appeals or applications that have no reasonable basis for success)
and the time for filing any such petition, appeal or application shall have
passed or expired, and (iii) shall not contain any Adverse Merger Effects. The
term "Adverse Merger Effects" means any terms, conditions, adjustments and other
----------------------
provisions that (i) are included as part of any Company Required Statutory
Approval or Parent Required Statutory Approval pursuant to a Final Order (as
defined in Section 8.1(c)), and (ii) either (x) reduce or freeze the rates
charged to the Light Company's customers below or at those rates in effect on
the date of this Agreement, delay the ability of the Light Company to begin
charging the rates contemplated to be charged to the Light Company's customers
in the Final Order relating to the 2006 PaPUC Rate Case, or restrict the Light
Company's ability to pay dividends beyond accumulated net income during periods
in which Light Company's debt to total capitalization ratio does not exceed 60%,
or (y) individually or in the aggregate would be reasonably expected to result
in an aggregate reduction of $10 million or more, over a twelve month period and
on a basis net of all positive effects resulting from any terms, conditions,
adjustments and other provisions included as part of any Company Required
Statutory Approval or Parent Required Statutory Approval pursuant to a Final
Order), in the EBITDA (earnings before income taxes, depreciation and
amortization) of the Company and the Company Subsidiaries, taken as a whole, as
compared to such EBITDA that would be reasonably expected to result if the Final
Order relating to the 2006 PaPUC Rate Case were applied without regard to the
terms, conditions, adjustments or other provisions included as part of any
Company Required Statutory Approval or Parent Required Statutory Approval
pursuant to a Final Order.
(h) Opinions. The Parent shall have received an opinion, dated as
--------
of the Closing Date, from in-house or outside counsel of the Company, in form
and substance reasonably satisfactory to the Parent substantially to the effect
that: (i) each of the Company and Light Company has been duly incorporated and
is a validly existing corporation in good standing under the laws of the State
of Pennsylvania; (ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which the conduct of its business or the
57
ownership or leasing of property requires such qualification; (iii) the Company
has all corporate power and authority necessary to execute, deliver and perform
its obligations under this Agreement; (iv) this Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; (v) the execution and
delivery by the Company of this Agreement does not, and the performance by the
Company of its obligations hereunder will not, (w) violate the Company's
articles of incorporation or by-laws, (x) result in a default under or breach of
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company and/or any of its Subsidiaries is a party or by
which the Company and/or any of its Subsidiaries is bound or to which any of the
property or assets of the Company and/or any of its Subsidiaries is subject and
that is filed as an exhibit to Company's Annual Report on Form 10-K, (y) violate
any Pennsylvania or Federal statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties or assets, or (z) result in the
creation or imposition of any lien upon any property or assets of the Company or
any of its subsidiaries; (vi) no consent, approval, authorization, order,
filing, registration or qualification of or with any court or Pennsylvania or
Federal governmental agency or body is required for the execution, delivery and
performance by the Company of this Agreement or the consummation by the Company
of the transactions contemplated by the Agreement except such as have been
obtained and are in effect; and (vii) the Company is not, and solely after
giving effect to the Merger, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940.
Section 8.3 Conditions to Obligation of the Company to Effect the
-----------------------------------------------------
Merger. The obligation of the Company to effect the Merger shall be further
- ------
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Section 9.5:
(a) Performance of Obligations of the Parent and the Merger Sub.
-----------------------------------------------------------
The Parent (and/or its appropriate Subsidiaries) and the Merger Sub will have
performed in all material respects their respective agreements and covenants
contained in or contemplated by this Agreement which are required to be
performed by them at or prior to the Effective Time.
(b) Representations and Warranties. The representations and
------------------------------
warranties of the Parent and the Merger Sub set forth in Section 5.1 and Section
5.6 shall be true and correct in all material respects as of the date hereof and
58
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date or time). All other
representations and warranties of the Parent and Merger Sub in this Agreement
shall be true and correct (i) on and as of the date hereof and (ii) on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without giving effect to any materiality qualification or
standard contained in any such representations and warranties) which,
individually or in the aggregate, have not resulted in and would not reasonably
be expected to result in a Parent Material Adverse Effect.
(c) Closing Certificates. The Company shall have received a
--------------------
certificate signed by an executive officer of the Parent, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.3(a) and Section 8.3(b) have been satisfied.
(d) Opinions. The Company shall have received an opinion, dated
--------
as of the Closing Date, from in-house or outside counsel of the Parent, in form
and substance reasonably satisfactory to the Company substantially to the effect
that: (i) each of the Parent and Merger Sub has been duly incorporated or
organized and is a validly existing corporation in good standing under the laws
of its jurisdiction of incorporation or organization, as the case may be; (ii)
each of the Parent and Merger Sub has been duly qualified as a foreign
corporation or limited liability company, as the case may be, for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which the conduct of its business or the ownership or leasing of
property requires such qualification; (iii) each of the Parent and Merger Sub
has all corporate or limited liability company power and authority necessary to
execute, deliver and perform its obligations under this Agreement; (iv) this
Agreement has been duly authorized, executed and delivered by each of the Parent
and the Merger Sub and constitutes a valid and legally binding obligation of
each of the Parent and Merger Sub, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; (v) the execution and
delivery by each of the Parent and Merger Sub of this Agreement does not, and
the performance by each of the Parent and Merger Sub of its obligations
thereunder will not, (x) violate the articles of incorporation, certificate of
formation, by-laws or limited liability company agreement, or (y) violate any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Parent, Merger Sub or any of their respective
59
subsidiaries or any of their properties or assets; (vi) no consent, approval,
authorization, order, filing, registration or qualification of or with any court
or governmental agency or body is required for the execution, delivery and
performance by the Parent and Merger Sub of this Agreement or the consummation
by the Company of the transactions contemplated by this Agreement except such as
have been obtained and are in effect; and (vii) neither the Parent nor Merger
Sub is, and solely after giving effect to the Merger, will be an "investment
company" as such term is defined in the Investment Company Act of 1940.
(e) Additional Shareholder Approval. The Merger shall have been
-------------------------------
approved by a majority of the votes cast by shares of Disinterested Common Stock
voting at a duly held Company Meeting (a "Disinterested Approval"). As used in
----------------------
this Agreement, the term "Disinterested Common Stock" means all outstanding
--------------------------
shares of Company Common Stock other than those shares of Company Common Stock
that were issued pursuant to the Stock Purchase Agreement and are held
beneficially or of record on the record date of such Company Meeting by Parent,
any affiliate of Parent, any of the Investors (as defined in the Equity
Contribution Agreement), or any affiliates (as defined in the Equity
Contribution Agreement) of such Investors.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and the
-----------
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the Company Shareholders' Approval contemplated by this Agreement:
(a) by mutual written consent of the Company, the Parent and the
Merger Sub by action by their respective Boards of Directors;
(b) by the Parent or the Company, by written notice to the other
party, if any state or federal law, order, rule or regulation is adopted or
issued, which has the effect, as supported by the written opinion of outside
counsel for such party, of prohibiting the Merger or if any court of competent
jurisdiction in the United States or any state shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Merger, and such order, judgment or decree shall have become final and
non-appealable;
(c) by the Parent or the Company, by written notice to the other
party, if the Effective Time shall not have occurred on or before July 5, 2007
(the "Initial Termination Date"); provided, however, that the right to terminate
------------------------ -------- -------
the Agreement under this Section 9.1(c) shall not be available to any party
whose failure to fulfill any of its obligation under this Agreement shall have
60
proximately contributed to the failure of the Effective Time to occur on or
before such date; and provided, further, that if on the Initial Termination Date
-------- -------
the conditions to the Closing set forth in Section 8.1(c) and/or Section 8.2(e)
shall not have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Initial Termination
Date shall be extended to January 5, 2008;
(d) by the Parent or the Company, by written notice to the other
party, if the Company Shareholders' Approval or Disinterested Approval shall not
have been obtained at a duly held Company Meeting, including any adjournments
thereof;
(e) by the Parent, by written notice to the Company, if there
shall have been any breach of any representation or warranty, or any such
representation and warranty shall have become untrue and incapable of being
cured prior to the Effective Time, or any breach of any covenant or agreement of
the Company hereunder, such that a condition in Section 8.2 would not be
satisfied, and such breach or condition is not curable or, if curable, shall not
have been remedied within thirty (30) days after receipt by the Company of
notice in writing from the Parent, specifying the nature of such breach and
requesting that it be remedied or the Parent shall not have received adequate
assurance of a cure of such breach within such thirty (30) day period;
(f) by the Company, by written notice to the Parent, if there
shall have been any breach of any representation or warranty, or any such
representation and warranty shall have become untrue and incapable of being
cured prior to the Effective Time, or any breach of any covenant or agreement of
the Parent or Merger Sub hereunder, such that a condition in Section 8.3 would
not be satisfied, and such breach or condition is not curable or, if curable,
shall not have been remedied within thirty (30) days after receipt by the Parent
of notice in writing from the Company, specifying the nature of such breach and
requesting that it be remedied or the Company shall not have received adequate
assurance of a cure of such breach within such thirty (30) day period;
(g) by the Parent, by written notice to the Company, (A) if the
Board of Directors of the Company or any committee thereof (i) shall withdraw or
modify in any adverse manner its approval or recommendation of this Agreement or
the Merger, (ii) shall approve or recommend or enter into an agreement for any
acquisition of the Company or a material portion of its assets or any tender
offer for shares of capital stock of the Company, in each case, by a party other
than the Parent or an affiliate of the Parent, or (iii) shall resolve to take
any of the actions specified in clauses (i) or (ii), or (B) if the Company shall
have failed to take a vote of the Shareholders of the Company on the Merger
prior to the Initial Termination Date;
61
(h) by the Company subject to and in accordance with the
provisions of Section 7.9; and
(i) by the Company if the Stock Purchase Agreement is terminated
(except as a result of a breach by the Company of its obligations under the
Stock Purchase Agreement) or the parties to the Stock Purchase Agreement (other
than the Company) otherwise fail to consummate the transactions contemplated by
the Stock Purchase Agreement upon the satisfaction or waiver by the party
entitled to waive such a condition of all conditions to the consummation of such
transactions (other than any conditions that by their nature are to be satisfied
at such consummation); provided that the Company exercises its termination right
pursuant to this Section 9.1(i) within five (5) business days of any such
termination or failure to so consummate.
Section 9.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either the Company or the Parent pursuant to Section 9.1, this
Agreement shall become void and of no effect and there shall be no liability on
the part of either the Company or the Parent or their respective officers or
directors hereunder, except that Section 7.6, Section 7.11, this Section 9.2 and
Section 9.3, the agreement contained in the last sentence of Section 7.1, and
Article X shall survive the termination; provided, however, that nothing herein
-------- -------
shall relieve any party hereto from any liability or damages resulting from any
willful and material breach of this Agreement prior to termination.
Section 9.3 Termination Fee; Expenses.
-------------------------
(a) Termination Fee.
---------------
(i) If this Agreement is terminated by the Parent pursuant
to Section 9.1(g) or by the Company pursuant to Section 9.1(h), then
the Company shall immediately pay to the Parent a termination fee
equal to $40 million in cash payable by wire transfer in same day
funds; or
(ii) if (A) this Agreement is terminated pursuant to Section
9.1(d) or Section 9.1(e), and (B) within twelve (12) months of such
termination, (x) the Company enters into a definitive agreement
regarding an Acquisition Proposal, (y) becomes a subsidiary of the
Person making such Acquisition Proposal or (z) consummates a
transaction relating to such Acquisition Proposal, then the Company
shall immediately pay to the Parent a termination fee equal to $40
million.
62
(b) Payment of Expenses Following Termination. If this Agreement
-----------------------------------------
is terminated pursuant to (i) Section 9.1(e), (ii) Section 9.1(d) as a result of
the Company Shareholders' Approval or Disinterested Approval not being obtained,
(iii) Section 9.1(g), or (iv) Section 9.1(h), then the Company shall promptly
(but not later than five (5) business days after receiving notice of
termination), pay to the Parent in cash payable by wire transfer in same day
funds an amount equal to all documented out-of-pocket expenses and fees incurred
by the Parent (including, without limitation, fees and expenses payable to all
legal, accounting, financial, and other professionals arising out of, in
connection with or related to the transactions contemplated by this agreement)
not in excess of $10 million. If this Agreement is terminated pursuant to
Section 9.1(f), then the Parent shall promptly (but not later than five (5)
business days after receiving notice of termination), pay to the Company in cash
payable by wire transfer in same day funds an amount equal to all documented
out-of-pocket expenses and fees incurred by the Company (including, without
limitation, fees and expenses payable to all legal, accounting, financial, and
other professionals arising out of, in connection with or related to the
transactions contemplated by this agreement) not in excess of $10 million.
(c) Nature of Fees. The parties agree that the agreements
--------------
contained in this Section 9.3 are an integral part of the Merger and the other
transactions contemplated hereby and constitute liquidated damages and not a
penalty. The parties further agree that if one party is or becomes obligated to
pay a termination fee pursuant to Section 9.3(a), the right to receive such
termination fee shall be the sole remedy of the other party with respect to the
facts and circumstances giving rise to such payment obligation. Notwithstanding
anything to the contrary contained in this Section 9.3, if one party fails to
promptly pay to the other any fee or expense due under Section 9.3(a) or (b), in
addition to any amounts paid or payable pursuant to such sections, the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee from the date such fee was required to be paid at the
prime rate as reported in the Wall Street Journal on the date such fee was
required to be paid.
(d) Default Amount. Parent and Merger Sub shall be liable to the
--------------
Company for liabilities and damages resulting from, and the Company acknowledges
and agrees that Parent and Merger Sub shall be liable to it hereunder only for,
willful and material breaches of this Agreement; provided, however, that in no
-------- -------
event shall the liability of Parent and Merger Sub arising out of or relating to
any such breaches exceed an aggregate of $70 million (the "Default Amount"),
--------------
which amount is deposited in cash and/or letters of credit as of the date hereof
in the Escrow Account (as defined in the Equity Contribution Agreement) pursuant
to the terms of the escrow agreement contemplated by the Equity Contribution
Agreement, and provided, further, that under no circumstances shall any investor
in, or advisor to, Parent or Merger Sub have any liability to the Company
arising out of or relating to any breaches of this Agreement.
63
Section 9.4 Amendment. This Agreement may be amended by the Boards of
---------
Directors of the parties hereto at any time before or after the Company
Shareholders' Approval and prior to the Effective Time; provided, however, that
-------- -------
after the Company Shareholders' Approval is obtained, no such amendment which
under applicable law would require the further approval of the Company's
shareholders shall be made without obtaining such approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 9.5 Waiver. At any time prior to the Effective Time, the
------
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein, to the extent permitted by applicable
law. Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and Warranties.
------------------------------------------------------
No representations or warranties in this Agreement shall survive the Effective
Time.
Section 10.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given (a) when delivered personally, (b)
when sent by reputable overnight courier service or (c) when telecopied (which
is confirmed by copy sent within one business day by a reputable overnight
courier service) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
64
(i) If to the Company, to
Dequesne Light Holdings, Inc.
411 Seventh Avenue
Pittsburgh, PA 15219
Attn: Senior Vice President and Chief Legal and
Administrative Officer
Telecopy: (412) 393-4151
Telephone: (412) 393-4150
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attn: Michael P. Rogan, Esq.
Telecopy: (202) 393-5760
Telephone: (202) 371-7000
and
(ii) if to the Parent or to the Merger Sub, to
Castor Holdings LLC
Level 22, 125 West 55th Street
New York, NY 10019
Attn: Chris Leslie
Phone: (212) 231-1696
Fax: (212) 231-1828
with a copy to
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Joseph B. Frumkin, Esq.
Telecopy: (212) 558-3588
Telephone: (212) 558-4000
65
Section 10.3 Entire Agreement. This Agreement (including the documents
----------------
and instruments referred to herein) together with the Confidentiality Agreement
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
Section 10.4 Severability. Any term or provision of this Agreement
------------
that is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.
Section 10.5 Interpretation. When a reference is made in this
--------------
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit of this Agreement, respectively, unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation," if they are not already followed by such words.
Section 10.6 Counterparts; Effect. This Agreement may be executed by
--------------------
facsimile and in one or more counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
agreement.
Section 10.7 No Third Party Beneficiaries. This Agreement shall be
----------------------------
binding upon and inure solely to the benefit of each party hereto, and, except
for rights of Indemnified Parties as set forth in Section 7.5, nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 10.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to the principles of conflicts of law thereof.
66
Section 10.9 Venue. Each of the parties hereto (a) consents to submit
-----
itself to the personal jurisdiction of any federal or state court located in and
for Pittsburgh, Pennsylvania in the event any dispute arises out of this
Agreement, (b) agrees that it shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it shall not bring any action relating to this Agreement in any
court other than a federal or state court sitting in and for Pittsburgh,
Pennsylvania.
Section 10.10 Waiver of Jury Trial and Certain Damages. EACH PARTY TO
----------------------------------------
THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (A)
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (B) WITHOUT
LIMITATION TO SECTION 9.3, ANY RIGHT IT MAY HAVE TO RECEIVE DAMAGES FROM ANY
OTHER PARTY BASED ON ANY THEORY OF LIABILITY FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE DAMAGES.
Section 10.11 Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by any party hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party.
Section 10.12 No Specific Enforcement. The parties agree that in the
-----------------------
event of a breach of this Agreement, the parties shall not be entitled to
specific performance of the terms hereof.
Section 10.13 Obligations of the Parent and of the Company. Whenever
--------------------------------------------
this Agreement requires a Subsidiary of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of the Company
to cause such Subsidiary to take such action and, after the Effective Time, on
the part of the Surviving Corporation to cause such Subsidiary to take such
action. Whenever this Agreement requires Merger Sub to take any action, such
requirements shall be deemed to include an undertaking on the part of the Parent
to cause Merger Sub to take such action.
67
IN WITNESS WHEREOF, the Company, the Parent and the Merger Sub have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
DUQUESNE LIGHT HOLDINGS, INC.
By: /s/ Morgan K. O'Brien
------------------------------
Name: Morgan K. O'Brien
Title: President & CEO
CASTOR HOLDINGS LLC
By: /s/ Chris Leslie
------------------------------
Name: Chris Leslie
Title: Authorized Person
By: /s/ Mark Wong
------------------------------
Name: Mark Wong
Title: Authorized Person
CASTOR MERGER SUB INC.
By: /s/ Chris Leslie
------------------------------
Name: Chris Leslie
Title: Authorized Person
By: /s/ Mark Wong
------------------------------
Name: Mark Wong
Title: Authorized Person
68