UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-14756.
AMEREN CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-1723446
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
----------- ------------
Shares outstanding of each of registrant's classes of common stock as of
May 10, 2002: Common Stock, $.01 par value - 144,347,116
AMEREN CORPORATION
INDEX
Page
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PART I Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheet
at March 31, 2002 and December 31, 2001 2
Consolidated Statement of Income
for the three months ended March 31, 2002 and 2001 3
Consolidated Statement of Cash Flows
for the three months ended March 31, 2002 and 2001 4
Consolidated Statement of Common Stockholders' Equity
for the three months ended March 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II Other Information
ITEM 1. Legal Proceedings 22
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 24
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
AMEREN CORPORATION
CONSOLIDATED BALANCE SHEET
(In Millions, Except Per Share Amounts)
March 31, December 31,
2002 2001
---------- ---------
(Unaudited)
ASSETS:
Property and plant, at original cost:
Electric $13,770 $13,664
Gas 537 532
Other 106 105
------- -------
14,413 14,301
Less accumulated depreciation and amortization 6,628 6,535
------- -------
7,785 7,766
Construction work in progress:
Nuclear fuel in process 102 97
Other 591 564
------- -------
Total property and plant, net 8,478 8,427
------- -------
Investments and other assets:
Investments 39 39
Nuclear decommissioning trust fund 188 187
Other 150 114
------- -------
Total investments and other assets 377 340
------- -------
Current assets:
Cash and cash equivalents 60 67
Accounts receivable - trade (less allowance for doubtful
accounts of $11 and $9, respectively) 386 389
Other accounts and notes receivable 48 71
Materials and supplies, at average cost -
Fossil fuel 121 159
Other 137 136
Other 32 41
------- -------
Total current assets 784 863
------- -------
Regulatory assets:
Deferred income taxes 604 604
Other 162 167
------- -------
Total regulatory assets 766 771
------- -------
Total Assets $10,405 $10,401
======= =======
CAPITAL AND LIABILITIES:
Capitalization:
Common stock, $.01 par value, 400.0 shares authorized -
shares outstanding of 144.2 and 138.0, respectively $ 1 $ 1
Other paid-in capital, principally premium on
common stock 1,804 1,614
Retained earnings 1,701 1,733
Accumulated other comprehensive income - 5
Other (10) (4)
-------- --------
Total common stockholders' equity 3,496 3,349
-------- -------
Preferred stock not subject to mandatory redemption 235 235
Long-term debt 3,281 2,835
-------- -------
Total capitalization 7,012 6,419
-------- -------
Minority interest in consolidated subsidiaries 4 4
Current liabilities:
Current maturity of long-term debt 137 139
Short-term debt 105 641
Accounts and wages payable 174 392
Accumulated deferred income taxes 55 58
Taxes accrued 201 132
Other 247 219
-------- -------
Total current liabilities 919 1,581
-------- -------
Accumulated deferred income taxes 1,560 1,563
Accumulated deferred investment tax credits 156 158
Regulatory liabilities 172 172
Other deferred credits and liabilities 582 504
-------- -------
Total Capital and Liabilities $10,405 $10,401
======== =======
See Notes to Consolidated Financial Statements.
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(In Millions, Except Per Share Amounts)
Three Months Ended
March 31,
------------------
2002 2001
OPERATING REVENUES:
Electric $ 984 $ 836
Gas 125 186
Other 6 3
------- -------
Total operating revenues 1,115 1,025
OPERATING EXPENSES:
Operations
Fuel and purchased power 440 303
Gas 85 137
Other 182 166
------- -------
707 606
Maintenance 84 88
Depreciation and amortization 107 99
Income taxes 38 49
Other taxes 68 67
------- -------
Total operating expenses 1,004 909
------- -------
OPERATING INCOME 111 116
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction . 2 2
Miscellaneous, net (1) (2)
------- -------
Total other income and (deductions) 1 -
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 112 116
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 52 50
Allowance for borrowed funds used during construction (2) (2)
Preferred dividends of subsidiaries 3 3
------- -------
Net interest charges and preferred dividends 53 51
------- -------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 59 65
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF INCOME TAXES - (7)
------- -------
NET INCOME $ 59 $ 58
======= =======
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Income before cumulative effect of change
in accounting principle $ 0.42 $ 0.48
Cumulative effect of change in accounting
principle, net of income taxes - (0.05)
------- -------
Earnings per Common Share - Basic and Diluted $ 0.42 $ 0.43
======= =======
AVERAGE COMMON SHARES OUTSTANDING 139.7 137.2
See Notes to Consolidated Financial Statements.
3
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(In Millions)
Three Months Ended
March 31,
------------------
2002 2001
Cash Flows From Operating:
Net income $ 59 $ 58
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - 7
Depreciation and amortization 104 96
Amortization of nuclear fuel 7 9
Allowance for funds used during construction (4) (4)
Deferred income taxes, net (3) (7)
Deferred investment tax credits, net (2) (2)
Changes in assets and liabilities:
Receivables, net 26 86
Materials and supplies 37 23
Accounts and wages payable (218) (212)
Taxes accrued 69 77
Other, net 35 56
----- -----
Net cash provided by operating activities 110 187
Cash Flows From Investing:
Construction expenditures (159) (204)
Allowance for funds used during construction 4 4
Nuclear fuel expenditures (5) (8)
----- -----
Net cash used in investing activities (160) (208)
Cash Flows From Financing:
Dividends on common stock (91) (87)
Capital issuance costs (20) -
Redemptions:
Nuclear fuel lease - (35)
Short-term debt (536) -
Long-term debt (4) (5)
Issuances:
Common stock 246 -
Nuclear fuel lease 3 2
Short-term debt - 70
Long-term debt 445 42
----- -----
Net cash provided by (used in) financing activities 43 (13)
----- -----
Net change in cash and cash equivalents (7) (34)
Cash and cash equivalents at beginning of year 67 126
----- -----
Cash and cash equivalents at end of period $ 60 $ 92
===== =====
Cash paid during the periods:
Interest (net of amount capitalized) $ 27 $ 31
Income taxes, net $ 4 $ 1
See Notes to Consolidated Financial Statements.
4
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
UNAUDITED
(In Millions)
Three Months Ended
March 31,
------------------
2002 2001
Common stock $ 1 $ 1
Other paid-in capital
Beginning balance 1,614 1,581
Shares issued (less issuance costs of $9) 237 -
Stock purchase contract (46) -
Employee stock awards (1) -
-------- --------
1,804 1,581
Retained earnings
Beginning balance 1,733 1,614
Net income 59 58
Dividends (91) (87)
-------- --------
1,701 1,585
Accumulated other comprehensive income
Beginning balance 5 -
Change in current period (5) (4)
-------- --------
- (4)
Other
Beginning balance (4) -
Unamortized restricted stock compensation (7) (5)
Compensation amortized and mark-to-market adjustments 1 -
-------- --------
(10) (5)
Total common stockholders' equity $ 3,496 $ 3,158
======== ========
Comprehensive income, net of taxes
Net income $ 59 $ 58
Unrealized net gain/(loss) on derivative
hedging instruments (5) 7
Cumulative effect of accounting change - (11)
-------- --------
$ 54 $ 54
======== ========
See Notes to Consolidated Financial Statements.
5
AMEREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
Our financial statements reflect all adjustments (which include normal,
recurring adjustments) necessary, in our opinion, for a fair presentation of the
interim results. These statements should be read in conjunction with the
financial statements and the notes thereto included in our 2001 Annual Report on
Form 10-K.
When we refer to Ameren, our, we or us, we are referring to Ameren
Corporation on a consolidated basis. In certain circumstances, our subsidiaries
are specifically referenced in order to distinguish among their different
business activities. All dollar amounts are in millions, unless otherwise
indicated.
Earnings Per Share
There was no difference between the basic and diluted earnings per share
amounts for the three-month periods ended March 31, 2002 and 2001. The
reconciling item in each of the periods was comprised of assumed stock option
conversions, which increased the number of shares outstanding in the diluted
earnings per share calculation by 351,794 shares for the three months ended
March 31, 2002 compared to 331,361 shares in the first quarter of 2001.
Accounting Changes
In January 2001, we adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The impact of that adoption resulted in a cumulative effect charge of $7 million
after taxes to the income statement, and a cumulative effect adjustment of $11
million after taxes to Accumulated Other Comprehensive Income (OCI), which
reduced common stockholders' equity.
On January 1, 2002, we adopted SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires business
combinations to be accounted for under the purchase method of accounting, which
requires one party in the transaction to be identified as the acquiring
enterprise and for that party to allocate the purchase price to the assets and
liabilities of the acquired enterprise based on fair market value. SFAS 142
requires goodwill and indefinite lived intangible assets recorded in the
financial statements to be tested for impairment at least annually, rather than
amortized over a fixed period, with impairment losses recorded in the income
statement. SFAS 141 and SFAS 142 did not have any effect on our financial
position, results of operations or liquidity upon adoption. SFAS No. 141 and
SFAS No. 142 will be utilized for our acquisition of CILCORP Inc. and AES Medina
Valley (No. 4), L.L.C. See Note 6 - "Subsequent Event."
In July 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS 143 requires an entity to record a liability and corresponding
asset representing the present value of legal obligations associated with the
retirement of tangible, long-lived assets. SFAS 143 is effective for Ameren on
January 1, 2003. At this time, we are assessing the impact of SFAS 143 on our
financial position, results of operations and liquidity upon adoption. However,
as a result of this new standard we expect significant increases to our reported
assets and liabilities as a result of ongoing collection through rates of
6
obligations associated with Callaway Nuclear Plant decommissioning costs which
are being further recovered in the rates of our regulated subsidiary, Union
Electric Company, known as AmerenUE.
On January 1, 2002 we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS 144 retains the guidance related to calculating
and recording impairment losses, but adds guidance on the accounting for
discontinued operations, previously accounted for under Accounting Principles
Board Opinion No. 30. SFAS 144 did not have any effect on our financial
position, results of operations or liquidity upon adoption.
NOTE 2 - Rate and Regulatory Matters
Missouri Electric
From July 1, 1995 through June 30, 2001, our subsidiary, AmerenUE, operated
under experimental alternative regulation plans in Missouri that provided for
the sharing of earnings with customers if our regulatory return on equity
exceeded defined threshold levels. At March 31, 2002, we had an accrual
representing the estimated credit that we expect to pay our Missouri electric
customers of $40 million for the plan year ended June 30, 2001. In 2002, the
Missouri Public Service Commission (MoPSC) Staff and the Missouri Office of
Public Counsel (OPC) Staff filed testimony with the MoPSC on this matter.
Combined, the MoPSC Staff and OPC Staff recommend that the credit to customers
for the plan year ended June 30, 2001, should approximate $80 million. The MoPSC
is not bound by their recommendations. To date, a procedural schedule and
hearing dates on this matter have not been established by the MoPSC. At this
time, we continue to believe that our accrual is adequate in all material
respects.
Following expiration of the experimental alternative regulation plan on
June 30, 2001, the MoPSC Staff filed an excess earnings complaint against
AmerenUE. Based upon a January 2002 MoPSC order, on March 1, 2002, the MoPSC
Staff filed a recommendation that AmerenUE reduce its annual Missouri electric
revenues by $246 million to $285 million. The MoPSC Staff's recommendation is
based on a return to traditional cost of service ratemaking, a return on equity
ranging from 8.91% to 9.91%, a reduction in Ameren's depreciation rates, and
other cost of service adjustments. The MoPSC is not bound by the Staff's
recommendation.
On May 10, 2002, AmerenUE filed rebuttal testimony in response to the MoPSC
Staff's recommendation. In its testimony, AmerenUE stated that a return to
traditional cost of service ratemaking would result in an increase in its annual
Missouri electric revenues by approximately $150 million. AmerenUE's position is
based on a 12.5% return on equity, higher depreciation rates and other
adjustments. However, a key component of AmerenUE's testimony is its
recommendation that a new alternative rate regulation plan (Alt Reg Plan) be
adopted by the MoPSC. In AmerenUE's filing, we included a new Alt Reg Plan
proposal. Key provisions of the Alt Reg Plan include the following:
o A three-year plan from July 1, 2002 through June 30, 2005 which would
require AmerenUE to share earnings over certain regulatory return on
equity (ROE) thresholds for the 12 months ending July 1 through June
30;
o The proposed earnings sharing grid would require AmerenUE to provide
sharing credits of $17 million if AmerenUE's regulatory ROE is between
10.5% and 12.5%. Additional credits of 55% of AmerenUE's earnings
between a regulatory ROE of 12.5% and 15% would be provided, 90% of
earnings between a regulatory ROE of 15% and 16%, and 100% of any
earnings above 16%.
o An immediate one-time credit to customers bills of $15 million;
o An annualized $15 million permanent rate reduction, retroactive to
April 1, 2002;
o An immediate funding of $5 million to a low-income customer assistance
program and $5 million to an economic development program;
o A commitment of $1.5 billion to $1.75 billion in energy infrastructure
investment from January 1, 2002 through June 30, 2005.
7
Hearings for this case are scheduled to commence in mid-July 2002 and be
completed in early August 2002. A final decision on this matter may not occur
until the fourth quarter of 2002. In the interim, we plan to continue
negotiations with all pertinent parties with the intent to continue with an
incentive regulation plan. We cannot predict the outcome of the MoPSC's decision
in this matter or its impact on our financial statements, results of operations
or liquidity. However, the impact could be material.
In order to satisfy AmerenUE's regulatory load requirements for 2001,
AmerenUE purchased, through a competitive bidding process, under a one year
contract 450 megawatts of capacity and energy from AmerenEnergy Marketing
Company (Marketing Company), at market-based rates. For 2002, AmerenUE again,
through a competitive bidding process, entered into a one year contract with
Marketing Company for the purchase of 200 megawatts of capacity and energy. For
the four summer months of 2002, AmerenUE also entered into contracts with two
other power suppliers for an aggregate 200 megawatts of additional capacity and
energy.
In May 2001, the MoPSC filed a pleading with the Securities and Exchange
Commission (SEC) relating to AmerenUE's agreement to purchase 450 megawatts of
capacity and energy from Marketing Company during 2001 (the 2001 Marketing
Company - AmerenUE agreement). The pleading requested an investigation into the
contractual relationship between AmerenUE, Marketing Company and AmerenEnergy
Generating Company (Generating Company), in the context of the 2001 Marketing
Company - AmerenUE agreement and requested that the SEC find that such
relationship violates a provision of PUHCA which requires state utility
commission approval of power sales contracts between an electric utility company
and an affiliated electric wholesale generator, like Generating Company. We
believe that the MoPSC's approval of the power sales agreement under PUHCA is
not required because Generating Company is not a party to the agreement. As a
remedy, the MoPSC proposes that the SEC require AmerenUE to contract directly
with Generating Company and submit such contract to the MoPSC for review. The
SEC has not responded to this matter to date. On May 9, 2002, the MoPSC filed a
similar pleading with the SEC relating to AmerenUE's agreement to purchase 200
megawatts of capacity and energy from Marketing Company during 2002. At this
time, management is unable to predict the outcome of these pleadings or the
ultimate impact on our future financial position, results of operations or
liquidity.
Illinois
In December 1997, the Governor of Illinois signed the Electric Service
Customer Choice and Rate Relief Law of 1997 (the Illinois Law) providing for
electric utility restructuring in Illinois. This legislation introduced
competition into the retail supply of electric energy in Illinois. Illinois
residential customers were offered choice in suppliers on May 1, 2002.
Industrial and commercial customers were already offered this choice. The
offering of choice to our industrial and commercial customers has not had a
material adverse effect on our business and we do not expect the offering of
choice to our residential customers to have a material adverse effect on our
business either.
In addition, the Illinois Law contains a provision freezing residential
electric rates through January 1, 2005. Legislation has been introduced in the
Illinois House of Representatives and Senate that would extend the rate freeze
to December 31, 2006. At this time, we cannot predict whether that legislation
will ultimately be passed.
Federal - Midwest ISO and Alliance RTO
In December 1999, the Federal Energy Regulatory Commission (FERC) issued
Order 2000 requiring all utilities, subject to FERC jurisdiction, to state their
intentions for joining a regional transmission organization (RTO). RTOs are
independent organizations that will functionally control the transmission assets
of utilities in order to improve the wholesale power market. Since January 2001,
we, along with several other utilities, have been seeking approval from the FERC
to participate in an RTO known as the Alliance RTO. We had previously been a
member of the Midwest Independent System Operator (MISO) and recorded a pretax
charge to earnings in 2000 of $25 million ($15 million after taxes) for an exit
fee and other costs when we left that organization. We felt the for-profit
Alliance RTO business model was superior to the not-for-profit MISO business
model and provided us with a more equitable return on our transmission assets.
8
In late 2001, the FERC issued an order that rejected the formation of the
Alliance RTO and ordered the Alliance RTO companies and the MISO to discuss how
the Alliance RTO business model could be accommodated within the MISO. On April
25, 2002, after the Alliance RTO and MISO failed to reach an agreement, and
after a series of filings by the two parties with the FERC, the FERC issued a
declaratory order setting forth the division of responsibilities between the
MISO and National Grid (the managing member of the transmission company formed
by the Alliance companies) and approved the rate design and the revenue
distribution methodology proposed by the Alliance companies. However, the FERC
denied a request by the Alliance companies and National Grid to purchase certain
services from the MISO at incremental cost rather than MISO's full tariff rates.
The FERC also ordered the MISO to return the exit fee paid by Ameren to leave
the MISO, provided Ameren returns to the MISO and agrees to pay its proportional
share of the startup and ongoing operational expenses of the MISO. Moreover, the
FERC required the Alliance companies to select the RTO in which they will
participate within thirty days of the order. At this time, we continue to
evaluate our alternatives and are in the process of determining the impact that
the FERC's April 2002 ruling will have on our future financial condition,
results of operations or liquidity.
NOTE 3 - Derivative Financial Instruments
We utilize derivatives principally to manage the risk of changes in market
prices for natural gas, fuel, electricity and emission credits. Price
fluctuations in natural gas, fuel and electricity cause:
o an unrealized appreciation or depreciation of our firm commitments to
purchase or sell when purchase or sales prices under the firm
commitment are compared with current commodity prices;
o market values of fuel and natural gas inventories or purchased power
to differ from the cost of those commodities in inventory or under the
firm commitment; and
o actual cash outlays for the purchase of these commodities, in certain
circumstances, to differ from anticipated cash outlays.
The derivatives that we use to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. We continually assess our supply and delivery commitment positions
against forward market prices and internal forecasts of forward prices and
modify our exposure to market, credit and operational risk by entering into
various offsetting transactions. In general, we believe these transactions serve
to reduce price risk for Ameren.
As of March 31, 2002, we recorded the fair value of derivative financial
instrument assets of $28 million in Other Assets and the fair value of
derivative financial instrument liabilities of $33 million in Other Deferred
Credits and Liabilities.
Cash Flow Hedges
Ameren routinely enters into forward purchase and sales contracts for
electricity based on forecasted levels of economic generation and load
requirements. The relative balance between load and economic generation varies
throughout the year. The contracts typically cover a period of twelve months or
less. The purpose of these contracts is to hedge against possible price
fluctuations in the spot market for the period covered under the contracts. We
formally document all relationships between hedging instruments and hedged
items, as well as our risk management objective and strategy for undertaking
various hedge transactions.
For the three months ended March 31, 2002, the pretax net gain, which
represented the impact of discontinued cash flow hedges, the ineffective portion
of cash flow hedges, as well as the reversal of amounts previously recorded in
OCI due to transactions going to delivery or settlement, was approximately $1
million.
As of March 31, 2002, the entire net loss on power forward derivative
instruments of approximately $9 million, or approximately $5 million after tax,
accumulated in OCI is expected to be recognized in earnings during the next
twelve months upon delivery of the commodity being hedged.
9
As of March 31, 2002, a gain of approximately $6 million, or approximately
$3 million after tax, associated with interest rate swaps for debt to be issued
was in OCI and will be amortized over the life of the debt ultimately issued or
will be recognized immediately to the income statement in interest expense if a
determination is made that debt will not be issued.
We also hold a call option for coal with a supplier. This option to
purchase coal expires October 15, 2003. The entire gain of approximately $5
million, or approximately $3 million after tax, accumulated in OCI is expected
to be recognized in earnings prior to that date.
Other Derivatives
We enter into option transactions to manage our positions in sulfur dioxide
(SO2) allowances, coal, heating oil, and electricity. Most of these transactions
are treated as non-hedge transactions under SFAS 133. The net change in the
market value of S02 options is recorded as Electric Revenues, while the net
change in the market value of coal, heating oil, and electricity options is
recorded as Fuel and Purchased Power in the income statement. The net change in
the market values of S02 options, coal, heating oil, and electricity options was
immaterial as of March 31, 2002.
NOTE 4 - Debt and Equity Financings
In January 2002, Ameren Corporation issued $100 million of 5.70% notes due
February 1, 2007. The net proceeds were used to reduce short-term borrowings.
Interest is payable semi-annually on February 1 and August 1 of each year,
beginning August 1, 2002. In March 2002, Ameren Corporation entered into
interest rate swaps effectively converting the interest rate associated with
these notes to three month LIBOR plus 43 basis points.
In March 2002, Ameren Corporation issued $345 million of adjustable
conversion-rate equity security units and 5.75 million shares of common stock
(5,000,000 shares at $39.50 per share and 750,000 shares, pursuant to the
exercise of an option granted to the underwriters, at $38.865 per share). The
$25 adjustable conversion-rate equity security units each consisted of an Ameren
Corporation senior unsecured note with a principal amount of $25 and a contract
to purchase, for $25, a fraction of a share of Ameren common stock on May 15,
2005. The senior unsecured notes will mature on May 15, 2007. Total
distributions on the equity security units will be at an annual rate of 9.75%,
consisting of quarterly interest payments on the senior unsecured notes at the
initial annual rate of 5.2% and adjustment payments under the stock purchase
contracts at the annual rate of 4.55%. The stock purchase contracts require
holders to purchase between 8.7 million and 7.4 million shares of Ameren common
stock on May 15, 2005 at the market price at that time, subject to a minimum
share price of $39.50 and a maximum of $46.61. The stock purchase contracts
include a pledge of the senior unsecured notes as collateral for the stock
purchase obligation. The interest rate on the outstanding senior unsecured notes
is subject to being reset by a remarketing agent for quarterly payments after
May 15, 2005 until maturity. We recorded the net present value of the contracted
stock purchase payments of $46 million as an increase in Other Deferred Credits
and Liabilities and a decrease in Other Paid-in Capital to reflect our
obligation. We used the net proceeds from these offerings to repay our
short-term indebtedness and for general corporate purposes.
10
NOTE 5 - Segment Information
Segment information for the three-month periods ended March 31, 2002 and
2001 was as follows:
- --------------------------------------------------------------------------------
Utility Intercompany
Operations Other Revenues Total
- --------------------------------------------------------------------------------
Three months ended March 31, 2002:
Revenues $1,236 $ 69 $(190) $1,115
Net Income 58 1 - 59
- --------------------------------------------------------------------------------
Three months ended March 31, 2001:
Revenues $1,153 $ 74 $(202) $1,025
Net Income 54 4 - 58
- --------------------------------------------------------------------------------
NOTE 6 - Subsequent Event
On April 28, 2002, we entered into an agreement with The AES Corporation to
purchase all of the outstanding stock of CILCORP Inc. CILCORP is the parent
company of Peoria-based Central Illinois Light Company, which operates as CILCO.
We also agreed to acquire AES Medina Valley (No. 4), L.L.C. which indirectly
owns a 40 megawatt, gas-fired electric generation plant. The total purchase
price is approximately $1.4 billion, subject to adjustment for changes in
CILCORP's working capital, and includes the assumption of CILCORP and AES Medina
Valley debt at closing, estimated at approximately $900 million, with the
balance of the purchase price in cash. We currently expect to finance a
significant portion of the cash component of the purchase price through the
issuance of new common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 200,000 and 205,000 customers,
respectively, of which approximately 150,000 are combination electric and gas
customers. In addition, the purchase includes approximately 1,200 megawatts of
largely coal-fired generating capacity most of which is expected to be
nonregulated by closing.
Upon completion of the acquisition, expected within 12 months, CILCO will
become an Ameren subsidiary, but will remain a separate utility company,
operating as AmerenCILCO. The transaction is subject to the approval of the
Illinois Commerce Commission, the SEC, the FERC, the expiration of the waiting
period under the Hart-Scott-Rodino Act and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001 had total assets of $1.8
billion.
11
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Ameren Corporation is a holding company registered under the Public Utility
Holding Company Act of 1935 (PUHCA). Our principal business is the generation,
transmission and distribution of electricity, and the distribution of natural
gas to residential, commercial, industrial and wholesale users in the central
United States. Our primary subsidiaries are as follows:
o Union Electric Company, which operates a regulated electric generation,
transmission and distribution business, and a regulated natural gas
distribution business in Missouri and Illinois as AmerenUE.
o Central Illinois Public Service Company, which operates a regulated
electric and natural gas transmission and distribution business in Illinois
as AmerenCIPS.
o AmerenEnergy Resources Company (Resources Company), which consists of
nonregulated operations. Subsidiaries include AmerenEnergy Generating
Company (Generating Company) that operates our nonregulated electric
generation in Missouri and Illinois, AmerenEnergy Marketing Company
(Marketing Company), which markets power for periods over one year, and
AmerenEnergy Fuels and Services Company, which procures fuel and manages
the related risks for our affiliated companies.
o AmerenEnergy, Inc. (AmerenEnergy) which serves as a power marketing and
risk management agent for our affiliated companies for transactions of
primarily less than one year.
o Electric Energy, Inc. (EEI), which owns and/or operates electric generation
and transmission facilities in Illinois. We have a 60% ownership interest
in EEI and consolidate it for financial reporting purposes.
o Ameren Services Company, which provides shared support services to us and
our subsidiaries.
You should read the following discussion and analysis in conjunction with:
o The financial statements and related notes included in this Quarterly
Report on Form 10-Q.
o Management's Discussion and Analysis of Financial Condition and Results of
Operations that is incorporated by reference from our Annual Report to
Stockholders in our Annual Report on Form 10-K for the period ended
December 31, 2001.
o The audited financial statements and related notes that are incorporated by
reference in our Annual Report on Form 10-K for the period ended December
31, 2001.
When we refer to Ameren, our, we or us, we are referring to Ameren
Corporation on a consolidated basis. In certain circumstances, our subsidiaries
are specifically referenced in order to distinguish among their different
business activities. All dollar amounts are in millions, unless otherwise
indicated.
Our results of operations and financial position are impacted by many
factors, including both controllable and uncontrollable factors. Weather,
economic conditions, and the actions of key customers or competitors can
significantly impact the demand for our services. Our results are also impacted
by seasonal fluctuations caused by winter heating and summer cooling demand.
With approximately 80% of our revenues subject to regulation by various state
and federal agencies, decisions by regulators can have a material impact on the
price we charge for our services. We principally utilize coal, natural gas and
nuclear fuel in our operations. The prices for these commodities can fluctuate
significantly due to the world economic and political environment, weather,
production levels and many other factors. We do not have fuel recovery
mechanisms in Missouri and Illinois, but do have gas cost recovery mechanisms in
each state. We employ various risk management strategies in order to try to
reduce our exposure to commodity risks and other risks inherent in our business.
The reliability of our power plant, and transmission and distribution systems,
and the level of operating and administrative costs, and capital investment are
key factors that we seek to control in order to optimize our results of
operations, cash flows and financial position.
12
RESULTS OF OPERATIONS
Our net income increased 2% to $59 million or 42 cents per share in the
first quarter of 2002 from $58 million or 43 cents per share in the first
quarter of 2001. In the first quarter of 2001, we recorded a charge of $7
million, or five cents per share, due to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." See Accounting Matters. As a result, income before
cumulative effect of change in accounting principle in the first quarter of 2002
was $59 million, or 42 cents per share, compared to $65 million or 48 cents per
share in the first quarter of 2001. Income before cumulative effect of change in
accounting principle decreased in the first quarter of 2002 versus the prior
year primarily due to the extremely mild winter weather in our service territory
and higher operating expenses. According to National Weather Service data, there
were approximately 15% fewer heating degree days in our service territory in the
first quarter of 2002 as compared to 2001 and normal weather conditions. As a
result, weather-sensitive residential electric kilowatt-hour sales decreased by
5%, commercial electric kilowatt-hour sales decreased by 2% and gas sales
decreased by 5% in the first quarter of 2002 compared to 2001. In addition,
industrial electric kilowatt-hour sales decreased 6% due to the continued soft
economy.
Despite the warmer winter weather, total electric revenues increased 18%
for the first quarter of 2002, compared to the year-ago period, primarily due to
higher interchange sales. However, we realized lower margins on these sales
compared to the prior year, due to lower wholesale electricity prices. These
lower margins and higher operating expenses in the first quarter of 2002 were
partially offset by internal growth and lower estimated credits to Missouri
electric customers.
Recent Developments
On April 28, 2002, we entered into an agreement with The AES Corporation to
purchase all of the outstanding stock of CILCORP Inc. CILCORP is the parent
company of Peoria-based Central Illinois Light Company, which operates as CILCO.
We also agreed to acquire AES Medina Valley (No. 4), L.L.C. which indirectly
owns a 40 megawatt, gas-fired electric generation plant. The total purchase
price is approximately $1.4 billion, subject to adjustment for changes in
CILCORP's working capital, and includes the assumption of CILCORP and AES Medina
Valley debt at closing, estimated at approximately $900 million, with the
balance of the purchase price in cash. We currently expect to finance a
significant portion of the cash component of the purchase price through the
issuance of new common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 200,000 and 205,000 customers,
respectively, of which approximately 150,000 are combination electric and gas
customers. In addition, the purchase includes approximately 1,200 megawatts of
largely coal-fired generating capacity most of which is expected to be
nonregulated by closing.
Upon completion of the acquisition, expected within 12 months, CILCO will
become an Ameren subsidiary, but will remain a separate utility company,
operating as AmerenCILCO. The transaction is subject to the approval of the
Illinois Commerce Commission, the SEC, the FERC, the expiration of the waiting
period under the Hart-Scott-Rodino Act and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001 had total assets of $1.8
billion. Synergies from the acquisition are expected to make the transaction
accretive to earnings per share in the first full year of operation after the
transaction is consummated.
As a result of the continuing uncertainty associated with AmerenUE's
pending Missouri electric rate case, and the CILCORP transaction and related
assumption of debt, credit rating agencies placed Ameren Corporation's debt
under review for possible downgrade or negative credit watch. Standard & Poor's
placed the ratings of AmerenUE and AmerenCIPS debt on negative credit watch and
placed the ratings of Generating Company's debt on positive credit watch.
However, Standard & Poor's stated they expect the corporate credit ratings of
Ameren and its subsidiaries to be in the "A" rating category following
completion of the acquisition. Moody's Investor Service stated they envisioned a
one notch downgrade of Ameren's issuer, senior unsecured debt and commercial
paper ratings. Currently, Ameren's corporate credit rating is A+ at Standard &
Poor's and A2 at Moody's. If the ratings of AmerenUE's first mortgage bonds fall
below investment grade, lenders under AmerenUE's $300 million revolving credit
13
facility may elect not to make advances and/or declare outstanding borrowings
due and payable. In addition, a decrease in Ameren's ratings may reduce our
access to capital and/or increase the costs of borrowings resulting in a
negative impact on earnings.
Electric Operations
The following table represents the favorable (unfavorable) variation for
the three months ended March 31, 2002 from the comparable period in 2001:
- --------------------------------------------------------------------------------
Three Months
- --------------------------------------------------------------------------------
Operating Revenues:
Credit to customers $ 15
Effect of abnormal weather (estimate) (16)
Growth and other (estimate) 27
Interchange sales 122
------
$ 148
Fuel and Purchased Power:
Fuel:
Generation $ 2
Price 1
Purchased power (133)
EEI (7)
------
(137)
------
Change in electric margin $ 11
------
Electric margins increased $11 million in the first three months of 2002
compared to the year-ago quarter. Revenues were favorably impacted in 2002 by
the lack of estimated credits to Missouri electric customers due to the
expiration of AmerenUE's incentive rate plan (see Note 2 - "Regulatory Matters"
to the consolidated financial statements). We also experienced growth in
electric revenues due to the expansion of our weather-normalized native load,
sales of S02 allowances and a 148% increase in interchange sales. However, these
increased interchange revenues were more than offset by the related increase in
purchased power, resulting in lower margins than 2001. The increases in revenues
were also partially offset by decreases in weather-sensitive residential and
commercial sales caused by the milder winter weather referenced above, and lower
industrial sales resulting from the continued soft economy in our service
territory.
Gas Operations
Our gas revenues decreased $61 million, and our gas costs decreased $52
million, in first quarter 2002 as compared to the year-ago quarter primarily due
to reduced sales of 5% caused by the milder winter weather and lower natural gas
prices. As a result, our gas margins decreased by $9 million in the first
quarter of 2002 as compared to the same period a year ago.
Other Operating Expenses
Other operating expenses increased $16 million in the first quarter of 2002
compared to the year-ago period, primarily due to higher employee benefit costs
related to the investment performance of pension plan assets and increasing
healthcare costs.
Maintenance expenses decreased $4 million in the first quarter of 2002
compared to the year-ago period, primarily due to decreased coal power plant
maintenance, partially offset by higher tree-trimming expenses, which were
accelerated, in part, to take advantage of mild weather.
Depreciation and amortization expenses increased $8 million in the first
quarter of 2002 compared to the year-ago period, primarily due to an increase in
depreciable property related to the investment in our coal and combustion
turbine electric generating plants.
14
Taxes
Income tax expense decreased $11 million in the first quarter of 2002,
compared to the year-ago period, primarily due to a lower pretax income coupled
with a lower effective tax rate.
Interest
Interest expense increased $2 million in the first quarter of 2002 compared
to the year-ago period primarily due to AmerenCIPS' issuance of $150 million of
6.625% notes in June 2001, and our issuance of $150 million of floating rate
notes in December 2001, $100 million of 5.70% notes in January 2002 and $345
million of equity security units in March 2002 (in total $6 million). These
increases were partially offset by lower interest rates on AmerenCIPS' variable
rate environmental debt obligations, as well as lower interest expense
associated with a decreased balance under AmerenUE's nuclear fuel lease and
commercial paper (in total $4 million).
Rate and Regulatory Matters
Missouri Electric
From July 1, 1995 through June 30, 2001, our subsidiary, AmerenUE, operated
under experimental alternative regulation plans in Missouri that provided for
the sharing of earnings with customers if our regulatory return on equity
exceeded defined threshold levels. At March 31, 2002, we had an accrual
representing the estimated credit that we expect to pay our Missouri electric
customers of $40 million for the plan year ended June 30, 2001. In 2002, the
Missouri Public Service Commission (MoPSC) Staff and the Missouri Office of
Public Counsel (OPC) Staff filed testimony with the MoPSC on this matter.
Combined, the MoPSC Staff and OPC Staff recommend that the credit to customers
for the plan year ended June 30, 2001, should approximate $80 million. The MoPSC
is not bound by their recommendations. To date, a procedural schedule and
hearing dates on this matter have not been established by the MoPSC. At this
time, we continue to believe that our accrual is adequate in all material
respects.
Following expiration of the experimental alternative regulation plan on
June 30, 2001, the MoPSC Staff filed an excess earnings complaint against
AmerenUE. Based upon a January 2002 MoPSC order, on March 1, 2002, the MoPSC
Staff filed a recommendation that AmerenUE reduce its annual Missouri electric
revenues by $246 million to $285 million. The MoPSC Staff's recommendation is
based on a return to traditional cost of service ratemaking, a return on equity
ranging from 8.91% to 9.91%, a reduction in Ameren's depreciation rates, and
other cost of service adjustments. The MoPSC is not bound by the Staff's
recommendation.
On May 10, 2002, AmerenUE filed rebuttal testimony in response to the MoPSC
Staff's recommendation. In its testimony, AmerenUE stated that a return to
traditional cost of service ratemaking would result in an increase in its annual
Missouri electric revenues by approximately $150 million. AmerenUE's position is
based on a 12.5% return on equity, higher depreciation rates and other
adjustments. However, a key component of AmerenUE's testimony is its
recommendation that a new alternative rate regulation plan (Alt Reg Plan) be
adopted by the MoPSC. In AmerenUE's filing, we included a new Alt Reg Plan
proposal. Key provisions of the Alt Reg Plan include the following:
o A three-year plan from July 1, 2002 through June 30, 2005 which would
require AmerenUE to share earnings over certain regulatory return on
equity (ROE) thresholds for the 12 months ending July 1 through June
30;
o The proposed earnings sharing grid would require AmerenUE to provide
sharing credits of $17 million if AmerenUE's regulatory ROE is between
10.5% and 12.5%. Additional credits of 55% of AmerenUE's earnings
between a regulatory ROE of 12.5% and 15% would be provided, 90% of
earnings between a regulatory ROE of 15% and 16%, and 100% of any
earnings above 16%.
o An immediate one-time credit to customers bills of $15 million;
o An annualized $15 million permanent rate reduction, retroactive to
April 1, 2002;
o An immediate funding of $5 million to a low-income customer assistance
program and $5 million to an economic development program;
o A commitment of $1.5 billion to $1.75 billion in energy infrastructure
investment from January 1, 2002 through June 30, 2005.
15
Hearings for this case are scheduled to commence in mid-July 2002 and be
completed in early August 2002. A final decision on this matter may not occur
until the fourth quarter of 2002. In the interim, we plan to continue
negotiations with all pertinent parties with the intent to continue with an
incentive regulation plan. We cannot predict the outcome of the MoPSC's decision
in this matter or its impact on our financial statements, results of operations
or liquidity. However, the impact could be material.
LIQUIDITY AND CAPITAL RESOURCES
Operating
Our cash flows provided by operating activities decreased $76 million to
$111 million in the first quarter of 2002, compared to the year-ago period,
primarily due to changes in working capital requirements.
The tariff-based gross margins of our utility operating companies continue
to be our principal source of cash from operating activities. Our diversified
retail customer mix of residential, commercial and industrial classes and a
commodity mix of gas and electric service provide a reasonably predictable
source of cash flows. We plan to utilize short-term debt to support normal
operations and other temporary capital requirements. Ameren is authorized by the
SEC under PUHCA to have up to an aggregate $2.8 billion of short-term unsecured
debt instruments outstanding at any one time. Short-term borrowings consist of
commercial paper (maturities generally within 1 to 45 days) and bank loans.
Ameren has bank credit agreements, expiring at various dates between 2002 and
2003, that support commercial paper programs totaling $830 million, of which
$400 million is for the use by us and our subsidiaries, and the remaining $430
million is for the use of our regulated subsidiaries. At March 31, 2002, $762
million of such borrowing capacity was available, of which $430 million was
available for the use of our regulated subsidiaries. We expect to replace these
bank credit agreements prior to their maturity. At March 31, 2002, we had
committed bank lines of credit aggregating $25 million, all of which were unused
and available at such date. These lines make available interim financing at
various rates of interest based on LIBOR, the bank certificate of deposit rate
or other options. The lines of credit are renewable annually at various dates
throughout the year.
AmerenUE also has a lease agreement that provides for the financing of
nuclear fuel. At March 31, 2002, the maximum amount that could be financed under
the agreement was $120 million. At March 31, 2002, $67 million was financed
under the lease.
Our short-term financial agreements include customary default provisions
that could impact the continued availability of credit or result in the
acceleration of repayment. These events include bankruptcy, defaults in payment
of other indebtedness, certain judgments that are not paid or insured, or
failure to meet or maintain covenants. At March 31, 2002, Ameren and its
subsidiaries were in compliance with these provisions.
Investing
Our net cash used in investing activities was $160 million in the first
quarter of 2002 compared to $208 million in the first quarter of 2001. In the
first quarter of 2002, construction expenditures were $37 million (2001 - $100
million) in our unregulated operations, primarily related to the construction of
combustion turbine generating units, and $122 million (2001 - $104 million) in
our regulated operations, primarily related to various upgrades at our coal
power plants and further construction of combustion turbine generating units.
Regulated capital expenditures are expected to approximate $600 million and
nonregulated capital expenditures are expected to approximate $200 million in
2002.
Financing
Our cash flows provided by financing activities totaled $42 million in the
first quarter of 2002, compared to a use of $13 million in the year-ago period.
Our principal financing activities for the period included the issuance of
long-term debt, equity security units and common stock, partially offset by the
redemption of short-term debt and the payment of dividends.
16
In January 2002, Ameren Corporation issued $100 million of 5.70% notes due
February 1, 2007. The net proceeds were used to reduce short-term borrowings.
Interest is payable semi-annually on February 1 and August 1 of each year,
beginning August 1, 2002. In March 2002, Ameren Corporation entered into
interest rate swaps effectively converting the interest rate associated with
these notes to three month LIBOR plus 43 basis points.
In March 2002, Ameren Corporation issued $345 million of adjustable
conversion-rate equity security units and 5.75 million shares of common stock
(5,000,000 shares at $39.50 per share and 750,000 shares, pursuant to the
exercise of an option granted to the underwriters, at $38.865 per share). The
$25 adjustable conversion-rate equity security units each consisted of an Ameren
Corporation senior unsecured note with a principal amount of $25 and a contract
to purchase, for $25, a fraction of a share of Ameren common stock on May 15,
2005. The senior unsecured notes will mature on May 15, 2007. Total
distributions on the equity security units will be at an annual rate of 9.75%,
consisting of quarterly interest payments on the senior unsecured notes at the
initial annual rate of 5.2% and adjustment payments under the stock purchase
contracts at the annual rate of 4.55%. The stock purchase contracts require
holders to purchase between 8.7 million and 7.4 million shares of Ameren common
stock on May 15, 2005 at the market price at that time, subject to a minimum
share price of $39.50 and a maximum of $46.61. The stock purchase contracts
include a pledge of the senior unsecured notes as collateral for the stock
purchase obligation. The interest rate on the outstanding senior unsecured notes
is subject to being reset by a remarketing agent for quarterly payments after
May 15, 2005 until maturity. We recorded the net present value of the contracted
stock purchase payments of $46 million as an increase in Other Deferred Credits
and Liabilities and a decrease in Other Paid-in Capital to reflect our
obligation. We used the net proceeds from these offerings to repay our
short-term indebtedness and for general corporate purposes.
In May 2002, AmerenUE filed a shelf registration statement with the SEC on
Form S-3 that upon its effectiveness will allow the offering from time to time
of up to $750 million of various forms of long-term debt and trust preferred
securities to refinance existing debt and for general corporate purposes,
including the repayment of short-term debt incurred to finance construction
expenditures and other working capital needs. This registration has not yet been
declared effective by the SEC. In addition, Generating Company expects to issue
in 2002 up to approximately $275 million of additional long-term debt to finance
recent generating capacity additions.
On April 23, 2002, our Board of Directors declared a quarterly common stock
dividend of 63.5 cents per share that will be paid on June 28, 2002 to
shareholders of record on June 10, 2002.
In the ordinary course of business, we evaluate several strategies to
enhance our financial position, earnings, and liquidity. These strategies may
include potential acquisitions, divestitures, opportunities to reduce costs or
increase revenues, and other strategic initiatives in order to increase
shareholder value. We are unable to predict which, if any, of these initiatives
will be executed, as well as the impact these initiatives may have on our future
financial position, results of operations or liquidity.
Electric Industry Restructuring
Illinois
See Note 2 - "Rate and Regulatory Matters" to the consolidated financial
statements.
Federal - Midwest ISO and Alliance RTO
See Note 2 - "Rate and Regulatory Matters" to the consolidated financial
statements.
17
ACCOUNTING MATTERS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in
compliance with generally accepted accounting principles requires the
application of appropriate technical accounting rules and guidance, as well as
the use of estimates. Our application of these policies involves judgments
regarding many factors, which, in and of themselves, could materially impact the
financial statements and disclosures. A future change in the assumptions or
judgments applied in determining the following matters, among others, could have
a material impact on future financial results. In the table below, we have
outlined those accounting policies that we believe are most difficult,
subjective or complex:
Accounting Policy Judgments/Uncertainties
Affecting Application
Regulatory Mechanisms & Cost Recovery
o Regulatory environment, external regulatory
We defer costs as regulatory assets in decisions and requirements
accordance with SFAS 71 and make investments o Anticipated future regulatory decisions and
that we assume we will be able to collect in their impact
future rates. o Impact of deregulation and competition on
ratemaking process and ability to recover costs
Nuclear Plant Decommissioning Costs
In our rates and earnings we assume the o Estimates of future decommissioning costs
Department of Energy will develop a o Availability of facilities for waste disposal
permanent storage site for spent nuclear o Approved methods for waste disposal and
fuel, the Callaway plant will have a useful decommissioning
life of 40 years and estimated costs to o Useful lives of nuclear power plants
dismantle the plant are accurate. See Note
12 to our financial statements for the year
ended December 31, 2001.
Environmental Costs
o Extent of contamination
We accrue for all known environmental o Responsible party determination
contamination where remediation can be o Approved methods for cleanup
reasonably estimated, but some of our o Present and future legislation and governmental
operations have existed for over 100 years regulations and standards
and previous contamination may be unknown to o Results of ongoing research and development
us. regarding environmental impacts
Unbilled Revenue
At the end of each period, we estimate, o Projecting customer energy usage
based on expected usage, the amount of o Estimating impacts of weather and other usage-
revenue to record for services that have affecting factors for the unbilled period
been provided to customers, but not billed.
This period can be up to one month.
Benefit Plan Accounting
Based on actuarial calculations, we accrue o Future rate of return on pension and other plan
costs of providing future employee benefits assets
in accordance with SFAS 87, 106 and 112. o Interest rates used in valuing benefit obligation
See Note 9 to our financial statements for o Healthcare cost trend rates
the year ended December 31, 2001.
18
Derivative Financial Instruments
We record all derivatives at their fair o Market conditions in the energy industry, especially
market value in accordance with SFAS 133. the effects of price volatility on contractual
The identification and classification of a commodity commitments
derivative, and the fair value of such o Regulatory and political environments and
derivative must be determined. See Note 3 requirements
to our financial statements for the year o Fair value estimations on longer term contracts
ended December 31, 2001.
Impact of Future Accounting Pronouncements
See Note 1 - "Summary of Significant Accounting Policies" to the consolidated
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a physical asset or
a financial instrument, derivative or non-derivative, caused by fluctuations in
market variables (e.g., interest rates, etc.). The following discussion of our
risk management activities includes "forward-looking" statements that involve
risks and uncertainties. Actual results could differ materially from those
projected in the "forward-looking" statements. We handle market risks in
accordance with established policies, which may include entering into various
derivative transactions. In the normal course of business, we also face risks
that are either non-financial or non-quantifiable. Such risks principally
include business, legal, and operational risk and are not represented in the
following analysis.
Our risk management objective is to optimize our physical generating assets
within prudent risk parameters. Our risk management policies are set by a Risk
Management Steering Committee, which is comprised of senior-level Ameren
officers.
Interest Rate Risk
We are exposed to market risk through changes in interest rates associated
with the issuance of both long-term and short-term variable-rate debt and
fixed-rate debt, commercial paper, auction-rate long-term debt and auction-rate
preferred stock. We manage our interest rate exposure by controlling the amount
of these instruments we hold within our total capitalization portfolio and by
monitoring the effects of market changes in interest rates.
Utilizing our debt outstanding at March 31, 2002, if interest rates
increased by 1%, our annual interest expense would increase by approximately $9
million and net income would decrease by approximately $5 million. The model
does not consider the effects of the reduced level of potential overall economic
activity that would exist in such an environment. In the event of a significant
change in interest rates, management would likely take actions to further
mitigate our exposure to this market risk. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no change in our financial structure.
Fuel Price Risk
Over 95% of the required 2002 supply of coal for our coal plants has been
acquired at fixed prices. As such, we have minimal coal price risk for 2002. In
addition, approximately 70% of our coal requirements through 2006 are covered by
contracts.
Fair Value of Contracts
We utilize derivatives principally to manage the risk of changes in market
prices for natural gas, fuel, electricity and emission credits. Price
fluctuations in natural gas, fuel and electricity cause:
o an unrealized appreciation or depreciation of our firm commitments to
purchase or sell when purchase or sales prices under the firm
commitment are compared with current commodity prices;
19
o market values of fuel and natural gas inventories or purchased power
to differ from the cost of those commodities in inventory under firm
commitment; and
o actual cash outlays for the purchase of these commodities to differ
from anticipated cash outlays.
The derivatives that we use to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. We continually assess our supply and delivery commitment positions
against forward market prices and internally forecast forward prices and modify
our exposure to market, credit and operational risk by entering into various
offsetting transactions. In general, these transactions serve to reduce our
price risk.
The following summarizes changes in the fair value of all contracts marked
to market during the first quarter of 2002:
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Fair value of contracts at January 1, 2002 $ (1)
Contracts at January 1, 2002 which were realized or otherwise settled during first
quarter of 2002 -
Changes in fair values attributable to changes in valuation techniques and assumptions -
Fair value of new contracts entered into during first quarter 2002 1
Other changes in fair value (5)
- -----------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at March 31, 2002 $ (5)
- -----------------------------------------------------------------------------------------------------------
Fair value of contracts as of March 31, 2002 were as follows:
- ------------------------------------- ------------- ------------- ------------- ---------------------------
Maturity Maturity in
less than Maturity Maturity excess of 5 Total fair
Sources of fair value 1 year 1-3 years 4-5 years years value (a)
- -----------------------------------------------------------------------------------------------------------
Prices actively quoted $ - $ (2) $ - $ - $ (2)
Prices provided by other external
sources (b) (3) - - - (3)
Prices based on models and other
valuation methods (c) (2) 3 (1) - -
- -----------------------------------------------------------------------------------------------------------
Total $ (5) $ 1 $ (1) $ - $ (5)
- -----------------------------------------------------------------------------------------------------------
(a) Contracts of approximately 40% were with non-investment-grade rated counterparties.
(b) Principally power forward hedges valued based on NYMEX prices for over-the-counter contracts.
(c) Principally coal and SO2 options valued based on a Black-Scholes model that includes information from
external sources and our estimates.
SAFE HARBOR STATEMENT
Statements made in this report which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in the Annual Report on
Form 10-K for the year ended December 31, 2001, and in subsequent securities
filings, could cause results to differ materially from management expectations
as suggested by such "forward-looking" statements:
o the effects of the pending AmerenUE excess earnings complaint case and
other regulatory actions, including changes in regulatory policy
o changes in laws and other governmental actions, including monetary and
fiscal policies;
o the impact on us of current regulations related to the opportunity for
customers to choose alternative energy suppliers in Illinois;
o the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of our business at both the state
and federal levels;
20
o the effects of participation in a FERC approved Regional Transmission
Organization (RTO), including activities associated with the Midwest
Independent System Operator and the Alliance RTO;
o availability and future market prices for fuel and purchased power,
electricity, and natural gas, including the use of financial and derivative
instruments and volatility of changes in market prices;
o average rates for electricity in the Midwest;
o business and economic conditions;
o the impact of the adoption of new accounting standards;
o interest rates and the availability of capital;
o actions of rating agencies and the effects of such actions;
o weather conditions;
o generation plant construction,installation, and performance;
o the effects of strategic initiatives, including acquisitions and
divestitures;
o operation of nuclear power facilities and decommissioning costs;
o the impact of current environmental regulations on utilities and generating
companies and the expectation that more stringent requirements will be
introduced over time, which could potentially have a negative financial
effect;
o future wages and employee benefits costs;
o competition from other generating facilities including new facilities that
may be developed in the future;
o delays in receipt of regulatory approvals for the acquisition of CILCORP or
unexpected adverse conditions or terms of those approvals;
o difficulties in integrating CILCO with Ameren's other businesses;
o changes in the coal markets, environmental laws or regulations or other
factors adversely impacting synergy assumptions in connection with the
CILCORP acquisition;
o disruptions of the capital markets or other events making Ameren's access
to necessary capital more difficult or costly;
o cost and availability of transmission capacity for the energy generated by
our generating facilities or required to satisfy energy sales made by
Ameren; and
o legal and administrative proceedings.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Item 1. Business-Rates and Regulation - Environmental
Matters in Part I of our Form 10-K for the year ended December 31, 2001 for a
discussion of the February 2002 Illinois Supreme Court decision which affirmed
the Illinois Appellate Court's decision upholding the $3.2 million plaintiffs'
verdict against our subsidiary, Central Illinois Public Service Company,
operating as AmerenCIPS, in the lawsuit styled as Zachary Donaldson, et al. v.
Central Illinois Public Service Company, et al. This lawsuit, which was filed in
December 1995, alleged that, as a result of exposure to carcinogens contained in
coal tar at AmerenCIPS' former Taylorville manufactured gas plant site,
plaintiffs' children had suffered from a rare form of childhood cancer known as
"neuroblastoma." On April 1, 2002, the Illinois Supreme Court denied AmerenCIPS'
petition for a rehearing of its February 2002 decision. This action leaves
AmerenCIPS with no further appeals and finalizes the $3.2 million plaintiffs'
verdict. This amount was fully accrued.
Reference is made to Item 3. Legal Proceedings in Part I of our Form 10-K
for the year ended December 31, 2001 for a discussion of a number of lawsuits
that name our subsidiaries, AmerenCIPS and AmerenUE and us (which we refer to as
the Ameren companies), along with numerous other parties, as defendants that
have been filed by plaintiffs claiming varying degrees of injury from asbestos
exposure. With respect to nine of those lawsuits, the Ameren companies have
reached settlements with the plaintiffs for monetary amounts not material to the
Ameren companies and in three cases, the Ameren companies have been voluntarily
dismissed.
Twenty-two additional lawsuits claiming injury from asbestos exposure have
been filed against the Ameren companies since year-end 2001. These lawsuits,
like the previous cases, were mostly filed in the Circuit Court of Madison
County, Illinois, involve a large number of total defendants (over one hundred
in many cases) and seek unspecified damages in excess of $50,000, which, if
proved, typically would be shared among the named defendants. Currently, thirty
asbestos-related lawsuits are pending against the Ameren companies. We believe
that the final disposition of these proceedings will not have a material adverse
effect on our financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(i) Exhibits.
2.1 - Stock purchase agreement, dated as of April 28, 2002,
by and between The AES Corporation and Ameren
Corporation.
2.2 - Membership Interest Purchase Agreement, dated as of
April 28, 2002, by and between The AES Corporation and
Ameren Corporation.
(a)(ii) Exhibits Incorporated by Reference.
10.1 - Power Sales Agreement between AmerenEnergy Marketing
Company and Union Electric Company d/b/a AmerenUE dated
March 20, 2002 (March 31, 2002 AmerenEnergy Generating
Company Form 10-Q, Exhibit 10.1).
(b) Reports on Form 8-K. Ameren filed a report on Form 8-K dated
January 7, 2002 incorporating a press release relating to the
earnings complaint case filed by the Missouri Public Service
Commission Staff against AmerenUE and announcing a revision to
the 2001 earnings estimate. Ameren also filed a report on Form
8-K dated February 14, 2002 incorporating (i) consolidated
financial statements as of December 31, 2001 and 2000, and for
22
each of the three years in the period ended December 31, 2001,
and the report thereon of independent accountants, and (ii) the
related Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Note: Reports of Union Electric Company on Forms 8-K, 10-Q and 10-K are
on file with the SEC under File Number 1-2967.
Reports of Central Illinois Public Service Company on Forms 8-K,
10-Q and Form 10-K are on file with the SEC under File Number
1-3672.
Information regarding AmerenEnergy Generating Company on Forms
8-K, 10-Q and 10-K are on file with the SEC under File Number
333-56594.
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMEREN CORPORATION
(Registrant)
By /s/ Martin J. Lyons
---------------------------------
Martin J. Lyons
Controller
(Principal Accounting Officer)
Date: May 15, 2002
24
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and between
THE AES CORPORATION
and
AMEREN CORPORATION
Dated as of April 28, 2002
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF SHARES.........................................1
Section 1.1 Sale and Transfer of Shares..............................1
Section 1.2 The Purchase Price.......................................1
Section 1.3 Additional Purchase Price Adjustment.....................4
ARTICLE II THE CLOSING........................................................4
Section 2.1 Closing..................................................4
Section 2.2 Deliveries by the Seller.................................4
Section 2.3 Deliveries by the Purchaser..............................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER......................5
Section 3.1 Organization and Qualification...........................5
Section 3.2 Subsidiaries; Capitalization.............................6
Section 3.3 Authority; Non-Contravention; Statutory Approvals;
Compliance...............................................7
Section 3.4 Company SEC Reports; Financial Statements................9
Section 3.5 Absence of Certain Changes or Events; Absence
of Undisclosed Liabilities..............................10
Section 3.6 Litigation..............................................10
Section 3.7 Tax Matters.............................................10
Section 3.8 Employee Benefits; ERISA................................11
Section 3.9 Labor and Employee Relations............................13
Section 3.10 Environmental Protection...............................14
Section 3.11 Regulation as a Utility................................15
Section 3.12 Insurance..............................................15
Section 3.13 Real Property..........................................15
Section 3.14 Affiliate Contracts....................................16
Section 3.15 Brokers or Finders.....................................16
Section 3.16 Contracts..............................................16
Section 3.17 Regulatory Proceedings.................................17
Section 3.18 Limitation on Representations and Warranties...........17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................17
Section 4.1 Organization and Qualification..........................17
Section 4.2 Authority; Non-Contravention; Statutory Approvals;
Compliance..............................................18
Section 4.3 Purchaser SEC Reports; Financial Statements.............19
Section 4.4 Litigation..............................................20
Section 4.5 Investigation by the Purchaser; the Seller's
Liability...............................................20
Section 4.6 Acquisition of Shares for Investment; Ability
to Evaluate and Bear Risk...............................21
Section 4.7 Financing...............................................21
Section 4.8 Brokers or Finders......................................21
i
ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING............................22
Section 5.1 Covenants of the Seller.................................22
Section 5.2 No Solicitation and Confidentiality.....................25
ARTICLE VI ADDITIONAL AGREEMENTS.............................................26
Section 6.1 Access to Company Information...........................26
Section 6.2 Regulatory Matters......................................26
Section 6.3 Consents................................................28
Section 6.4 Directors' and Officers' Indemnification................28
Section 6.5 Public Announcements....................................29
Section 6.6 Workforce Matters.......................................29
Section 6.7 Tax Matters.............................................30
Section 6.8 Financial Information...................................38
Section 6.9 Termination of Affiliate Contracts......................38
Section 6.10 Local Presence; Charitable Giving......................38
Section 6.11 Seller's Name..........................................39
Section 6.12 Cooperation............................................39
Section 6.13 Further Assurances.....................................39
ARTICLE VII CONDITIONS.......................................................39
Section 7.1 Conditions to Each Party's Obligation to Effect
the Closing.............................................39
Section 7.2 Conditions to Obligation of the Purchaser to
Effect the Closing......................................40
Section 7.3 Conditions to Obligation of the Seller to
Effect the Closing......................................41
ARTICLE VIII TERMINATION.....................................................42
Section 8.1 Termination.............................................42
Section 8.2 Effect of Termination...................................43
ARTICLE IX GENERAL PROVISIONS................................................43
Section 9.1 Survival of Obligations.................................43
Section 9.2 Amendment and Modification..............................43
Section 9.3 Extension; Waiver.......................................43
Section 9.4 Expenses................................................43
Section 9.5 Notices.................................................44
Section 9.6 Entire Agreement; No Third Party Beneficiaries..........45
Section 9.7 Severability............................................45
Section 9.8 Governing Law...........................................45
Section 9.9 Venue...................................................45
Section 9.10 Waiver of Jury Trial and Certain Damages...............45
Section 9.11 Specific Performance...................................46
Section 9.12 Assignment.............................................46
Section 9.13 Interpretation.........................................46
Section 9.14 Counterparts; Effect...................................46
ii
INDEX OF DEFINED TERMS
Term Page
- ---- ----
4.50% Series Preferred........................................................7
4.64% Series Preferred........................................................7
5.85% Series Class A Preferred................................................7
Action ....................................................................29
Affected Employee............................................................30
Affiliate Contracts..........................................................16
Agreement.....................................................................1
Assumed Obligations...........................................................2
Audit ....................................................................12
Base Working Capital..........................................................2
CapEx Adjustment Amount......................................................23
CILCO ....................................................................... 1
CILCO Class A Preferred Stock.................................................7
CILCO Preference Stock........................................................7
CILCO Preferred Stock.........................................................7
CILCORP Inc...................................................................1
Closing ..................................................................... 4
Closing Date..................................................................4
COBRA .......................................................................30
Code .....................................................................5
Common Stock..................................................................1
Company ......................................................................1
Company Financial Statements.................................................10
Company Material Adverse Effect...............................................6
Company Plans................................................................12
Company Properties...........................................................16
Company SEC Reports...........................................................5
Company Subsidiary............................................................7
Confidentiality Agreement....................................................27
Encumbrances..................................................................6
Environmental Laws...........................................................15
ERISA ....................................................................12
ERISA Affiliate..............................................................12
Estimated Purchase Price......................................................3
Exchange Act.................................................................10
FCC .....................................................................9
FERC .....................................................................9
Final Order..................................................................40
iii
Term Page
- ---- ----
Final Purchase Price..........................................................3
Flexible Auction Rate Series Class A Preferred................................7
GAAP ....................................................................10
Governmental Authority........................................................9
Hazardous Substances.........................................................16
HSR Act......................................................................27
IBEW Local 51................................................................30
ICC .....................................................................4
Indemnified Parties..........................................................28
Indemnified Party............................................................28
Initial Termination Date.....................................................42
Material Contracts...........................................................17
Objection Letter..............................................................3
PBGC ....................................................................13
Permits ......................................................................9
Person ....................................................................15
Proposed Acquisition Transaction.............................................26
Proposed Final Purchase Price Statement.......................................3
PUHCA ........................................................................7
Purchaser.....................................................................1
Purchaser Disclosure Schedule................................................18
Purchaser Material Adverse Effect............................................18
Purchaser Required Consents..................................................19
Purchaser Required Statutory Approvals.......................................19
Purchaser SEC Reports........................................................18
Purchaser Subsidiary.........................................................18
Representatives..............................................................26
Restraints...................................................................40
SEC .....................................................................9
Securities Act...............................................................10
Seller .....................................................................1
Seller Disclosure Schedule....................................................5
Seller Required Consents......................................................8
Seller Required Statutory Approvals...........................................9
Shares .....................................................................1
Straddle Period..............................................................31
Subsidiary....................................................................6
Tax ....................................................................11
Tax Benefit..................................................................33
Tax Indemnitee...............................................................37
iv
Term Page
- ---- ----
Tax Indemnitor...............................................................37
Tax Return...................................................................12
Termination Date.............................................................42
Title IV Company Plan........................................................13
Transaction Price.............................................................2
Trigger Date..................................................................4
Undesignated Series Class A Preferred.........................................7
Undesignated Series Preferred.................................................7
Violation.....................................................................8
WARN Act ....................................................................30
Working Capital...............................................................2
v
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of April 28, 2002 (this
"Agreement"), is entered into by and between The AES Corporation, a Delaware
corporation (the "Seller"), and Ameren Corporation, a Missouri corporation (the
"Purchaser").
W I T N E S S E T H :
WHEREAS, the Seller owns all of the issued and outstanding shares (the
"Shares") of common stock, without par value (the "Common Stock"), of CILCORP
Inc. (the "Company"), an Illinois corporation and the parent company of Central
Illinois Light Company, an Illinois corporation ("CILCO"); and
WHEREAS, each of the Boards of Directors of the Purchaser and the Seller
has approved the acquisition of the Company by the Purchaser, which acquisition
is to be effected by the purchase of all the Shares by the Purchaser upon the
terms and subject to the conditions set forth herein.
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
PURCHASE AND SALE OF SHARES
Section 1.1 Sale and Transfer of Shares. Subject to the terms and
conditions of this Agreement, at the Closing (as defined below), the Seller
agrees to sell, convey, assign, transfer and deliver to the Purchaser, and the
Purchaser agrees to purchase and accept from the Seller, all of the Seller's
rights, title and interest in and to the Shares. Subject to the terms and
conditions of this Agreement, the Purchaser agrees to deliver to the Seller, and
the Seller agrees to accept, the Purchase Price (as defined below), in cash,
without deduction or setoff of any kind (other than any transfer Taxes described
in Section 6.7(m)), which delivery will be made by wire transfer in immediately
available funds to the bank account or accounts designated by the Seller, in
writing, prior to the Closing.
Section 1.2 The Purchase Price.
(a) Subject to the terms and conditions of this Agreement, in
consideration of the aforesaid sale, conveyance, assignment, transfer and
delivery to the Purchaser of the Shares, the Purchaser shall pay to the Seller
in cash the sum of (v) $1,340,000,000 (the "Transaction Price"); (w) less an
amount equal to Assumed Obligations (as defined below); (x) increased by the
amount, if any, by which Working Capital (as defined below) as of the Closing
Date exceeds the Base Working Capital (as defined below), (y) decreased by the
amount, if any, by which Working Capital as of the Closing Date is less than the
Base Working Capital, and (z) increased by the amount of the CapEx Adjustment
Amount (as defined in Section 5.1(e)) under Section 5.1(e)(i) of this Agreement
or decreased by the amount of the CapEx Adjustment Amount under Section
5.1(e)(ii) of this Agreement (the net of such amounts (v) through (z) being, the
"Purchase Price"). An example of the Purchase Price calculation is set forth in
Section 1.2(a) of the Seller Disclosure Schedule (as defined below).
(b) The term "Assumed Obligations" as used herein shall mean amounts
required to be included on the consolidated balance sheets of the Company in
accordance with GAAP (as defined in Section 3.4) as of the Closing Date for
long-term indebtedness (including current portion), short-term indebtedness,
capital lease obligations, preferred stock of subsidiaries and any other
obligation for borrowed money. Assumed Obligations shall be determined on a
basis consistent with past practice and consistent with the items outstanding as
of December 31, 2001 set forth on Section 1.2(a) of the Seller Disclosure
Schedule but including any other outstanding obligation meeting the definition
of the preceding sentence at the applicable date set forth herein.
(c) The term "Working Capital" as used herein shall mean current
assets less current liabilities (not counting in current liabilities any
short-term indebtedness or current maturity of long-term debt included in
Assumed Obligations) of the Company as of the applicable date set forth herein
determined in accordance with GAAP on a basis consistent with past practice and
consistent with the calculation on Section 1.2(a) of the Seller Disclosure
Schedule, provided, however, that for the purposes of this definition, current
liabilities as of any date shall not include any Income Taxes payable, and
current assets shall not include receivables from any Income Tax assets. "Income
Taxes" shall mean any federal, state, local, or foreign Tax (as defined below)
determined by reference to net income, net worth, or any Tax imposed in lieu of
such a Tax. All intercompany (between the Company and its Subsidiaries on one
hand, and the Seller and its Subsidiaries, other than the Company and its
Subsidiaries, on the other hand) payables and all intercompany receivables shall
be paid down to zero prior to the date the Estimated Purchase Price is
calculated and shall be zero as of the Closing Date.
(d) The term "Base Working Capital" as used herein means the amount
shown on Section 1.2(a) of the Seller Disclosure Schedule. The Working Capital
as of the Closing Date shall be calculated in the same manner as the Working
Capital was calculated as set out on Section 1.2(a) of the Seller Disclosure
Schedule.
(e) At the Closing, the Purchaser shall pay to the Seller a cash
amount (the "Estimated Purchase Price") consisting of the sum of (i) the
Transaction Price, (ii) less the estimated Assumed Obligations, (iii) increased
by the amount, if any, by which the estimated Working Capital exceeds the Base
Working Capital, (iv) decreased by the amount, if any, by which estimated
Working Capital is less than the Base Working Capital and (v) increased or
decreased by the CapEx Adjustment Amount, all determined in good faith by the
Seller on the basis hereinabove set forth using the unaudited consolidated
balance sheets of the Company as of the last day of the month which precedes the
month of the Closing Date by no more than 45 days. The Seller shall provide to
the Purchaser a written calculation in reasonable detail of the Estimated
Purchase Price on or prior to the fifth business day preceding the Closing Date.
2
(f) As promptly as practical, but in no event more than sixty (60)
days after the Closing, the Purchaser shall cause the Company to prepare and
deliver to the Seller and the Purchaser a draft of a statement prepared in good
faith setting forth the relevant calculations resulting in the final Purchase
Price (the "Proposed Final Purchase Price Statement") which shall show, as of
the Closing Date, the actual Assumed Obligations and variance, if any, from the
Base Working Capital. During the thirty (30) day period following the delivery
by the Company of the Proposed Final Purchase Price Statement, the Seller and
its auditors may review such statement and the working papers of the Company's
auditors relating to the Proposed Final Purchase Price Statement and shall have
such access to the Purchaser's and the Company's personnel as may be reasonably
necessary to permit the Seller and its auditors to review in detail the manner
in which the Proposed Final Purchase Price Statement was prepared. The Purchaser
shall and shall cause the Company, as well as their advisors, to cooperate with
the Seller and the Seller's auditors in facilitating such review. Upon
completion of such review, the Seller shall give any comments or objections it
has with respect to the Proposed Final Purchase Price Statement to the Purchaser
and the Company in writing within such thirty (30) day period (the "Objection
Letter"). The Purchaser and the Seller shall attempt in good faith to resolve
any differences and issues as set forth in the Objection Letter. If no Objection
Letter is delivered or the matters set forth in the Objection Letter are so
resolved, then the Proposed Final Purchase Price Statement, as adjusted for any
changes as are agreed upon by the Seller and the Purchaser, shall be final and
binding upon the Seller and the Purchaser and shall constitute the final
Purchase Price (the "Final Purchase Price"). If the matters raised by the Seller
in the Objection Letter cannot be resolved between the Purchaser and the Seller
within ten (10) days of the date of the Objection Letter, the question or
questions in dispute shall then be promptly submitted to any "big five"
accounting firm mutually agreeable to the Seller and the Purchaser (other than
the Seller's auditors, the Purchaser's auditors and Arthur Andersen LLP), or if
such accounting firm cannot or refuses to serve in such capacity, a mutually
acceptable firm of independent public accountants of recognized standing, the
decision of which as to such question or questions in dispute shall be final and
binding upon the Seller and the Purchaser and the determination of the purchase
price pursuant thereto shall be considered to be the Final Purchase Price. The
accounting firm shall be instructed to resolve solely the question or questions
in dispute within twenty (20) days of submission.
(g) In the event the Final Purchase Price is greater than the
Estimated Purchase Price paid at the Closing by the Purchaser, then the
Purchaser shall promptly (within five (5) business days of the determination of
the Final Purchase Price) pay to the Seller an amount equal to the difference
between the Final Purchase Price and the Estimated Purchase Price. In the event
the Final Purchase Price is less than the Estimated Purchase Price paid at the
Closing by the Purchaser, then the Seller shall promptly (within five (5)
business days of the determination of the Final Purchase Price) pay to the
Purchaser an amount equal to the difference between the Estimated Purchase Price
and the Final Purchase Price.
(h) The fees of the Company's auditors incurred in connection with the
preparation of the Proposed Final Purchase Price Statement shall be borne by the
Purchaser, and the fees of the Seller's auditors incurred in connection with
3
their review of the Proposed Final Purchase Price Statement shall be borne by
the Seller. The fees of any independent accounting firm appointed pursuant to
this Section shall be borne equally by the Seller and the Purchaser.
Section 1.3 Additional Purchase Price Adjustment. In the event the Closing
occurs after the Trigger Date (as defined below), then the Purchase Price shall
be increased by $33,699 per day from the Trigger Date through the Closing Date;
provided, however, no amount shall be due and payable under this Section 1.3
with respect to any day that is more than 365 days following the Trigger Date or
if this Agreement is terminated under Section 8.1 hereof. For purposes of this
Agreement, the "Trigger Date" shall be the later of (i) December 31, 2002, (ii)
the date on which Seller is capable (without further action by any third party)
of completing performance in all material respects of its agreements and
covenants contained in or contemplated by this Agreement which are required to
be performed by it at or prior to the Closing and (iii) the date which is ninety
(90) days following the date on which the Illinois Commerce Commission ("ICC")
grants its approval of the transaction contemplated by this Agreement.
ARTICLE II
THE CLOSING
Section 2.1 Closing. The consummation of the sale and transfer of the
Shares by the Seller to the Purchaser (the "Closing") 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 second business day
immediately following the date on which the last of the conditions set forth in
Article VII hereof is fulfilled or waived (except for those conditions which by
their nature can only be fulfilled at the Closing), or at such other time, date
and place as the Seller and the Purchaser shall mutually agree (the "Closing
Date").
Section 2.2 Deliveries by the Seller. At the Closing, the Seller shall
deliver to the Purchaser:
(a) A certificate or certificates representing the Shares, duly and
validly endorsed in favor of the Purchaser or accompanied by a separate stock
power duly and validly executed by the Seller and otherwise sufficient to vest
in the Purchaser good title to the Shares;
(b) The resignations of the members of the Board of Directors of the
Company and each Company Subsidiary (as hereinafter defined);
(c) The stock books, stock ledgers, minute books, corporate seal or
their functional equivalent of the Company and each Company Subsidiary;
provided, that any of the foregoing items shall be deemed to have been delivered
pursuant to this Section 2.2(c) if such item has been delivered to, or is
otherwise located at, the offices of the Company;
(d) A certificate of the Seller's non-foreign status for purposes of
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"); and
4
(e) Any other documents, instruments and writings required to be
delivered by the Seller to the Purchaser pursuant to this Agreement.
Section 2.3 Deliveries by the Purchaser. At the Closing, the Purchaser
shall deliver to the Seller:
(a) The Estimated Purchase Price, in cash, which will be made by wire
transfer in immediately available funds to the bank account or accounts
designated by the Seller, in writing, prior to the Closing; and
(b) Any other documents, instruments and writings required to be
delivered by the Purchaser to the Seller pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser that except as set
forth in the reports, schedules, registration statements and definitive proxy
statements and all amendments thereto filed publicly not earlier than January 1,
2001 and not later than the close of business on the day prior to the date of
this Agreement with the SEC by the Company or any Company Subsidiary (or their
predecessors) pursuant to the requirements of the Securities Act or the Exchange
Act (each as defined in Section 3.4) (as such documents have since the time of
their filing been amended publicly not earlier than January 1, 2001 and not
later than the close of business on the day prior to the date of this Agreement,
the "Company SEC Reports") or as set forth in the schedule delivered by the
Seller on the date hereof (the "Seller Disclosure Schedule"):
Section 3.1 Organization and Qualification. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company and each Company Subsidiary (as defined in
Section 3.2) is a corporation or other entity duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, 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 have a Company Material Adverse
Effect (as defined below). As used in this Agreement, the term "Company Material
Adverse Effect" shall mean any material adverse effect on the business, assets,
financial condition or results of operations of the Company and the Company
Subsidiaries, taken as a whole; provided, however, that the term "Company
Material Adverse Effect" shall not include effects that result from or are
consequences of (i) any such effect resulting from any change in law, rule, or
regulation of any Governmental Authority (as defined in Section 3.3(c)) that
applies generally to similarly situated Persons (as defined in Section
3.10(a)(ii)), (ii) changes or developments in international, national, regional,
state or local wholesale or retail markets for electric power or fuel or related
5
products, including those due to actions by competitors, (iii) changes or
developments in national, regional, state or local electric transmission or
distribution systems, (iv) changes or developments in financial or securities
markets or the economy in general or effects of weather or meteorological
events, (v) events or changes that are consequences of terrorist activity, acts
of war or acts of public enemies (other than any such event or consequence
affecting only the Company or a Company Subsidiary) or (vi) the negotiation,
announcement, execution, delivery, consummation or anticipation of the
transactions contemplated by, or in compliance with, this Agreement. As used in
this Agreement, the term "knowledge" (i) when referring to the knowledge of the
Seller shall mean the actual knowledge of an executive officer of the Seller,
and (ii) when referring to the knowledge of the Company or CILCO shall mean the
actual knowledge after reasonable due inquiry of an executive officer of the
Company or CILCO, as the case may be.
Section 3.2 Subsidiaries; Capitalization.
(a) Section 3.2 of the Seller 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. All of the
issued and outstanding shares of capital stock of each Company Subsidiary have
been duly authorized and are validly issued, fully paid and nonassessable, and
are owned, directly or indirectly, by the Company free and clear of any liens,
claims, security interests and other encumbrances of any nature whatsoever
("Encumbrances"). As used in this Agreement, the term "Subsidiary" of a Person
shall mean any corporation or other entity (including partnerships and other
business associations and joint ventures) of 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, if there are no such voting interests, 50% or more of the equity
interests in such corporation or entity) shall at the time be held, directly or
indirectly, by such Person. The term "Company Subsidiary" shall mean a
Subsidiary of the Company. The Company is an exempt "public utility holding
company" (as defined in the Public Utility Holding Company Act of 1935, as
amended ("PUHCA")). CILCO is a public utility company within the meaning of
Section 2(a)(5) of PUHCA. With the exception of the Company and CILCO, no
Company Subsidiary is a "holding company" or a "public utility company" within
the meaning of Sections 2(a)(7) and 2(a)(5) of PUHCA, respectively.
(b) The authorized capital stock of the Company consists of 10,000
shares of Common Stock, of which 1,000 Shares are issued and outstanding. As of
the date hereof, all Shares have been duly authorized and are validly issued,
fully paid and nonassessable and free of preemptive rights, and are owned,
directly or indirectly, by the Seller free and clear of any Encumbrances, except
for any Encumbrances created by this Agreement, and there are no options,
warrants, calls, rights, commitments or agreements of any character to which the
Seller is a party or by which it is bound obligating the Seller to issue,
deliver or sell, pledge, grant a security interest or encumber or cause to be
issued, delivered or sold, pledged or encumbered or a security interest to be
granted on, any shares of capital stock of the Company or obligating the Seller
6
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement.
(c) The authorized capital stock of CILCO consists as of the date
hereof of 20,000,000 shares of common stock, no par value; 1,500,000 shares of
preferred stock, par value $100 per share ("CILCO Preferred Stock"), consisting
of 111,264 shares of 4.50 percent Series CILCO Preferred Stock ("4.50% Series
Preferred"), 79,940 shares of 4.64 percent Series CILCO Preferred Stock ("4.64%
Series Preferred"), and 1,308,796 shares of Undesignated Series CILCO Preferred
Stock ("Undesignated Series Preferred"); 3,500,000 shares of Class A preferred
stock, no par value ("CILCO Class A Preferred Stock"), consisting of 220,000
shares of 5.85 percent Series CILCO Class A Preferred Stock ("5.85% Series Class
A Preferred"), 250,000 shares of Flexible Auction Rate Series CILCO Class A
Preferred Stock ("Flexible Auction Rate Series Class A Preferred"), and
3,030,000 shares of Undesignated Series CILCO Class A Preferred Stock
("Undesignated Series Class A Preferred"); and 2,000,000 shares of Undesignated
Series CILCO Preference Stock, no par value ("CILCO Preference Stock"). With
respect to the capital stock of CILCO, (i) 13,563,871 shares of CILCO Common
Stock are issued and outstanding, all of which are owned by the Company free and
clear of any Encumbrances and (ii) 111,264 shares of 4.50% Series Preferred,
79,940 shares of 4.64% Series Preferred, no shares of Undesignated Series
Preferred, 220,000 shares of 5.85% Class A Series Preferred, no shares of
Flexible Auction Rate Series Class A Preferred, no shares of Undesignated Series
Class A Preferred and no shares of CILCO Preference Stock are issued and
outstanding. All of the issued and outstanding shares of CILCO capital stock are
validly issued, fully paid, nonassessable and free of preemptive rights. There
are no options, warrants, calls, rights, commitments or agreements of any
character to which the Company or any Company Subsidiary is a party or by which
it is 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 of the Company or any Company Subsidiary or obligating the Company to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
Section 3.3 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. The Seller has all requisite corporate power and
authority to enter into this Agreement and, subject to the receipt of the
applicable Seller Required Statutory Approvals (as defined in Section 3.3(c)),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Seller. No vote of, or consent by, the holders of any class
or series of stock issued by the Seller is necessary to authorize the execution
and delivery by the Seller of this Agreement or the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Seller and, assuming the due authorization, execution and
delivery hereof by the Purchaser, constitutes the valid and binding obligation
of the Seller 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.
7
(b) Non-Contravention. The execution and delivery of this Agreement by
the Seller does not, and the consummation of the transactions contemplated
hereby will not, violate or result in a breach of any provision of, constitute a
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 benefit under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company or any Company Subsidiary (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 Seller and the Company and such term when used in Article IV has
a correlative meaning with respect to the Purchaser) pursuant to any provisions
of (i) the articles of incorporation, by-laws or similar governing documents of
the Seller, the Company or any Company Subsidiary, (ii) subject to obtaining the
Seller Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority (as defined in Section 3.3(c)) applicable to the Seller,
the Company or any Company Subsidiary or any of their respective properties or
assets, or (iii) subject to obtaining the third-party consents set forth in
Section 3.3(b)(iii) of the Seller Disclosure Schedule (the "Seller Required
Consents"), any 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 Seller, the Company or any Company
Subsidiary 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 clause (ii) or (iii) for
any such Violation which would not have a Company Material Adverse Effect or
prevent, materially delay or materially impair the Seller's ability to
consummate the transactions contemplated by this Agreement.
(c) Statutory Approvals. Except for (i) the filings by the Seller, the
Company and/or the Purchaser, as applicable, required under the HSR Act (as
defined in Section 6.2(a)), (ii) the applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder, (iii) any filings with or
approvals from (v) the Federal Energy Regulatory Commission (the "FERC"), (w)
the Securities and Exchange Commission (the "SEC") under PUHCA, (x) the ICC, (y)
the Federal Communications Commission (the "FCC"), and (z) the other
Governmental Authorities set forth on Section 3.3(c) of the Seller Disclosure
Schedule (the filings and approvals referred to in clauses (i) through (iii)
collectively referred to as the "Seller Required Statutory Approvals"), no
declaration, filing or registration with, or notice to or 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) or authority (each, a "Governmental Authority") is
necessary for the execution and delivery of this Agreement by the Seller or the
consummation by the Seller of the transactions contemplated hereby, except those
which the failure to obtain would not result in a Company Material Adverse
Effect or would not prevent, materially delay or materially impair the Seller's
ability to consummate the transactions contemplated by this Agreement (it being
understood that references in this Agreement to "obtaining" such Seller 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).
8
(d) Compliance. To the knowledge of the Seller or the Company, neither
the Company nor any Company Subsidiary is in violation of, 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, rule, regulation,
ordinance or judgment of any Governmental Authority, except for possible
violations which would not have a Company Material Adverse Effect or would not
prevent, materially delay or materially impair the ability of the Seller to
consummate the transactions contemplated by this Agreement. To the knowledge of
the Seller and the Company, the Company and each Company Subsidiary have all
material permits, licenses, franchises and other governmental authorizations,
consents and approvals (collectively, "Permits") necessary to conduct their
businesses as presently conducted except those that the absence of which would
not have a Company Material Adverse Effect or would not prevent, materially
delay or materially impair the ability of the Seller to consummate the
transactions contemplated by this Agreement. Except as would not have a Company
Material Adverse Effect, (i) each Permit is in full force and effect in
accordance with its terms, (ii) there is no outstanding written notice, or to
the knowledge of the Seller or the Company, any other notice of revocation, and
there are no proceedings pending or, to the knowledge of the Seller or the
Company, threatened that seek the revocation, cancellation or termination of any
Permit. Neither the Company nor any Company Subsidiary 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 (ii) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which it is a party or by which it is
bound or to which any of its property is subject, except in the case of clause
(ii) for possible violations, breaches or defaults which would not have a
Company Material Adverse Effect or would not prevent, materially delay or
materially impair the ability of the Seller to consummate the transactions
contemplated by this Agreement.
Section 3.4 Company SEC Reports; Financial Statements. The filings required
to be made by the Company and the Company Subsidiaries under the Securities Act
of 1933, as amended (the "Securities Act") and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), PUHCA, the Federal Power Act and
applicable state municipal, local and other laws, including franchise and public
utility laws and regulations, have been filed with the SEC, the FERC, the ICC or
any other applicable Governmental Authority, as the case may be, and complied,
as of their respective dates, in all material respects with all applicable
requirements of the appropriate statutes and the rules and regulations
thereunder. As of their respective dates, the Company SEC Reports did 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. The
audited consolidated financial statements and unaudited interim financial
statements of the Company and CILCO included in the Company SEC Reports
(collectively, the "Company Financial Statements") have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis during the period involved (except as may be
stated in the notes thereto) and fairly present the consolidated financial
9
position and the consolidated results of operations and cash flows (and changes
in financial position, if any) of the Company and the Company Subsidiaries as of
the time and for the period referred to therein, subject, in the case of
unaudited interim financial statements, to normal, recurring audit adjustments.
Section 3.5 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
(a) Since December 31, 2001 through the date hereof, the Company and
each of the Company Subsidiaries has conducted its businesses only in the
ordinary course of business consistent with past practice and there has not been
any development or combination of developments affecting the Company or any
Company Subsidiary, of which the Seller or the Company has knowledge, that would
have a Company Material Adverse Effect.
(b) Neither the Company nor any of the Company Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except those which (i) are accrued or reserved against in the
most recent audited financial statements or reflected in the notes thereto, (ii)
were incurred in the ordinary course of business and would not have a Company
Material Adverse Effect, (iii) have been discharged or paid in full prior to the
date hereof, or (iv) are of a nature not required to be reflected in the
consolidated financial statements of the Company and its Subsidiaries prepared
in accordance with GAAP consistently applied.
Section 3.6 Litigation. There are no claims, suits, actions or proceedings
before any court, governmental department, commission, agency, instrumentality
or authority or any arbitrator pending or, to the knowledge of the Seller or the
Company, threatened against, relating to or affecting the Company or any Company
Subsidiary which would have a Company Material Adverse Effect or would prevent,
materially delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. 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 Company Subsidiary except for such that would not have a Company Material
Adverse Effect or would prevent, materially delay or materially impair the
Purchaser's ability to consummate the transactions contemplated by this
Agreement.
Section 3.7 Tax Matters.
(a) (i) Each of the Seller, the Company and each Company Subsidiary
has timely filed (or has had filed on its behalf) with appropriate taxing
authorities all material Tax Returns required to be filed by it, such Tax
Returns are correct, complete and accurate in all material respects, and all
Taxes shown as due on such Tax Returns have been paid; (ii) all material Tax
withholding and deposit requirements imposed on or with respect to the Seller,
the Company and each Company Subsidiary (including any withholding with respect
to wages or other amounts paid to employees) have been satisfied in full; (iii)
there are no outstanding requests, agreements, consents or waivers to extend the
statutory period of limitations applicable to the assessment or collection of
any material Taxes or deficiencies against the Seller, the Company or any
10
Company Subsidiary; (iv) no federal, state, local, or foreign Audits for which
the Seller, the Company, or any Company Subsidiary has received written
notification are presently pending with regard to any material Taxes or material
Tax Returns filed by or on behalf of the Seller, the Company or any Company
Subsidiary; (v) neither the Company nor any Company Subsidiary is a party to any
agreement providing for the allocation or sharing of Taxes; and (vi) none of the
Seller, the Company or any Company Subsidiary has been a member of any
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which is the Seller or the Company).
(b) As used in this Agreement: (i) the term "Tax" means all federal,
state, local and foreign income, profits, franchise, gross receipts,
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" means all returns and reports
(including elections, declarations, disclosures, schedules, estimates,
information returns, and amended returns and reports) required to be supplied to
a Tax authority relating to Taxes; and (iii) the term "Audit" means any audit,
assessment of Taxes, reassessment of Taxes, or other examination by any
Governmental Authority or any judicial or administrative proceedings or appeal
of such proceedings.
Section 3.8 Employee Benefits; ERISA.
(a) Company Plans. Section 3.8(a) of the Seller 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, 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,
change-of-control, or severance agreement; and each other employee benefit plan,
fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the Company, a
Company Subsidiary, or by any trade or business, whether or not incorporated,
that together with the Company, or a Company Subsidiary, would be deemed a
"single employer" within the meaning of Section 414(b), (c), (m) or (o) of the
Code (an "ERISA Affiliate"), or to which the Company, a Company Subsidiary or an
ERISA Affiliate is a party in each case for the benefit of any current or former
employee, officer or director of the Company or a Company Subsidiary (the
"Company Plans").
(b) Deliveries. With respect to each Company Plan, the Seller has
heretofore delivered or made available to the Purchaser true and complete copies
of, as applicable, (i) the Company Plan 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
11
determination letter received from the Internal Revenue Service with respect to
each Company Plan intended to qualify under Section 401 of the Code, and the
most recent letter of recognition of exemption with respect to any Company Plan
or related trust that is intended to meet the requirements of Section 501(c)(9)
of the Code; (iv) the most recent summary plan description and subsequent
summaries of material modifications; (v) the most recently filed Form 5500; and
(vi) the most recently prepared actuarial valuation report.
(c) Absence of Liability. No material liability under Title IV of
ERISA has arisen with respect to the Company, a Company Subsidiary or any ERISA
Affiliate that has not been satisfied in full and which would cause the Company
or any Company Subsidiary to incur any material liability, and, to the knowledge
of the Seller or the Company, no condition exists that presents a material risk
to the Company or any Company Subsidiary of incurring any such liability, other
than liability for premiums due the Pension Benefit Guaranty Corporation
("PBGC") (which premiums have been paid when due).
(d) Funding. No Company Plan subject to Title IV of ERISA (a "Title IV
Company Plan"), Section 302 of ERISA or Section 412 of the Code, or any trust
established thereunder and no other plan subject to Title IV of ERISA, Section
302 of ERISA or Section 412 of the Code maintained or contributed to by any
ERISA Affiliate 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 such plan ended prior to the
Closing Date which deficiency could cause the Company or any Company Subsidiary
to incur any material liability. All contributions or payments required to be
made by the Company, any Company Subsidiary or any ERISA Affiliate with respect
to any Company Plan have been timely made. The aggregate accumulated benefit
obligations of each Title IV Company Plan (as of the most recent actuarial
valuation date) do not exceed the fair market value of the assets of such plan
(as of the date of such valuation).
(e) Multiemployer Plan. 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.
(f) 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. No
investigation, audit or dispute relating to any Company Plan is pending or, to
the knowledge of the Seller and the Company, threatened before any governmental
agency. None of the Seller, the Company, the Company Subsidiaries nor, to the
knowledge of the Seller or the Company, any other "disqualified person" (within
the meaning of Section 4975 of the Code) or "party in interest" (within the
meaning of Section 3(14) of ERISA) has taken or omitted to take any action with
respect to any Company Plan which would subject any such plan (or its related
trust), the Company or any Company Subsidiary or any officer, director or
employee of any of the foregoing to any penalty or tax under Section 502(i) of
ERISA or Section 4975 of the Code or material liability for breach of fiduciary
12
responsibility under ERISA. Neither the Company nor any Company Subsidiary has
agreed to indemnify any other party for any liabilities or expenses which have
been or may in the future be incurred by or asserted against such person with
respect to any Company Plan, which indemnification would have a Company Material
Adverse Effect.
(g) Section 401(a) Qualification; Exemption. Each Company Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code is
so qualified except where the failure to be so qualified would not have a
Company Material Adverse Effect and has received a determination letter from the
Internal Revenue Service to the effect that it is so qualified. To the knowledge
of the Seller and the Company, nothing has occurred since the issuance of such
letter which would affect such Company Plan's qualification. Each Company Plan
or related trust intended to meet the requirements of Section 501(c)(9) of the
Code meets such requirements and has received a letter of recognition of
exemption from the Internal Revenue Service to that effect. To the knowledge of
the Seller and the Company, nothing has occurred since the issuance of such
letter which could affect such Company Plan's or related trust's exemption under
Section 501(a) of the Code by reason of Section 501(c)(9) of the Code.
(h) Post-Employment Benefits. No Company Plan provides medical,
surgical, 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).
(i) Deductibility. No amounts payable under the Company Plans will
fail to be deductible for federal income tax purposes by virtue of Section 280G
of the Code.
(j) Effect of Change of Control. The consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another related event, (i) entitle any current or former
employee, officer or director of the Company to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee, officer or director.
(k) Claims. There are no pending or, to the knowledge of the Seller or
the Company, threatened claims by or on behalf of any Company Plan, by any
current or former employee, officer or director or beneficiary thereof covered
under any such Company Plan, or otherwise involving any such Company Plan (other
than routine claims for benefits), and neither the Seller nor the Company has
knowledge of facts which would form a reasonable basis for any such claim.
Section 3.9 Labor and Employee Relations. Neither the Company nor the
Company Subsidiaries are party to any collective bargaining agreement or other
labor agreement with any union or labor organization. Except to the extent as
would not have a Company Material Adverse Effect, as of the date hereof, there
13
is no strike, lockout, slowdown or work stoppage pending or, to the knowledge of
the Seller or the Company, threatened against the Company or any of the Company
Subsidiaries.
Section 3.10 Environmental Protection.
(a) To the knowledge of the Seller or the Company, the Company and
each Company Subsidiary are in compliance with all applicable Environmental
Laws, including, but not limited to, possessing all permits and other
governmental authorizations required for their operations under applicable
Environmental Laws, except for such noncompliance that would not have a Company
Material Adverse Effect.
(i) To the knowledge of the Seller or the Company, there is no
pending or threatened written claim, lawsuit, or administrative proceeding
against the Company or any Company Subsidiary under or pursuant to any
Environmental Law that would have a Company Material Adverse Effect.
Neither the Company nor any Company Subsidiary is subject to any
administrative or judicial consent order or decree in connection with any
Environmental Laws or the release of Hazardous Substances that is having or
would have a Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary has received written notice from any Person, including
but not limited to any Governmental Authority, alleging that the Company or
any Company Subsidiary is in violation or potentially in violation of any
applicable Environmental Law or otherwise may be liable under any
applicable Environmental Law, which violation or liability is unresolved
and which would have a Company Material Adverse Effect. As used in this
Agreement, the term "Person" shall mean any natural person, corporation,
general or limited partnership, limited liability company, joint venture,
trust, association or entity of any kind.
(ii) To the knowledge of the Seller or the Company, with respect
to the real property that was formerly or is currently owned or leased by
the Company or any Company Subsidiary, there have been no spills or
discharges of Hazardous Substances on or underneath any of such real
property that would result in a Company Material Adverse Effect.
(iii)Notwithstanding anything else to the contrary in this
Agreement, including, without limitation, Sections 3.10(a)(i) and (ii) of
this Agreement, the Seller expressly makes no representation and warranty
with respect to compliance by the Company and the Company Subsidiaries with
Environmental Laws relating to the construction of new, or modification of
existing, sources of air emissions, except that, the Company and the
Company Subsidiaries are not subject to any judicial or administrative
proceeding or the subject of any state or Federal information request
relating to the construction of new, or modification of existing, sources
14
of air emissions, other than such proceedings or information requests as
would not have a Company Material Adverse Effect.
(b) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all foreign, federal, state
and local laws, regulations, rules and ordinances relating to pollution or
protection of the environment, including, without limitation, laws relating
to releases or threatened releases of Hazardous Substances into the
environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata). Such laws include the
common law to the extent that it relates to injuries caused by the release
or presence of Hazardous Substances.
(ii) "Hazardous Substances" shall mean any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "hazardous
constituents", "restricted hazardous materials", "extremely hazardous
substances", "toxic substances", "contaminants", "pollutants", "toxic
pollutants", or words of similar meaning and regulatory effect under any
applicable Environmental Law including, without limitation, petroleum and
asbestos.
(c) The representations and warranties set forth in this Section 3.10
are the sole and exclusive representations and warranties relating to
environmental matters made by the Seller in this Agreement.
Section 3.11 Regulation as a Utility. CILCO is regulated as a public
utility by the FERC and in the State of Illinois and in no other state. Except
as set forth in the preceding sentence, as of the date hereof, neither the
Company nor any "subsidiary company" or "affiliate" (as each such term is
defined in PUHCA) of the Company (other than CILCO and Central Illinois
Generation, Inc.) is subject to regulation as a public utility or public service
company (or similar designation) by the FERC or any municipality, locality or
state in the United States or any foreign country.
Section 3.12 Insurance. Each of the Company and the Company Subsidiaries is
insured and has been continuously insured since January 1, 1997 with financially
responsible or nationally recognized insurers in such amounts and against such
types of risks as is customary and appropriate in its industry or otherwise
deemed reasonable by the Seller. The Seller has not received any written notice
of cancellation or termination with respect to any insurance policy of the
Company or the Company Subsidiaries except as would not have a Company Material
Adverse Effect.
Section 3.13 Real Property. Except as would not have a Company Material
Adverse Effect: (a) the Company or a Company Subsidiary has good and valid title
to, or a valid leasehold interest in, all of the real property used by the
15
Company or the Company Subsidiaries or otherwise reflected in the Company SEC
Reports or financial statements (collectively, the "Company Properties"), in
each case free and clear of any Encumbrances and (b) the Company Properties
(taking into account, without limitation, all Encumbrances related thereto, all
zoning and other restrictions applicable thereto and the condition thereof) are
suitable and adequate for the conduct of the businesses of the Company and the
Company Subsidiaries as currently conducted.
Section 3.14 Affiliate Contracts. Section 3.14 of the Seller Disclosure
Schedule contains a true and complete list of each agreement or contract as of
the date hereof between (i) the Company and its Subsidiaries, on one hand, and
(ii) the Seller and any affiliate thereof (other than the Company and its
Subsidiaries) on the other (collectively, the "Affiliate Contracts").
Section 3.15 Brokers or Finders. Neither the Seller nor the Company has
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 Inc.,
whose fees and expenses will be paid by the Seller in accordance with the
Seller's agreements with such firm.
Section 3.16 Contracts.
(a) Section 3.16(a) of the Seller Disclosure Schedule contains a
complete and correct list of all contracts relating to the business of the
Company and the Company Subsidiaries as of the date hereof which (i) have a term
in excess of one year and (ii) provide for aggregate consideration in an amount
in excess of $10 million (the "Material Contracts"). There are no defaults under
any Material Contracts which have or would have a Company Material Adverse
Effect. As of the date hereof, the Seller has not received any written notice of
cancellation relating to a Material Contract and has no knowledge of facts that
a Material Contract is likely to be cancelled, except for such cancellations
which would not have a Company Material Adverse Effect. The Seller has provided
or made available to the Purchaser true, correct and complete copies by their
terms of all Material Contracts, including all amendments thereto except for
such contracts that by their terms prohibit disclosure to third parties. The
Seller shall cause CILCO to arrange and maintain an adequate supply for meeting
CILCO's native electric load and off-system retail sales load.
(b) Each Material Contract is a valid and binding agreement and is in
full force and effect except to the extent such contract has expired by its own
terms without penalty, and enforceable by the Company or any of the Company
Subsidiaries in accordance with its terms, and none of the Company and the
Company Subsidiaries or, to the knowledge of the Seller or the Company, any
other party thereto is in default or breach under the terms of any such
contracts and, to the knowledge of the Seller or the Company, no event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute any event of default thereunder, other than in each case defaults or
breaches that would not have a Company Material Adverse Effect.
16
Section 3.17 Regulatory Proceedings. Neither the Company nor any of the
Company Subsidiaries all or part of whose rates or services are regulated by a
Governmental Authority (a) has rates that have been or are being collected
subject to refund (other than purchase gas adjustment provisions, fuel
adjustment clauses and purchase fuel adjustment provisions), pending final
resolution of any rate proceeding pending before a Governmental Authority or on
appeal to the courts, or (b) is a party to any rate proceeding before a
Governmental Authority that in each case would result in orders having a Company
Material Adverse Effect.
Section 3.18 Limitation on Representations and Warranties. Except for the
representations and warranties contained in this Article III, neither the Seller
nor any other Person or entity acting on behalf of the Seller makes any
representation or warranty, express or implied, concerning the Shares or the
business, finances, operations, assets, liabilities, prospects or any other
aspect of the Company and the Company Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller that except as set
forth in the reports, schedules, registration statements and definitive proxy
statements and all amendments thereto filed publicly not earlier than January 1,
2001 and not later than the close of business on the day prior to the date of
this Agreement with the SEC by the Purchaser or any Purchaser Subsidiary (or
their predecessors) pursuant to the requirements of the Securities Act or the
Exchange Act (as such documents have since the time of their filing been amended
publicly not earlier than January 1, 2001 and not later than the close of
business on the day prior to the date of this Agreement, the "Purchaser SEC
Reports") or in the schedule delivered by the Purchaser on the date hereof (the
"Purchaser Disclosure Schedule"):
Section 4.1 Organization and Qualification. The Purchaser and each of the
Purchaser Subsidiaries (as defined below) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, 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
have a Purchaser Material Adverse Effect (as defined below) or prevent,
materially delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. As used in this Agreement, the term
"Purchaser Material Adverse Effect" shall mean any material adverse effect on
the business, assets, financial condition or results of operations of the
Purchaser and the Purchaser Subsidiaries, taken as a whole; provided, however,
that the term "Purchaser Material Adverse Effect" shall not include effects that
result from or are consequences of (i) any such effect resulting from any change
in law, rule, or regulation of any Governmental Authority (as defined in Section
3.3(c)) that applies generally to similarly situated Persons (as defined in
17
Section 3.10(a)(ii)), (ii) changes or developments in international, national,
regional, state or local wholesale or retail markets for electric power or fuel
or related products, including those due to actions by competitors, (iii)
changes or developments in national, regional, state or local electric
transmission or distribution systems, (iv) changes or developments in financial
or securities markets or the economy in general or effects of weather or
meteorological events, (v) events or changes that are consequences of terrorist
activity, acts of war or acts of public enemies (other than any such event or
consequence affecting only the Purchaser or a Purchaser Subsidiary) or (vi) the
negotiation, announcement, execution, delivery, consummation or anticipation of
the transactions contemplated by, or in compliance with, this Agreement. The
term "Purchaser Subsidiary" shall mean a Subsidiary of the Purchaser.
Section 4.2 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. The Purchaser has all requisite corporate power and
authority to enter into this Agreement and, subject to the receipt of the
applicable Purchaser Required Statutory Approvals (as defined in Section
4.2(c)), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser. No vote of, or consent by, the
holders of any class or series of stock issued by the Purchaser is necessary to
authorize the execution and delivery by the Purchaser of this Agreement or the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Purchaser and, assuming the due
authorization, execution and delivery hereof by the Seller, constitutes the
valid and binding obligation of the Purchaser 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
the Purchaser 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, by-laws or similar governing documents of the
Purchaser or any of the Purchaser Subsidiaries, (ii) subject to obtaining the
Purchaser Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to the Purchaser or any of the Purchaser
Subsidiaries or any of their respective properties or assets, or (iii) subject
to obtaining the third-party consents set forth in Section 4.2(b)(iii) of the
Purchaser Disclosure Schedule (the "Purchaser Required Consents"), any 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 Purchaser or any of the Purchaser 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 clause (ii) or (iii) for any such Violation
which would not prevent, materially delay or materially impair the Purchaser's
ability to consummate the transactions contemplated by this Agreement.
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(c) Statutory Approvals. Except for (i) the filings by the Seller, the
Company and/or the Purchaser, as applicable, required under the HSR Act (as
defined below), (ii) the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder, and (iii) any filings with or
approvals from (v) the FERC, (w) the SEC under PUHCA, (x) the ICC, (y) the FCC
and (z) the other Governmental Authorities set forth on Section 4.2(c) of the
Purchaser Disclosure Schedule (the filings and approvals referred to in clauses
(i) through (iii) collectively referred to as the "Purchaser Required Statutory
Approvals"), no declaration, 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 Purchaser or the
consummation by the Purchaser of the transactions contemplated hereby, except
those which the failure to obtain would not prevent, materially delay or
materially impair the Purchaser's ability to consummate the transactions
contemplated by this Agreement (it being understood that references in this
Agreement to "obtaining" such Purchaser 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).
(d) Compliance. Neither the Purchaser nor any of the Purchaser
Subsidiaries 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, rule, regulation, ordinance or judgment of any Governmental Authority,
except for possible violations which would not prevent, materially delay or
materially impair the Purchaser's ability to consummate the transactions
contemplated by this Agreement. The Purchaser and the Purchaser 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 would not prevent, materially
delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. Neither the Purchaser nor any of
the Purchaser 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 Purchaser or any Purchaser Subsidiary under (i) their respective
certificates of incorporation or by-laws or (ii) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which they are a party or by which the Purchaser
or any Purchaser Subsidiary is bound or to which any of their property is
subject, except for possible violations, breaches or defaults which would not
prevent, materially delay or materially impair the Purchaser's ability to
consummate the transactions contemplated by this Agreement.
Section 4.3 Purchaser SEC Reports; Financial Statements. The filings
required to be made by the Purchaser under the Securities Act and the Exchange
Act have been filed with the SEC and complied, as of their respective dates, in
all material respects with all applicable requirements of the appropriate
statutes and the rules and regulations thereunder. As of their respective dates,
none of the Purchaser SEC Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
19
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Purchaser included
in the Purchaser SEC Reports have been prepared in accordance with GAAP applied
on a consistent basis during the period involved (except as may be stated in the
notes thereto) and fairly present the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of the Purchaser as of the time and for the period referred to
therein, subject, in the case of unaudited interim financial statements, to
normal, recurring audit adjustments.
Section 4.4 Litigation. There are no claims, suits, actions or proceedings
by any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator, pending or, to the knowledge of the Purchaser,
threatened against, relating to or affecting the Purchaser or any Purchaser
Subsidiaries which would prevent, materially delay or materially impair the
Purchaser's ability to consummate the transactions contemplated by this
Agreement. 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 Purchaser or any Purchaser Subsidiaries
except for such that would not prevent, materially delay or materially impair
the Purchaser's ability to consummate the transactions contemplated by this
Agreement.
Section 4.5 Investigation by the Purchaser; the Seller's Liability. The
Purchaser has conducted its own independent investigation, review and analysis
of the business, operations, assets, liabilities, results of operations,
financial condition, software, technology and prospects of the Company and the
Company Subsidiaries, which investigation, review and analysis was done by the
Purchaser and its affiliates and, to the extent the Purchaser deemed
appropriate, by the Purchaser's representatives. The Purchaser acknowledges that
it and its representatives have been provided adequate access to the personnel,
properties, premises and records of the Company and the Company Subsidiaries for
such purpose. In entering into this Agreement, the Purchaser acknowledges that
it has relied solely upon the aforementioned investigation, review and analysis
and not on any factual representations of the Seller or its representatives
(except the specific representations and warranties of the Seller set forth in
Article III of this Agreement), and the Purchaser:
(a) acknowledges that none of the Seller or any of its directors,
officers, shareholders, employees, affiliates, controlling Persons, agents,
advisors or representatives makes or has made any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information (including materials furnished in the Company's data room,
presentations by the Company's management, financial projections or otherwise)
provided or made available to the Purchaser or its directors, officers,
employees, affiliates, controlling Persons, agents or representatives, and
(b) agrees, to the fullest extent permitted by law, that none of the
Seller, the Company, the Company Subsidiaries or any of their respective
directors, officers, employees, shareholders, affiliates, controlling Persons,
agents, advisors or representatives shall have any liability or responsibility
whatsoever to the Purchaser or its directors, officers, employees, affiliates,
20
controlling Persons, agents or representatives on any basis (including in
contract or tort, under federal or state securities laws or otherwise) based
upon any information provided or made available, or statements made (including
materials furnished in the Company's data room, presentations by the Company's
management, financial projections or otherwise) to the Purchaser or its
directors, officers, employees, affiliates, controlling Persons, advisors,
agents or representatives (or any omissions therefrom), including in respect of
the specific representations and warranties of the Seller set forth in this
Agreement, except that the foregoing limitations shall not apply to the Seller
insofar as the Seller makes the specific representations and warranties set
forth in Article III of this Agreement, but always subject to the limitations
and restrictions contained in Article IX.
Section 4.6 Acquisition of Shares for Investment; Ability to Evaluate and
Bear Risk.
(a) The Purchaser is an "accredited investor" as such term is defined
in Regulation D promulgated under the Securities Act. The Purchaser is acquiring
the Shares for investment and not with a view toward, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the Shares. The Purchaser agrees that the Shares may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act and any applicable state
securities laws, except pursuant to an exemption from such registration under
such Act and such laws.
(b) The Purchaser is able to bear the economic risk of holding the
Shares for an indefinite period, and has knowledge and experience in financial
and business matters such that it is capable of evaluating the risks of the
investment in the Shares.
(c) The Purchaser acknowledges that the By-Laws of the Company contain
certain provisions relating to the separateness of the Company from its parent
company, including, without limitation, certain provisions in Articles III and
VII thereof.
Section 4.7 Financing. The Purchaser will have as of the Closing sufficient
cash in immediately available funds to pay the Estimated Purchase Price pursuant
to Article I hereof and to consummate the transactions contemplated hereby.
Section 4.8 Brokers or Finders. The Purchaser 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 Goldman, Sachs & Co., whose fees and
expenses will be paid by the Purchaser in accordance with the Purchaser's
agreement with such firm.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.1 Covenants of the Seller. After the date hereof and prior to the
Closing or earlier termination of this Agreement, the Seller agrees that, except
as set forth in Section 5.1 of the Seller Disclosure Schedule and except (i) as
contemplated in or permitted by this Agreement, (ii) as provided for in the
annual budgets or capital budgets (copies of which, in their current form, have
been made available to the Purchaser and included in the Seller Disclosure
Schedules) for the Company and each Company Subsidiary, (iii) in connection with
necessary repairs due to breakdown or casualty, or other actions taken in
response to a business emergency or other unforeseen operational matters, (iv)
as required by law, rule or regulation, or (v) to the extent the Purchaser shall
otherwise consent, which decision regarding consent shall be made promptly and
which consent shall not be unreasonably withheld, conditioned or delayed:
(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 its respective commercially reasonable efforts
to preserve its business organization intact and maintain its existing relations
and goodwill with customers, suppliers, creditors, lessors and business
associates;
(b) the Company shall not, nor shall the Company permit any of the
Company Subsidiaries to, (i) amend their articles of incorporation or by-laws
other than amendments which are ministerial in nature or otherwise immaterial;
(ii) split, combine or reclassify their outstanding shares of capital stock;
(iii) declare, set aside or pay any dividend payable in cash, stock or property
in respect of any capital stock other than (A) dividends paid to the Company or
its wholly-owned Subsidiaries, (B) dividends required to be paid on any CILCO
Preferred Stock, CILCO Class A Preferred Stock or CILCO Preference Stock in
accordance with the terms thereof, or (C) dividends in respect of earnings of
the Company for the period between December 31, 2001 and the Closing Date to the
extent permitted by applicable loan agreements and indentures of the Company; or
(iv) repurchase, redeem 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, other than redemptions, purchases or acquisitions required by
the respective terms of any series of CILCO Preferred Stock or CILCO Class A
Preferred Stock;
(c) neither the Company nor any Company Subsidiary shall issue, sell,
or dispose of 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;
(d) neither the Company nor any Company Subsidiary shall incur any
indebtedness except for indebtedness that is incurred in the ordinary and usual
course of business and complies with the restrictions of Section 5.1(d) of the
Seller Disclosure Schedule;
22
(e) the Company shall not make in the aggregate more than 110% of its
capital expenditures budgeted for the year 2002 and the year 2003 in accordance
with and at the approximate times as provided in the capital expenditures
budgets for those years provided in Section 5.1(e) of the Seller Disclosure
Schedule and shall use best efforts to meet the milestones related to the
selective catalytic reduction technology at the times and in the manner set
forth in Section 5.1(e) of the Seller Disclosure Schedule; (i) to the extent
that the Company does not make expenditures up to the amounts and by the dates
set forth in Section 5.1(e) of the Seller Disclosure Schedule, the difference
shall be referred to as the "CapEx Adjustment Amount" for purposes of this
Agreement and shall result in reduction in Purchase Price for purposes of
Section 1.2(a); and (ii) to the extent the Company, with the consent of the
Purchaser, accelerates the scheduled capital expenditures related to selective
catalytic reduction technology or incurs capital expenditures related to plant
outages that were unforeseen and such expenditures are considered by the
Purchaser to be advisable or appropriate, the CapEx Adjustment Amount shall be
reduced by such accelerated amount and shall result in an increase in Purchase
Price for purposes of Section 1.2(a);
(f) neither the Company nor any Company Subsidiary shall make any
acquisition of, or investment in, assets or stock of any other Person or entity,
other than in the ordinary and usual course of business and not to exceed
singularly or in the aggregate $10 million in any calendar year and no
acquisition or investment shall be of any public utility company (as defined in
PUHCA) or in a business or any interest in a business which would not be
retainable by the Purchaser under PUHCA following the Closing;
(g) neither the Company nor any Company Subsidiary shall sell, lease,
license, encumber or otherwise dispose of any of its assets, other than in the
ordinary and usual course of business, and in an amount not to exceed singularly
or in the aggregate $10 million in any calendar year;
(h) 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 materially modify any
Company Plan or increase the salary, wage, bonus or other compensation of any
directors, officers or employees 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), or
(iii) for actions necessary to satisfy existing contractual obligations under
Company Plans existing as of the date hereof or to comply with applicable law;
(i) the Company and each Company Subsidiary shall maintain insurance
with financially responsible or nationally recognized insurers in such amounts
and against such risks and losses as are consistent with the insurance
maintained by the Company and each Company Subsidiary, respectively, in the
ordinary and usual course of business;
23
(j) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, change any material financial or Tax accounting method,
policies, practices or election, except as required by GAAP or SEC accounting
regulations or guidelines or applicable law;
(k) the Seller and the Company shall promptly provide the Purchaser
with copies of all filings made by the Seller, the Company or any Company
Subsidiary with, and inform the Purchaser of any communications received from,
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby;
(l) the Seller, the Company and each Company Subsidiary shall use
their respective best efforts to promptly obtain all of the Seller Required
Consents and the Seller Required Statutory Approvals. The Seller shall promptly
notify the Purchaser of any failure or prospective failure to obtain any such
consents or approvals and, if requested by the Purchaser, shall provide copies
of all of the Seller Required Consents and the Seller Required Statutory
Approvals obtained by the Seller, the Company and each Company Subsidiary to the
Purchaser;
(m) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, enter into any material agreement or arrangement with any other
person that, directly or indirectly, controls or is under common control with or
is controlled by the Seller, or any of its respective subsidiaries on terms to
the Company or the Company Subsidiaries materially less favorable than could be
reasonably expected to have been obtained with an unaffiliated third party on an
arm's-length basis;
(n) the Company shall not, nor shall it permit any Company Subsidiary
to, take any action that would likely jeopardize the exclusion from gross
income, for purposes of federal income taxation, of the interest on the
outstanding revenue bonds issued for the benefit of the Company or any Company
Subsidiary, which qualify on the date hereof under Code ss. 142(a) as "exempt
facility bonds" or as tax-exempt industrial development bonds under Section
103(b)(4) of the Code;
(o) the Company shall, and shall cause the Company Subsidiaries to,
use commercially reasonable efforts to maintain in effect or renew all existing
material governmental franchises or Permits pursuant to which the Company or any
of the Company Subsidiaries operate;
(p) the Company shall, or shall cause CILCO to, provide the Purchaser
with information reasonably requested by the Purchaser from time to time
regarding the contracts entered into, progress of work on, material problems
encountered with, projected completion date of, expected operational levels of,
or any other relevant information requested, with respect to the installation
and operation of the selective catalytic reduction technology described in
Section 5.1(e) of the Seller's Disclosure Schedule;
24
(q) the Company shall not, nor shall it permit any Company Subsidiary
to, (i) engage in any sale, transfer, trading, sale of options, calls or other
derivatives, or disposition of emission allowances for sulfur dioxide or
nitrogen oxide which has the result of reducing available emission allowances of
the Company and the Company Subsidiaries, except as required by law, (ii) enter
into or commit to any new or material amendment to any fuel supply contract
except for those spot and short-term coal purchases made in the ordinary course
of business which are less than six (6) months in term or (iii) enter into any
new or material amendment to any power purchase or gas supply transactions with
a term greater than six months;
(r) the Seller shall not, nor shall it permit any Subsidiary of the
Seller to, directly or indirectly, solicit for employment by such persons any of
the current officers, managers or employees of the Company or any Company
Subsidiary except for those persons specified on Section 5.1(r) of the Seller
Disclosure Schedule; provided that the Seller and the Subsidiaries of the Seller
shall not be prohibited from employing any such person who contacts the Seller
or any Subsidiary of the Seller on his or her own initiative or who responds to
a general solicitation through the use of media advertisements, the Internet or
professional search firms;
(s) the Company shall not, nor shall it permit any Company Subsidiary
to, enter into any agreement with any party involving power line carrier or
other communications technology involving CILCO's utility assets.
Section 5.2 No Solicitation and Confidentiality.
(a) From the date hereof through the Closing, none of the parties nor
their representatives (including, without limitation, investment bankers,
attorneys and accountants) shall, directly or indirectly, enter into, solicit,
initiate or continue any discussions or negotiations with, or encourage or
respond to any inquiries or proposals by, or participate in any negotiations
with, or provide any information to, or otherwise cooperate in any other way
with, any person or other entity or group, concerning any sale of all or a
portion of the Company, or of any shares of capital stock of the Company or any
Company Subsidiary or any merger, consolidation, liquidation, dissolution or
similar transaction involving the Company or any Company Subsidiary (each such
transaction being referred to herein as a "Proposed Acquisition Transaction")
other than with (i) the Purchaser and its representatives, or (ii) as required
by law. Neither the Seller nor the Company shall, directly or indirectly,
through any officer, director, employee, representative, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
person (including, without limitation, a "person" as defined in Section 13(d)(3)
of the Exchange Act) or entity relating to any Proposed Acquisition Transaction.
The Seller and the Company represent that they are not now engaged in
discussions or negotiations with any party other than the Purchaser with respect
to any of the foregoing.
(b) Notification. The Seller and the Company shall promptly notify the
Purchaser if any discussions or negotiations are sought to be initiated, any
25
inquiry or proposal is made, or any information is requested with respect to any
Proposed Acquisition Transaction and notify the Purchaser of the identity of the
prospective purchaser or soliciting party and any other information relating to
such inquiry or proposal known to the Seller, the Company or any Company
Subsidiary.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access to Company Information. Upon reasonable notice, the
Seller shall, and shall cause the Company and each Company Subsidiary to, afford
to the officers, directors, employees, accountants, counsel, investment bankers,
financial advisors and other representatives (collectively, "Representatives")
of the Purchaser reasonable access, during normal business hours throughout the
period prior to the Closing Date, to all of the Company's and the Company
Subsidiaries' properties, books, contracts, commitments and records and, during
such period, the Seller shall, and shall cause the Company and each Company
Subsidiary to, furnish promptly to the Purchaser and its Representatives, (i)
access to each report, schedule and other document filed or received by the
Company, each Company Subsidiary pursuant to the requirements of federal or
state securities laws or filed with or sent to any federal or state regulatory
agency or commission and (ii) access to all information concerning the Company,
each Company Subsidiary and its respective directors and officers and such other
matters as may be reasonably requested by the Purchaser 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. The Purchaser agrees to indemnify
and hold the Seller, 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 Purchaser, and any loss, damage to or
destruction of any property owned by the Seller, the Company or the Company
Subsidiaries or others (including claims or liabilities for loss of use of any
property) resulting directly or indirectly from the action or inaction of any of
the Representatives of the Purchaser 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 6.1 or otherwise. None of the Purchaser
nor any of its Representatives shall conduct any environmental testing or
sampling on any of the business or property sites of the Company or the Company
Subsidiaries prior to the Closing Date. 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 15, 2001, as amended, entered into by
and between the Seller and the Purchaser (the "Confidentiality Agreement").
Section 6.2 Regulatory Matters.
(a) HSR Filings. Each party hereto shall, as soon as practicable as
mutually agreed by the parties, file or cause to be filed with the Federal Trade
Commission and the Department of Justice any notifications required to be filed
26
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 shall use all 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 best efforts to prepare and file as soon as practicable all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use best efforts to obtain all necessary permits,
consents, approvals and authorizations of all Governmental Authorities necessary
or advisable to obtain the Seller Required Statutory Approvals and the Purchaser
Required Statutory Approvals. The parties further agree to use best efforts (i)
to take any act, make any undertaking or receive any clearance or approval
required by any Governmental Authority or applicable law and (ii) to satisfy any
conditions imposed by any Governmental Authority in all Final Orders (as defined
in and for purposes of Section 7.1(b)). Each of the parties shall (i) respond as
promptly as practicable to any inquiries or requests received from any
Governmental Authority for additional information or documentation, and (ii) not
enter into any agreement with any Governmental Authority not to consummate the
transactions contemplated by this Agreement, except with the prior consent of
the other party hereto (which shall not be unreasonably withheld or delayed).
Each of the parties shall make best efforts to avoid or eliminate each and every
impediment under any antitrust, competition, or trade or energy regulation law
(including the Federal Power Act, as amended, and the FERC's regulations
thereunder) that may be asserted by any Governmental Authority with respect to
the transactions contemplated hereby so as to enable the Closing Date to occur
as soon as reasonably possible. The steps involved in the preceding sentence
shall include proposing, negotiating, committing to and effecting, by consent
decree, hold separate order or otherwise, the sale, divestiture or disposition
of such assets or businesses of the Purchaser or its affiliates (including their
respective Subsidiaries) or agreeing to such limitations on its or their conduct
or actions as may be required in order to obtain the Seller Required Statutory
Approvals and the Purchaser Required Statutory Approvals as soon as reasonably
possible, to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying the
Closing Date, and defending through litigation on the merits, including appeals,
any claim asserted in any court by any party.
(c) Exception. Notwithstanding anything to the contrary in Section
6.2, neither party shall be required to take any actions that would have a
Company Material Adverse Effect or a Purchaser Material Adverse Effect, and,
further, any terms or conditions imposed by the FERC, the Federal Trade
Commission or the Antitrust Division of the United States Department of Justice
relating to market power, including but not limited to, divestiture of
generation or transmission improvements, shall not constitute a Company Material
Adverse Effect or a Purchaser Material Adverse Effect.
(d) Responsibilities. The Seller and the Purchaser agree that (i) the
Purchaser shall have primary responsibility for the preparation and filing
27
of any applications with or notifications to the FERC, the FTC and/or the DOJ
and the SEC under PUHCA and (ii) the Seller and the Purchaser shall have joint
responsibility for the preparation and filing of any applications with or
notifications to the ICC. Each party shall have the right to review and approve
in advance drafts of all such necessary applications, notices, petitions,
filings and other documents made or prepared in connection with the transactions
contemplated by this Agreement, which approval shall not be unreasonably
withheld or delayed.
Section 6.3 Consents. The Seller and the Purchaser agree to use reasonable
best efforts to obtain the Seller Required Consents and the Purchaser Required
Consents, respectively, and to cooperate with each other in connection with the
foregoing.
Section 6.4 Directors' and Officers' Indemnification.
(a) Indemnification. From and after the Closing Date, the Purchaser
shall cause the Company, to the fullest extent permitted under applicable law,
to indemnify and hold harmless (and advance funds in respect of each of the
foregoing) each present and former employee, agent, director or officer of the
Company and the Company Subsidiaries (each, together with such person's heirs,
executors or administrators, an "Indemnified Party" and collectively, the
"Indemnified Parties") against any costs or expenses (including advancing
attorneys' fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law), judgments, fines, losses, claims, damages, liabilities
and amounts paid in settlement in connection with any actual or threatened
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative (an "Action"), arising out of, relating to or in
connection with any action or omission by such Indemnified Party in his or her
capacity as an employee, agent, director or officer occurring or alleged to have
occurred whether before or after the Closing Date (including acts or omissions
in connection with such person's service as an officer, director or other
fiduciary in any entity if such service was at the request or for the benefit of
the Company or any of the Company Subsidiaries) or this Agreement or the
transactions contemplated hereby. In the event of any such Action, the Purchaser
shall cooperate with the Indemnified Party in the defense of any such Action.
(b) Survival of Indemnification. To the fullest extent not prohibited
by law, from and after the Closing Date, all rights to indemnification now
existing in favor of the Company Indemnified Parties with respect to their
activities as such prior to or on the Closing Date, as provided in the Company's
and each Company Subsidiary's respective articles of incorporation, by-laws,
other organizational documents or indemnification agreements in effect on the
date of such activities or otherwise in effect on the date hereof, shall survive
the Closing and shall continue in full force and effect for a period of not less
than six years from the Closing Date, provided that, in the event any claim or
claims are asserted or made within such six-year period, all such rights to
indemnification in respect of any claim or claims shall continue until final
disposition of such claim or claims.
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(c) Insurance. For a period of six years after the Closing Date, the
Purchaser shall or the Purchaser shall cause the Company to maintain in effect
policies of directors' and officers' liability insurance equivalent to those
maintained by the Seller on behalf of the Company prior to the Closing Date for
the benefit of those persons who are currently covered by such policies on terms
no less favorable than the terms of such current insurance coverage; provided,
however, that the Purchaser will not be required to expend in any year an amount
in excess of 200% of the annual aggregate premiums currently paid by the Seller
or the Company, as the case may be, for such insurance; provided, further, that
if the annual premiums of such insurance coverage exceed such amount, the
Purchaser shall cause the Company to obtain a policy with the best coverage
available, in the reasonable judgment of the board of directors of the Purchaser
for a cost not exceeding such amount.
(d) Successors. In the event that, after the Closing Date, the Company
or the Purchaser or any of their respective successors or assigns (i)
consolidates with or merges into any other Person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or a substantial portion of its properties and assets to any
Person or entity, then and in either such case, proper provisions shall be made
so that the successors and assigns of the Company or the Purchaser, as the case
may be, shall assume the obligations set forth in this Section 6.4.
(e) Benefit. The provisions of this Section 6.4 are intended to be for
the benefit of, and shall be enforceable by, each Company Indemnified Party, his
or her heirs, executors or administrators and his or her other representatives.
Section 6.5 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 Seller and the Purchaser shall use reasonable efforts
to consult with each other prior to issuing any press releases or otherwise
making public announcements with respect to this Agreement and the transactions
contemplated hereby and the parties shall consult with each other regarding any
press releases initially announcing the execution of this Agreement.
Section 6.6 Workforce Matters.
(a) If any employee of the Company or any Company Subsidiary who was
an employee immediately prior to the Closing (an "Affected Employee") is
discharged by the Company or any Company Subsidiary as of or after the Closing,
then the Purchaser shall be responsible for any and all severance costs for such
Affected Employee, including payments owing under those agreements, plans or
arrangements listed in Section 3.8(a) of the Seller Disclosure Schedule. The
Purchaser shall be responsible for providing any continuation coverage required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA") in respect of Affected Employees who experience or have experienced a
qualifying event (within the meaning of COBRA) prior to, on or after the Closing
Date including, without limitation, all other employees of the Company or any
Company Subsidiary who experience such a qualifying event before the Closing
29
Date but who do not provide notice of the qualifying event until on or after the
Closing Date. The Purchaser shall be responsible and assume all liability for
all notices or payments due to any Affected Employees under the Worker
Adjustment and Retraining Notification Act and regulations promulgated
thereunder (the "WARN Act") or to any employee of the Company or any Company
Subsidiary who becomes entitled to receive notice as required under the WARN Act
on account of the aggregation of "employment losses" in accordance with the WARN
Act, and all notices, payments, fines or assessments due to any Governmental
Authority, pursuant to any applicable foreign, federal, state or local law,
common law, statute, rule or regulation with respect to the employment,
discharge or layoff of employees by the Company or any Company Subsidiary after
the Closing Date, including the WARN Act, and any comparable state or local law.
(b) Following the Closing, the Purchaser shall cause CILCO to honor
its collective bargaining agreement with Local Union 51 of the International
Brotherhood of Electrical Workers ("IBEW Local 51") in effect immediately prior
to the Closing, as well as the Letter Agreement dated as of February 11, 2001
between CILCO and IBEW Local 51.
Section 6.7 Tax Matters.
(a) Tax Returns.
(i) The Seller shall file or cause to be filed when due all Tax
Returns that are required to be filed by or with respect to the Company and
each Company Subsidiary for taxable years or periods ending on or before
the Closing Date. The Seller shall include the income of the Company and
each Company Subsidiary (including any deferred intercompany income
triggered under Treasury Regulation Section 1.1502-13 or its predecessors
and any excess loss account taken into income under Treasury Regulation
Section 1.1502-19) on the AES consolidated U.S. federal Tax Returns for all
periods ending on or before the Closing Date.
(ii) The Purchaser shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company
and each Company Subsidiary for taxable years or periods ending after the
Closing Date.
(iii) Any Tax Return required to be filed by the Purchaser
relating to any taxable year or period that includes but does not end on
the Closing Date (a "Straddle Period") shall be prepared in accordance with
past practice (to the extent permitted under applicable law) and submitted
(with copies of any relevant schedules, work papers and other documentation
then available) to the Seller for the Seller's approval not less than
forty-five (45) days prior to the due date (including extensions) for the
filing of such Tax Return. The Seller's approval shall not be unreasonably
withheld.
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(iv) Upon the written request of the Purchaser setting forth in
detail the computation of the amount owed, the Seller shall pay to the
Purchaser, no later than two (2) days prior to the due date for the
applicable Tax Return, the Taxes for which the Seller is liable pursuant to
Section 6.7(b) and that are payable with any Tax Return to be filed by the
Purchaser with respect to any Straddle Period.
(v) Within thirty (30) days after the Closing Date (and from time
to time thereafter if the Seller reasonably requests), the Seller shall
provide to the Purchaser a list of the specific Tax information materials
required to enable Seller to prepare and file all Tax Returns required to
be prepared and filed by Seller pursuant to Section 6.7(a)(i). Within sixty
(60) days after receiving any such list, the Purchaser shall cause the
Company and each Company Subsidiary to prepare and provide to the Seller a
package containing the Tax information materials identified in any such
list. The Purchaser shall prepare such package in good faith in a manner
substantially consistent with the Seller's past practice.
(b) Liability for Taxes.
(i) The Seller shall be liable for all Taxes with respect to Tax
Returns described in Section 6.7(a)(i), for all Taxes apportioned to the
Seller under Section 6.7(b)(iii), and for 50% of the Taxes described in
Section 6.7(m). Notwithstanding the foregoing, the Seller shall not be
liable for Taxes that are not Income Taxes ("Non-Income Taxes") with
respect to Tax Returns described in Section 6.7(a)(i) and for all
Non-Income Taxes apportioned to the Seller under Section 6.7(b)(iii) to the
extent that Non-Income Taxes reduce Working Capital.
(ii) The Purchaser shall be liable for all Taxes with respect to
Tax Returns described in Section 6.7(a)(ii), for all Taxes apportioned to
the Purchaser under Section 6.7(b)(iii), for 50% of the Taxes described in
Section 6.7(m) and for Non-Income Taxes to the extent that Non-Income Taxes
reduce Working Capital.
(iii) For purposes of this Section 6.7, where it is necessary to
apportion between the Seller and the Purchaser the Tax liability of an
entity for a Straddle Period (which is not treated under Treasury
Regulation Section 1.1502-76(b) or similar provisions of state, local, or
other law as closing on the Closing Date), such liability shall be
apportioned between the period deemed to end at the close of the Closing
Date, and the period deemed to begin at the beginning of the day following
the Closing Date on the basis of an interim closing of the books, except
that Taxes (such as real property Taxes) imposed on a periodic basis shall
be allocated on a daily basis.
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(iv) In determining the Seller's liability for Taxes pursuant to
this Agreement, the Seller shall be credited with the amount of estimated
Taxes and any Taxes under the United States Federal Unemployment Tax Act or
the United States Federal Insurance Contributions Act that are paid by or
on behalf of the Company or any Company Subsidiary prior to the Closing. To
the extent that the Seller's liability for Taxes for a taxable year or
period is less than the amount of such Taxes previously paid by or on
behalf of the Company or any Company Subsidiary with respect to all or a
portion of such taxable year or period, the Purchaser shall pay the Seller
the difference within two (2) days of filing the Tax Return relating to
such Taxes. To the extent that Non-Income Taxes paid by the Company or any
Company Subsidiary with respect to any pre-Closing period are less than the
amount of such Non-Income Taxes that reduce Working Capital, the Purchaser
shall pay the Seller the difference within two (2) days of filing each Tax
Return relating to such Non-Income Taxes.
(c) Refunds.
(i) Any Tax refund (including any interest in respect thereof)
received by the Purchaser, the Company, or any Company Subsidiary, and any
amounts credited against Taxes to which the Purchaser or a Purchaser
Subsidiary (including the Company, or any Company Subsidiary) becomes
entitled (including by way of any amended Tax Returns but excluding Tax
Returns from a carryback filing), that relate to any taxable period, or
portion thereof of the Company or a Company Subsidiary ending on or before
the Closing Date, shall be for the account of the Seller, and the Purchaser
shall pay over to the Seller any such refund or the amount of any such
credit within fifteen (15) days after receipt of such refund or utilization
of such credit. Any Tax refund from a carryback filing not prohibited under
Section 6.7(e)(iii) shall be for the account of the Purchaser.
(ii) The Purchaser shall pay the Seller interest at the rate
prescribed under Section 6621(a)(1) of the Code, compounded daily, on any
amount not paid when due under this Section 6.7(c). For purposes of this
Section 6.7(c), where it is necessary to apportion a refund or credit
between the Purchaser and the Seller for a Straddle Period, such refund or
credit shall be apportioned between the period deemed to end at the close
of the Closing Date and the period deemed to begin at the beginning of the
day following the Closing Date on the basis of an interim closing of the
books of the Company and any Company Subsidiary, except that Taxes (such as
real property Taxes) imposed on a periodic basis shall be allocated on a
daily basis.
(iii) The Purchaser shall cooperate, and shall cause the Company
and any Company Subsidiary to cooperate, in obtaining, at the Seller's
expense,
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any Tax refund (other than a refund based on a carryback from a taxable year or
period beginning after the Closing Date) that the Seller reasonably believes is
available based on substantial authority, including through filing appropriate
forms with the applicable Tax authority.
(d) Certain Post-Closing Settlement Payments.
(i) If the examination of any federal, state, local or other Tax
Return of the Seller for any taxable period ending on or before the Closing
Date shall result (by settlement or otherwise) in any adjustment that
permits the Purchaser, the Company, or any Company Subsidiary to increase
deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such adjustments)
have been reported or taken into account (including by way of any increase
in basis) by the Purchaser, the Company, or any Company Subsidiary for one
or more periods beginning and ending within ten (10) years after the
Closing Date, the Seller shall notify the Purchaser and provide it with
adequate information so that the Purchaser can reflect on its, the
Company's, or Company Subsidiary's Tax Returns such increases in
deductions, losses or tax credits or decreases in income, gains or
recapture of tax credits. The Purchaser shall pay to the Seller, within
thirty (30) days of the filing of the Tax Returns for the taxable year in
which the Tax Benefit was realized, the amount of any resulting Tax
Benefit. "Tax Benefit" shall mean the amount of any refund, credit or
reduction in otherwise required Tax payments, including any interest
payable thereon, actually realized, provided, that, for these purposes, Tax
items shall be taken into account in accordance with the ordering
principles of the Code or other applicable law. For purposes of this
Section 6.7(d)(i), estimated Tax payments shall not be considered Tax
Returns and Tax Benefits shall be based on Tax Returns as filed.
(ii) If the examination of any federal, state, local or other Tax
Return of the Purchaser, the Company, or any Company Subsidiary for any
taxable period ending after the Closing Date shall result (by settlement or
otherwise) in any adjustment that permits the Seller to increase
deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such adjustments)
have been reported or taken into account (including by way of any increase
in basis) by the Seller for one or more periods ending on or before the
Closing Date, the Purchaser shall notify the Seller and provide it with
adequate information so that the Seller can reflect on its Tax Returns such
increases in deductions, losses or tax credits or decreases in income,
gains or recapture of tax credits. The Seller shall pay to the Purchaser,
within thirty (30) days of the receipt of such information, fifty percent
(50%) of the amount of any resulting Tax Benefits.
(e) Post-Closing Actions that Affect the Seller's Liability for Taxes.
33
(i) The Purchaser shall not take, or cause or permit the Company
or any Company Subsidiary (or any of their affiliates) to take, any action,
with respect to the taxable year or period of the Purchaser, the Company,
any Company Subsidiary, or affiliate, as applicable, which includes the
Closing Date, which would be reasonably likely to increase the Seller's or
any of its affiliates' liability for Taxes (including any liability of the
Seller to indemnify the Purchaser for Taxes pursuant to this Agreement)
including, for example, any action that would be reasonably likely to,
result in, or change the character of, any income or gain that the Seller
or any Seller affiliate must report on any Tax Return.
(ii) None of the Purchaser or any affiliate of the Purchaser
shall (or shall cause or permit the Company or any of the Company
Subsidiaries to) amend, refile or otherwise modify any Tax Return relating
in whole or in part to the Company or any of the Company Subsidiaries with
respect to any taxable year or period ending on or before the Closing Date
(or with respect to any Straddle Period) without the prior written consent
of the Seller, which consent may be withheld in the sole discretion of the
Seller; provided, that the Seller's consent shall not be required for
modifications that relate exclusively to the post-Closing Date portion of a
Straddle Period and that would not be reasonably likely to increase the
Seller's liability for Taxes under Section 6.7(i) of this Agreement.
(iii) Except to the extent otherwise required by law, none of the
Purchaser or any affiliate of the Purchaser shall (or shall cause or permit
the Company or any of the Company Subsidiaries to) carry back for federal,
state, local or foreign tax purposes to any taxable period, or portion
thereof, of the Company or any of the Company Subsidiaries or the Seller or
any affiliate of the Seller ending on or before, or which includes, the
Closing Date any operating losses, net operating losses, capital losses,
tax credits or similar items arising in, resulting from, or generated in
connection with a taxable year of the Purchaser or any affiliate of the
Purchaser, or portion thereof, ending after the Closing Date.
(f) Tax Payments. The Purchaser agrees that, pursuant to any Tax
sharing, Tax allocation, or Tax indemnity agreements between the Seller or any
Seller affiliate on the one hand, and the Company or any Company Subsidiary on
the other hand, the Company or any Company Subsidiary may make tax sharing
payments to the Seller on any date or dates up to and including the Closing
Date. Any payment made pursuant to this Section 6.7(f) shall comply with the
terms of the agreement to which it relates (other than terms requiring payment
on a specified date or dates). Payments to the Seller pursuant to this Section
6.7(f) shall reduce the cash component of Working Capital as of the Closing
Date.
(g) Assistance and Cooperation. After the Closing Date, each of the
Seller and the Purchaser shall, and shall cause their respective affiliates to,
execute any forms necessary to filing a Tax Return and provide information to
34
the other party regarding the Company or any Company Subsidiary in connection
with (i) the other party preparing any Tax Returns that such other party is
responsible for preparing and filing, and (ii) the other party preparing for any
audits of, or disputes with any Tax authority regarding, any Tax Returns of the
Company or any Company Subsidiary. In connection therewith, the Seller and the
Purchaser shall not dispose of any Tax work papers, books or records relating to
the Company or any Company Subsidiary during the six-year period following the
Closing Date, and thereafter shall give the other parties reasonable written
notice before disposing of such items.
(h) Section 338 Elections. Neither the Seller nor the Purchaser shall
make or file any election under Section 338 of the Code (or any similar
provision of the law of any state or other taxing jurisdiction) with respect to
the Company or any Company Subsidiary in connection with the transactions
contemplated by this Agreement. For purposes of all Tax Returns and other
applicable filings, the Purchaser and the Seller shall each report the stock
purchase as a purchase and sale, respectively, of the Shares.
(i) Indemnification by the Seller. Notwithstanding any other provision
of this Agreement other than Section 6.7(b)(iv), the Seller shall indemnify the
Purchaser from and against and in respect of:
(i) any liability for Taxes imposed on the Company or any Company
Subsidiary as members of the "affiliated group" (within the meaning of
Section 1504(a) of the Code) of which the Seller (or any predecessor or
successor) is the common parent that arises under Treasury Regulation
Section 1.1502-6(a) or any comparable provision of foreign, state or local
law;
(ii) any liability for Taxes imposed on the Company or any
Company Subsidiary for any taxable year or period that ends on or before
the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period deemed to end on and include the Closing Date;
provided, that any indemnification for Non-Income Tax liabilities under
this Section 6.7(i)(ii) shall apply only to the extent such Non-Income Tax
liabilities exceed the amount by which Non-Income Taxes reduce Working
Capital;
(iii) any liability for Taxes for which the Seller is responsible
under Section 6.7(m); and
(iv) and for payments made to satisfy the indemnity to MACTEC,
Inc. under the agreement described in Section 3.7(a)(v) of the Seller
Disclosure Schedule; provided that any indemnification for such MACTEC,
Inc. payments that are accrued as Non-Income Taxes for purposes of
determining Working Capital shall apply only to the extent that such
payments exceed the amount by which Non-Income Taxes reduce Working
Capital; provided, further that any payments received from MACTEC, Inc.
under the agreement described in Section 3.7(a)(v) of the Seller Disclosure
Schedule shall be for the Seller's account.
35
Any indemnification under this Section 6.7(i) shall give effect to any related
Tax Benefit and be net of any reserves and amounts recovered from third parties,
including amounts recovered through utility rate increases. The indemnification
pursuant to this Section 6.7(i) shall be the sole and exclusive remedy of the
Purchaser against the Seller with respect to any liability for Taxes in
connection with this Agreement.
(j) Indemnification by the Purchaser. Notwithstanding any other
provision of this Agreement, the Purchaser shall indemnify the Seller from and
against and in respect of:
(i) any liability for Taxes imposed on any of the Company or any
Company Subsidiary for any taxable year or period that begins after the
Closing Date and, with respect to any Straddle Period, the portion of such
Straddle Period beginning the day after the Closing Date; and
(ii) any liability for Taxes for which the Purchaser is
responsible under Section 6.7(m).
Any indemnification under this Section 6.7(j) shall give effect to any related
Tax Benefit and be net of any reserves and amounts recovered from third parties,
including amounts recovered through utility rate increases. The indemnification
pursuant to this Section 6.7(j) shall be the sole and exclusive remedy of the
Seller against the Purchaser with respect to any liability for Taxes in
connection with this Agreement.
(k) Contests.
(i) Notice. After the Closing Date, the Seller and the Purchaser
each shall notify the other party in writing within fifteen (15) days of
the commencement of any Tax audit or administrative or judicial proceeding
affecting the Taxes of any of the Company or any Company Subsidiary that,
if determined adversely to the taxpayer ( the "Tax Indemnitee") or fter the
lapse of time would be grounds for indemnification under this Section 6.7
by the other party (the "Tax Indemnitor"). Such notice shall contain
factual information describing any asserted Tax liability in reasonable
detail and shall include copies of any notice or other document received
from any Tax authority in respect of any such asserted Tax liability. If
either the Seller or the Purchaser fails to give the other party prompt
notice of an asserted Tax liability as required under this Agreement, then
(A) if the Tax Indemnitor is precluded by the failure to give prompt notice
from contesting the asserted Tax liability in any judicial forum, then such
party shall not have any obligation to indemnify the other party for any
Losses arising out of such asserted Tax liability and (B) if the Tax
Indemnitor is not so precluded from contesting, if such failure to give
prompt notice results in a detriment to the Tax Indemnitor, then any amount
which the Tax Indemnitor is otherwise required to pay pursuant to this
Section 6.7 with respect to such liability shall be reduced by the amount
of such detriment.
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(ii) Control of Contests Involving Pre-Closing Periods or
Straddle Periods. In the case of an audit or administrative or judicial
proceeding involving any asserted liability for Taxes relating to any
taxable years or periods ending on or before the Closing Date or any
Straddle Period of the Company or any Company Subsidiary, the Seller shall
have the right, at its expense, to control the conduct of such audit or
proceeding; provided, however, that (i) the Seller shall keep the Purchaser
reasonably informed with respect to the status of such audit or proceeding
and provide the Purchaser with copies of all written correspondence with
respect to such audit or proceeding in a timely manner and (ii) if such
audit or proceeding would be reasonably expected to result in a material
increase in Tax liability of the Company or any Company Subsidiary for
which the Purchaser would be liable under this Section 6.7, (A) the
Purchaser may participate in the conduct of such audit or proceeding at its
own expense and (B) the Seller shall not settle any such audit or
proceeding without the consent of Purchaser, which consent shall not be
unreasonably withheld.
(iii) Control of Contests Involving Post-Closing Periods. In
the case of an audit or administrative or judicial proceeding involving any
asserted liability for Taxes relating to any taxable years or periods
beginning after the Closing Date, the Purchaser shall have the right, at
its expense, to control the conduct of such audit or proceeding; provided,
however, that if such audit or proceeding would be reasonably expected to
result in a material increase in Tax liability of the Company or any
Company Subsidiary for which the Seller would be liable under this Section
6.7, (A) the Seller may participate in the conduct of such audit or
proceeding at its own expense and (B) the Purchaser shall not settle any
such audit or proceeding without the consent of the Seller, which consent
shall not be unreasonably withheld.
(l) Termination Tax Sharing Agreements. On or before the Closing Date,
the Seller shall cause all Tax sharing, Tax allocation, or Tax indemnity
agreements between the Seller or any Seller affiliate on the one hand, and the
Company or any Company Subsidiary on the other hand, to be terminated as of the
Closing Date (or an earlier date) and the agreements will have no further effect
for any taxable year (current, future, or past).
(m) Transfer Taxes. Notwithstanding any other provision of this
Agreement to the contrary, the Purchaser and the Seller shall each pay 50% of
(i) all transfer (including real property transfer and documentary transfer)
Taxes and fees imposed with respect to the sale and transfer of Shares
contemplated hereby and (ii) all sales, use, gains (including state and local
transfer gains), excise and other transfer or similar Taxes imposed with respect
to the sale and transfer of Shares contemplated hereby. The Seller shall execute
and deliver to the Purchaser at the Closing any certificates or other documents
as the Purchaser may reasonably request to perfect any exemption from any such
transfer, documentary, sales, use, gains, excise or other Taxes, or to otherwise
comply with any applicable reporting requirements with respect to any such
Taxes.
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(n) Retention of Tax Attributes. The Seller may elect to retain the
Tax attributes of the Company or any Company Subsidiary, including net operating
losses and capital loss carryovers of such entities, to the extent permitted
under the Code, Treasury Regulations, other pronouncements of the Internal
Revenue Service, or other applicable law. At the Seller's request, the Purchaser
will, and will cause any Purchaser Subsidiary, the Company, and any Company
Subsidiary to, take any actions necessary to effect such elections of the
Seller.
(o) Treatment of Purchase Price. The Seller, the Purchaser and their
respective Subsidiaries shall treat the Final Purchase Price as the purchase
price for the sale, conveyance, assignment, transfer and delivery to the
Purchaser of the Shares in preparing and filing their Tax Returns and shall take
no position inconsistent therewith in any proceeding before any taxing authority
or otherwise unless otherwise required pursuant to a final resolution of any Tax
for a taxable year that, under applicable law, is not subject to further appeal,
review or modification through proceedings or otherwise.
Section 6.8 Financial Information.
(a) After the Closing, upon reasonable written notice, the Purchaser
and the Seller shall furnish or cause to be furnished to each other and their
respective accountants, counsel and other representatives, during normal
business hours, such information (including records pertinent to the Company) as
is reasonably necessary for financial reporting and accounting matters.
(b) The Purchaser shall retain all of the books and records of the
Company and the Company Subsidiaries after the Closing Date for so long as
required by law. After the end of such period, before disposing of such books or
records, the Purchaser shall give notice to such effect to the Seller and give
the Seller an opportunity to remove and retain all or any part of such books or
records as the Seller may select.
Section 6.9 Termination of Affiliate Contracts. Except as set forth on
Section 6.9 of the Seller Disclosure Schedule and except as agreed to in writing
by the Seller and the Purchaser, all Affiliate Contracts, including any
agreements or understandings (written or oral) with respect thereto, shall
terminate simultaneously with the Closing without any further action or
liability on the part of the parties thereto. Notwithstanding the foregoing, in
the absence of a written agreement, the provision of any services (similar to
those contemplated by the preceding sentence) by the Seller to the Company or
any Company Subsidiary from and after the Closing, which services may be
provided by the Seller in its sole discretion, shall be for the convenience, and
at the expense, of the Purchaser, upon mutually agreed terms.
Section 6.10 Local Presence; Charitable Giving.
(a) After the Closing, the Purchaser shall cause the Company and CILCO
to maintain for a period of at least three (3) years following the Closing (i)
CILCO's corporate headquarters in Peoria, Illinois or other significant local
38
presence, and (ii) the name of CILCO; provided that CILCO may be referred to as
"AmerenCILCO" or as an "Ameren Company".
(b) After the Closing, the Purchaser shall cause the Company and CILCO
to maintain, for a period of at least three (3) years following the Closing, a
commitment to local social responsibility, community involvement and charitable
giving at its current levels in accordance with its current practices.
Section 6.11 Seller's Name. The Purchaser shall not acquire, nor shall the
Company and its Subsidiaries retain, any rights to the name "AES" (or any
derivation thereof) or any trademark, trade name or symbol related thereto. As
soon as reasonably practicable after the Closing but not later than sixty (60)
days after the Closing Date, the Purchaser shall cause the Company and its
Subsidiaries to remove the name "AES" (or any derivation thereof) and all
trademarks, trade names or symbols related thereto from the properties and
assets of the Company and its Subsidiaries.
Section 6.12 Cooperation. The Seller shall, and shall cause the Company and
each Company Subsidiary to, cooperate with the Purchaser in integration
opportunities and in planning for the integration of the Company and the Company
Subsidiaries into the Purchaser's corporate family and systems and in
preparation for Closing and the period thereafter.
Section 6.13 Further Assurances. Each party shall, and shall cause its
Subsidiaries to, execute such further documents or instruments and take such
further actions as may reasonably be requested by the other party in order to
consummate the transaction in accordance with the terms hereof.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.
The respective obligations of each party to effect the Closing 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 9.3 by the joint action of the parties
hereto:
(a) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the transactions contemplated hereby shall have been issued and
be continuing in effect, and the transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation
(collectively, "Restraints"); provided, however, that each of the parties shall
have used all reasonable efforts to prevent the entry of any such Restraints and
to appeal as promptly as possible any such Restraints that may be entered.
(b) Statutory Approvals. The Seller Required Statutory Approvals and
the Purchaser Required Statutory Approvals shall have been obtained at or prior
39
to the Closing Date by a Final Order. A "Final Order" shall mean 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 thereby may be
consummated has expired (but without the requirement for expiration of any
applicable rehearing or appeal period), and as to which all conditions to the
consummation of such transactions prescribed by law, regulation or order have
been satisfied.
(c) HSR Act. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
Section 7.2 Conditions to Obligation of the Purchaser to Effect the
Closing. The obligation of the Purchaser to effect the Closing 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 Purchaser in writing pursuant to
Section 9.3:
(a) Performance of Obligations of the Seller. The Seller 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 Closing.
(b) Representations and Warranties. The representations and warranties
of the Seller 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 would not result in a Company Material Adverse Effect.
(c) Closing Certificates. The Purchaser shall have received a
certificate signed by the Seller, dated the Closing Date, to the effect that the
conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied
and to the further effect that, as of the respective dates of reports filed with
the SEC by the Company and Company Subsidiaries under the Securities Act and
Exchange Act since January 1, 2001, and as of the Closing Date, such reports did
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 and
that as of the Closing Date there has not been any development or combination of
developments affecting the Company or any Company Subsidiary, of which the
Seller or the Company has knowledge, that would have a Company Material Adverse
Effect.
(d) Seller Required Consents. The Seller Required Consents, the
failure of which to obtain would have a Company Material Adverse Effect, shall
have been obtained.
40
(e) Regulatory Approvals. The Final Orders of any Governmental
Authority having authority over the transactions contemplated by this Agreement
shall have been received and shall not impose terms or conditions (which are in
addition to terms and conditions due to existing laws, rules or regulations),
which would have a Company Material Adverse Effect or a Purchaser Material
Adverse Effect, provided, however, that any terms or conditions imposed by the
FERC, the Federal Trade Commission or the Antitrust Division of the United
States Department of Justice relating to market power, including but not limited
to, divestiture of generation or transmission improvements, will not constitute
a Company Material Adverse Effect or a Purchaser Material Adverse Effect.
Section 7.3 Conditions to Obligation of the Seller to Effect the Closing.
The obligation of the Seller to effect the Closing 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 Seller in writing pursuant to Section 9.3:
(a) Performance of Obligations of the Purchaser. The Purchaser (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 Closing Date.
(b) Representations and Warranties. The representations and warranties
of the Purchaser 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 would not prevent, materially delay or materially impair
the Purchaser's ability to consummate the transaction contemplated by this
Agreement.
(c) Closing Certificates. The Seller shall have received a certificate
signed by the Purchaser, dated the Closing Date, to the effect that the
conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied
and to the further effect that, as of the respective dates of reports filed with
the SEC by the Purchaser under the Securities Act and Exchange Act since January
1, 2001, and as of the Closing Date, such reports did 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.
(d) Purchaser Required Consents. The Purchaser Required Consents, the
failure of which to obtain would prevent, materially delay or materially impair
the Purchaser's ability to consummate the transactions contemplated by this
Agreement, shall have been obtained.
41
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date (the "Termination Date"):
(a) by mutual written consent of the Seller and the Purchaser;
(b) by the Purchaser or the Seller, 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 Closing, or by any party hereto 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 Closing, and such order, judgment or decree shall have become final and
nonappealable;
(c) by the Purchaser or the Seller, by written notice to the other
party, if the Closing Date shall not have occurred on or before March 27, 2003
(the "Initial Termination Date"); provided, however, that the right to terminate
the Agreement under this Section 8.1(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have
proximately contributed to the failure of the Closing Date 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 Sections 7.1(b), 7.1(c) and/or 7.2(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 for a twelve-month period;
(d) by the Purchaser, by written notice to the Seller, if there shall
have been a material breach of any representation or warranty, or a material
breach of any covenant or agreement of the Seller hereunder, which breaches
would result in a Company Material Adverse Effect, and such breach shall not
have been remedied within thirty (30) days after receipt by the Seller of notice
in writing from the Purchaser, specifying the nature of such breach and
requesting that it be remedied or the Purchaser shall not have received adequate
assurance of a cure of such breach within such thirty (30) day period or the
Seller shall not have made a capital contribution to the Company in an amount
equal to the expected damages from such breach;
(e) by the Seller, by written notice to the Purchaser, if there shall
have been a material breach of any representation or warranty, or a material
breach of any covenant or agreement of the Purchaser hereunder, which breaches
would prevent, materially delay or materially impair the Purchaser's ability to
consummate the transactions contemplated by this Agreement, and such breach
shall not have been remedied within thirty (30) days after receipt by the
Purchaser of notice in writing from the Seller, specifying the nature of such
breach and requesting that it be remedied or the Seller shall not have received
adequate assurance of a cure of such breach within such thirty (30) day period;
or
(f) by the Purchaser, by written notice to the Seller, to the extent
the Purchaser is not in breach of this Agreement, if the condition to the
Purchaser's obligation to effect the Closing contained in Section 7.2(e) cannot
be met in spite of the Purchaser's use of its best efforts to obtain such Seller
Required Regulatory Approvals and Purchaser Required Regulatory Approvals,
including seeking to exhaust any rehearing or refiling opportunities relating to
such approvals.
42
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Purchaser pursuant to Section 8.1, there
shall be no liability on the part of either the Seller or the Purchaser or their
respective officers or directors hereunder, except (a) that nothing herein shall
relieve any party from liability for any breach of any representation, warranty,
covenant or agreement of such party contained in this Agreement and (b) that
Sections 8.2, 9.2, 9.4, 9.6, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, and the agreement
contained in the last sentence of Section 6.1 shall survive the termination.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Obligations. All representations, warranties,
covenants, obligations and agreements of the parties contained in this Agreement
or in any instrument, certificate, opinion or other writing provided for herein,
shall not survive the Closing; provided, however, that the representation and
warranty of the Seller contained in Section 3.2(b), the representation and
warranty of the Purchaser contained in Section 4.6(c) and the covenants of the
Seller and the Purchaser contained in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9,
6.10, 6.11 and the second sentence of Section 6.1 shall survive the Closing and
provided further, that the prohibition on solicitation for employment contained
in Section 5.1(r) shall continue in full force and effect for 12 months
following the Closing Date.
Section 9.2 Amendment and Modification. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by each of the parties hereto expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 9.3 Extension; Waiver. At any time prior to the Closing Date, a
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party 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.
Section 9.4 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses except that the fee payable in connection with the
filing required by the HSR Act shall be shared one-half by Seller and one-half
by Purchaser. Notwithstanding the foregoing, in any action or proceeding brought
43
to enforce any provisions of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees and disbursements in addition to its costs and
expenses and any other available remedy.
Section 9.5 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):
(i) If to the Seller, to
The AES Corporation
1001 N. 19th Street
Arlington, VA 22209
Attn: General Counsel
Telecopy: (703) 528-4510
Telephone: (703) 522-1315
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attn: Pankaj K. Sinha, Esq.
Telecopy: (202) 393-5760
Telephone: (202) 371-7000
and
(ii) if to the Purchaser, to
Ameren Corporation
One Ameren Plaza
1901 Chouteau Avenue
St. Louis, MO 63103
Attn: Steven R. Sullivan, Esq.
Vice President/General Counsel and Secretary
Telecopy: (314) 554-4014
Telephone: (314) 554-2098
with a copy to:
44
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attn: William J. Harmon, Esq.
Telecopy: (312) 782-8585
Telephone: (312) 782-3939
Section 9.6 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the Confidentiality Agreement, the Side Agreement Relating To CILCO/ENRON
Contract of even date herewith among the Seller, the Company and the Purchaser,
and the Membership Interest Purchase Agreement between the Seller and the
Purchaser of even date herewith (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof and (b) are
not intended to confer, and shall not confer, upon any Person other than the
parties hereto and thereto and Company Indemnified Parties as set forth in
Section 6.4 any remedies, claims of liability or reimbursement, causes of action
or any other rights whatsoever.
Section 9.7 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 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
Section 9.9 Venue. Each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court 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 the State of Delaware.
Section 9.10 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) any right it may
45
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 9.11 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
Section 9.12 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; provided, however, that the Seller may transfer the Shares to a
wholly owned Subsidiary of the Seller as long as such Subsidiary agrees in
writing to be bound by the applicable terms of this Agreement and no such
assignment shall relieve the Seller from its obligations hereunder.
Section 9.13 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section 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." Any item or other matter referenced
or disclosed in one section of the Seller Disclosure Schedule or the Purchaser
Disclosure Schedule, as the case may be, shall be deemed to have been referenced
or disclosed in all sections of such Disclosure Schedule where such reference or
disclosure is required. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 9.14 Counterparts; Effect. This Agreement may be executed and
delivered (including via facsimile) in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
46
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
THE AES CORPORATION
By: /s/Lenny M. Lee
----------------------
Name: Lenny M. Lee
Title: Vice President
AMEREN CORPORATION
By: /s/Steven R. Sullivan
-----------------------
Name: Steven R. Sullivan
Title: Vice President & General Counsel
47
EXHIBIT 2.2
MEMBERSHIP INTEREST PURCHASE AGREEMENT
by and between
THE AES CORPORATION,
and
AMEREN CORPORATION
Dated as of April 28, 2002
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF UNITS..........................................1
Section 1.1 Sale and Transfer of Units...............................1
Section 1.2 The Purchase Price.......................................1
ARTICLE II THE CLOSING........................................................4
Section 2.1 Closing..................................................4
Section 2.2 Deliveries by the Seller.................................4
Section 2.3 Deliveries by the Purchaser..............................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER......................5
Section 3.1 Organization and Qualification...........................5
Section 3.2 Subsidiaries; Capitalization.............................6
Section 3.3 Authority; Non-Contravention; Statutory
Approvals; Compliance....................................6
Section 3.4 Financial Statements.....................................8
Section 3.5 Absence of Certain Changes or Events; Absence
of Undisclosed Liabilities...............................8
Section 3.6 Litigation...............................................9
Section 3.7 Tax Matters..............................................9
Section 3.8 Employee Benefits; ERISA................................10
Section 3.9 Labor and Employee Relations............................12
Section 3.10 Environmental Protection...............................12
Section 3.11 Regulation as an EWG...................................13
Section 3.12 Insurance..............................................13
Section 3.13 Real Property..........................................14
Section 3.14 Affiliate Contracts....................................14
Section 3.15 Brokers or Finders.....................................14
Section 3.16 Contracts..............................................14
Section 3.17 Regulatory Proceedings.................................15
Section 3.18 Limitation on Representations and Warranties...........15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................15
Section 4.1 Organization and Qualification..........................15
Section 4.2 Authority; Non-Contravention; Statutory Approvals;
Compliance..............................................16
Section 4.3 Purchaser SEC Reports; Financial Statements.............17
Section 4.4 Litigation..............................................18
Section 4.5 Investigation by the Purchaser; the Seller's Liability..18
Section 4.6 Acquisition of Units for Investment; Ability to
Evaluate and Bear Risk..................................19
Section 4.7 Financing...............................................19
Section 4.8 Brokers or Finders......................................19
ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING............................19
Section 5.1 Covenants of the Seller.................................19
i
Section 5.2 No Solicitation and Confidentiality.....................22
ARTICLE VI ADDITIONAL AGREEMENTS.............................................22
Section 6.1 Access to Company Information...........................22
Section 6.2 Regulatory Matters......................................23
Section 6.3 Consents................................................24
Section 6.4 Managers' and Officers' Indemnification.................24
Section 6.5 Public Announcements....................................25
Section 6.6 Workforce Matters.......................................26
Section 6.7 Tax Matters.............................................26
Section 6.8 Financial Information...................................34
Section 6.9 Termination of Affiliate Contracts......................34
Section 6.10 Seller's Name..........................................34
Section 6.11 Further Assurances.....................................34
ARTICLE VII CONDITIONS.......................................................35
Section 7.1 Conditions to Each Party's Obligation to Effect
the Closing.............................................35
Section 7.2 Conditions to Obligation of the Purchaser to Effect
the Closing.............................................35
Section 7.3 Conditions to Obligation of the Seller to Effect
the Closing.............................................36
ARTICLE VIII TERMINATION.....................................................37
Section 8.1 Termination.............................................37
Section 8.2 Effect of Termination...................................38
ARTICLE IX GENERAL PROVISIONS................................................38
Section 9.1 Survival of Obligations.................................38
Section 9.2 Amendment and Modification..............................39
Section 9.3 Extension; Waiver.......................................39
Section 9.4 Expenses................................................39
Section 9.5 Notices.................................................39
Section 9.6 Entire Agreement; No Third Party Beneficiaries..........40
Section 9.7 Severability............................................41
Section 9.8 Governing Law...........................................41
Section 9.9 Venue...................................................41
Section 9.10 Waiver of Jury Trial and Certain Damages...............41
Section 9.11 Specific Performance...................................41
Section 9.12 Assignment.............................................41
Section 9.13 Interpretation.........................................42
Section 9.14 Counterparts; Effect...................................42
ii
INDEX OF DEFINED TERMS
Term Page
- ---- ----
Action.......................................................................26
ADSP.........................................................................32
Affected Employee............................................................27
Affiliate Contracts..........................................................14
Agreement.....................................................................1
AGUB.........................................................................32
Allocation...................................................................32
Assumed Obligations...........................................................2
Audit........................................................................10
Available Amount..............................................................2
Base Working Capital..........................................................2
Closing.......................................................................4
Closing Date..................................................................4
COBRA........................................................................27
Code..........................................................................4
Collateral Account Agreement..................................................2
Company.......................................................................1
Company Financial Statements..................................................8
Company Material Adverse Effect...............................................5
Company Plan Schedule........................................................10
Company Plans................................................................10
Company Properties...........................................................14
Company Subsidiary............................................................6
Confidentiality Agreement....................................................24
DOJ..........................................................................24
Encumbrances..................................................................6
Environmental Laws...........................................................13
ERISA........................................................................10
ERISA Affiliate..............................................................10
Estimated Purchase Price......................................................3
Exchange Act..................................................................7
FERC..........................................................................7
Final Order..................................................................37
Final Purchase Price..........................................................3
FTC..........................................................................24
GAAP..........................................................................8
Governmental Authority........................................................7
Hazardous Substances.........................................................13
HSR Act......................................................................24
ICC...........................................................................7
Income Taxes..................................................................2
iii
Indemnified Parties..........................................................25
Indemnified Party............................................................25
Initial Termination Date.....................................................39
Material Contracts...........................................................15
Medina........................................................................1
Membership Interest...........................................................1
Non-Income Taxes.............................................................28
Objection Letter..............................................................3
Operations....................................................................1
PBGC.........................................................................11
Person.......................................................................13
Proposed Acquisition Transaction.............................................23
Proposed Final Purchase Price Statement.......................................3
PUHCA.........................................................................6
Purchase Price................................................................2
Purchaser.....................................................................1
Purchaser Disclosure Schedule................................................16
Purchaser Material Adverse Effect............................................16
Purchaser Required Consents..................................................17
Purchaser Required Statutory Approvals.......................................17
Purchaser SEC Reports........................................................16
Purchaser Subsidiary.........................................................16
Representatives..............................................................23
Restraints...................................................................37
Restricted Amount.............................................................2
Section 338(h)(10) Election..................................................32
Seller........................................................................1
Seller Disclosure Schedule....................................................5
Seller Required Consents......................................................7
Seller Required Statutory Approvals...........................................7
Straddle Period..............................................................28
Subsidiary....................................................................6
Subsidiary Schedule...........................................................6
Tax..........................................................................10
Tax Benefit..................................................................30
Tax Indemnitee...............................................................34
Tax Indemnitor...............................................................34
Tax Return...................................................................10
Termination Date.............................................................39
Title IV Company Plan........................................................11
Transaction Price.............................................................2
Units.........................................................................1
Violation.....................................................................7
iv
WARN Act.....................................................................27
Working Capital...............................................................2
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of April 28, 2002
(this "Agreement"), is entered into by and between The AES Corporation, a
Delaware corporation (the "Seller"), and Ameren Corporation, a Missouri
corporation (the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Seller owns all of the issued and outstanding units (the
"Units") of the membership interest (the "Membership Interests") of AES Medina
Valley (No. 4), L.L.C., an Illinois limited liability company (the "Company"),
which is the parent company of AES Medina Valley (No. 2), L.L.C., an Illinois
limited liability company, which in turn is the parent company of AES Medina
Valley Cogen, L.L.C., an Illinois limited liability company ("Medina"), and the
Company is the parent company of AES Medina Valley Operations, L.L.C., an
Illinois limited liability company ("Operations"); and
WHEREAS, each of the Boards of Directors of the Purchaser and the Seller
has approved the acquisition of the Company by the Purchaser, which acquisition
is to be effected by the purchase of all the Units by the Purchaser upon the
terms and subject to the conditions set forth herein.
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
PURCHASE AND SALE OF UNITS
Section 1.1 Sale and Transfer of Units. Subject to the terms and conditions
of this Agreement, at the Closing (as defined below), the Seller agrees to sell,
convey, assign, transfer and deliver to the Purchaser, and the Purchaser agrees
to purchase and accept from the Seller, all of the Seller's rights, title and
interest in and to the Units. Subject to the terms and conditions of this
Agreement, the Purchaser agrees to deliver to the Seller, and the Seller agrees
to accept, the Purchase Price (as defined below), in cash, without deduction or
setoff of any kind (other than any transfer Taxes described in Section 6.7(m)),
which delivery will be made by wire transfer in immediately available funds to
the bank account or accounts designated by the Seller prior to the Closing.
Section 1.2 The Purchase Price.
(a) Subject to the terms and conditions of this Agreement, in
consideration of the aforesaid sale, conveyance, assignment, transfer and
delivery to the Purchaser of the Units, the Purchaser shall pay to the Seller in
cash the sum of (w) $60,000,000 (the "Transaction Price"); (x) less an amount
equal to Assumed Obligations (as defined below); (y) increased by the amount, if
any, by which Working Capital (as defined below) as of the Closing Date exceeds
the Base Working Capital (as defined below) and (z) decreased by the amount, if
any, which Working Capital as of the Closing Date is less than the Base Working
Capital (the net of such amounts (w) through (z) being, the "Purchase Price").
An example of the Purchase Price calculation is set forth in Section 1.2(a) of
the Seller Disclosure Schedule (as defined below).
(b) The term "Assumed Obligations" as used herein shall mean amounts
required to be included on the consolidated balance sheets of the Company in
accordance with GAAP (as defined in Section 3.4) as of the Closing Date for
long-term indebtedness (including current portion), short-term indebtedness,
capital lease obligations, preferred stock of subsidiaries and any other
obligation for borrowed money less any Restricted Amounts. Assumed Obligations
shall be determined on a basis consistent with past practice and consistent with
the items outstanding as of December 31, 2001, set forth on Section 1.2(a) of
the Seller Disclosure Schedule but including any other outstanding obligation
meeting the definition of the preceding sentence at the applicable date set
forth herein.
(c) The term "Working Capital" as used herein shall mean current
assets less current liabilities (not counting in current liabilities any
short-term indebtedness or current maturity of long-term debt included in
Assumed Obligations) of the Company as of the applicable date set forth herein
determined in accordance with GAAP plus any Available Amount. "Working Capital"
shall be determined on a basis consistent with past practice and consistent with
the calculation on Section 1.2(a) of the Seller Disclosure Schedule, provided,
however, that for the purposes of this definition, current liabilities as of any
date shall not include any Income Taxes payable, and current assets shall not
include receivables from any Income Tax assets. "Income Taxes"shall mean any
federal, state, local, or foreign Tax (as defined below) determined by reference
to net income, net worth, or any Tax imposed in lieu of such a Tax.
(d) The term "Base Working Capital" as used herein means the amount
shown on Section 1.2(a) of the Seller Disclosure Schedule. The Working Capital
as of the Closing Date shall be calculated in the same manner as the Working
Capital was calculated as set out on Section 1.2(a) of the Seller Disclosure
Schedule.
(e) The term "Restricted Amount" as used herein means any monies held
in the following accounts maintained pursuant to the Collateral Account
Agreement dated as of June 1, 2001 (the "Collateral Account Agreement"), by and
among Medina, Landesbank Hessen-Thuringen Girozentrale, New York Branch as
Collateral Agent, and The Bank of New York as Depositary Agent and Securities
Intermediary: Debt Service Reserve and Related Payments Account, Prepayment
Account, Debt Service Reserve Account, Loss Proceeds Account, and Project
Document Claims Account.
(f) The term "Available Amount" as used herein means any monies held
in the following accounts maintained pursuant to the Collateral Account
Agreement: Punch List Account, Project Revenues Collection Account, Operating
Account, Major Maintenance Reserve Account, Distribution Account, and Payment
Account.
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(g) At the Closing, the Purchaser shall pay to the Seller a cash
amount (the "Estimated Purchase Price") consisting of the sum of (i) the
Transaction Price, (ii) less the estimated Assumed Obligations, (iii) increased
by the amount, if any, by which the estimated Working Capital exceeds the Base
Working Capital and (iv) decreased by the amount, if any, by which the estimated
Working Capital is less than the Base Working Capital, all determined in good
faith by the Seller on the basis hereinabove set forth using the unaudited
consolidated balance sheets of the Company as of the last day of the month which
precedes the month of the Closing Date by no more than 45 days. The Seller shall
provide to the Purchaser a written calculation in reasonable detail of the
Estimated Purchase Price on or prior to the fifth business day preceding the
Closing Date.
(h) As promptly as practical, but in no event more than sixty (60)
days after the Closing, the Purchaser shall cause the Company to prepare and
deliver to the Seller and the Purchaser a draft of a statement prepared in good
faith setting forth the relevant calculations resulting in the final Purchase
Price (the "Proposed Final Purchase Price Statement") which shall show, as of
the Closing Date, the actual Assumed Obligations and variance, if any, from the
Base Working Capital. During the thirty (30) day period following the delivery
by the Company of the Proposed Final Purchase Price Statement, the Seller and
its auditors may review such statement and the working papers of the Company's
auditors relating to the Proposed Final Purchase Price Statement and shall have
such access to the Purchaser's and the Company's personnel as may be reasonably
necessary to permit the Seller and its auditors to review in detail the manner
in which the Proposed Final Purchase Price Statement was prepared. The Purchaser
shall and shall cause the Company, as well as their advisors, to cooperate with
the Seller and the Seller's auditors in facilitating such review. Upon
completion of such review, the Seller shall give any comments or objections it
has with respect to the Proposed Final Purchase Price Statement to the Purchaser
and the Company in writing within such thirty (30) day period (the "Objection
Letter"). The Purchaser and the Seller shall attempt in good faith to resolve
any differences and issues as set forth in the Objection Letter. If no Objection
Letter is delivered or the matters set forth in the Objection Letter are so
resolved, then the Proposed Final Purchase Price Statement, as adjusted for any
changes as are agreed upon by the Seller and the Purchaser, shall be final and
binding upon the Seller and the Purchaser and shall constitute the final
Purchase Price (the "Final Purchase Price"). If the matters raised by the Seller
in the Objection Letter cannot be resolved between the Purchaser and the Seller
within ten (10) days of the date of the Objection Letter, the question or
questions in dispute shall then be promptly submitted to any "big five"
accounting firm mutually agreeable to the Seller and the Purchaser (other than
the Seller's auditors, the Purchaser's auditors and Arthur Andersen LLP), or if
such accounting firm cannot or refuses to serve in such capacity, a mutually
acceptable firm of independent public accountants of recognized standing, the
decision of which as to such question or questions in dispute shall be final and
binding upon the Seller and the Purchaser and the determination of the purchase
price pursuant thereto shall be considered to be the Final Purchase Price. The
accounting firm shall be instructed to resolve solely the question or questions
in dispute within twenty (20) days of submission.
(i) In the event the Final Purchase Price is greater than the
Estimated Purchase Price paid at the Closing by the Purchaser, then the
Purchaser shall promptly (within five (5) business days of the determination of
the Final Purchase Price) pay to the Seller an amount equal to the difference
between the Final Purchase Price and the Estimated Purchase Price. In the event
3
the Final Purchase Price is less than the Estimated Purchase Price paid at the
Closing by the Purchaser, then the Seller shall promptly (within five (5)
business days of the determination of the Final Purchase Price) pay to the
Purchaser an amount equal to the difference between the Estimated Purchase Price
and the Final Purchase Price.
(j) The fees of the Company's auditors incurred in connection with the
preparation of the Proposed Final Purchase Price Statement shall be borne by the
Purchaser, and the fees of the Seller's auditors incurred in connection with
their review of the Proposed Final Purchase Price Statement shall be borne by
the Seller. The fees of any independent accounting firm appointed pursuant to
this Section 1.2 shall be borne equally by the Seller and the Purchaser.
ARTICLE II
THE CLOSING
Section 2.1 Closing. The consummation of the sale and transfer of the Units
by the Seller to the Purchaser (the "Closing") 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 second business day
immediately following the date on which the last of the conditions set forth in
Article VII hereof is fulfilled or waived (except for those conditions which by
their nature can only be fulfilled at the Closing) or at such other time, date
and place as the Seller and the Purchaser shall mutually agree (the "Closing
Date").
Section 2.2 Deliveries by the Seller. At the Closing, the Seller shall
deliver to the Purchaser:
(a) An assignment of the Membership Interests, duly and validly
executed by the Seller and otherwise sufficient to vest in the Purchaser good
title to the Units;
(b) The resignations of the members of the Board of Managers of the
Company and each Company Subsidiary (as hereinafter defined);
(c) The limited liability company books, Unit ledgers and minute books
of the Company and each Company Subsidiary; provided that any of the foregoing
items shall be deemed to have been delivered pursuant to this Section 2.2(c) if
such item has been delivered to, or is otherwise located at, the offices of the
Company;
(d) A certificate of the Seller's non-foreign status for purposes of
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"); and
(e) Any other documents, instruments and writings required to be
delivered by the Seller to the Purchaser pursuant to this Agreement.
4
Section 2.3 Deliveries by the Purchaser. At the Closing, the Purchaser
shall deliver to the Seller:
(a) The Estimated Purchase Price, in cash, which will be made by wire
transfer in immediately available funds to the bank account or accounts
designated by the Seller, in writing prior to the Closing; and
(b) Any other documents, instruments and writings required to be
delivered by the Purchaser to the Seller pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser that except as set
forth in the schedule delivered by the Seller on the date hereof (the "Seller
Disclosure Schedule"):
Section 3.1 Organization and Qualification. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company and each Company Subsidiary (as defined in
Section 3.2) is a limited liability company duly organized and validly existing
under the laws of Illinois, 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 have a Company Material Adverse
Effect (as defined below). As used in this Agreement, the term "Company Material
Adverse Effect" shall mean any material adverse effect on the business, assets,
financial condition or results of operations of the Company and the Company
Subsidiaries, taken as a whole; provided, however, that the term "Company
Material Adverse Effect" shall not include effects that result from or are
consequences of (i) any such effect resulting from any change in law, rule, or
regulation of any Governmental Authority (as defined in Section 3.3(c)) that
applies generally to similarly situated Persons (as defined in Section
3.10(a)(ii)), (ii) changes or developments in international, national, regional,
state or local wholesale or retail markets for electric power or fuel or related
products, including those due to actions by competitors, (iii) changes or
developments in national, regional, state or local electric transmission or
distribution systems, (iv) changes or developments in financial or securities
markets or the economy in general or effects of weather or meteorological
events, (v) events or changes that are consequences of terrorist activity, acts
of war or acts of public enemies (other than any such event or consequence
affecting only the Company or a Company Subsidiary) or (vi) the negotiation,
announcement, execution, delivery, consummation or anticipation of the
transactions contemplated by, or in compliance with, this Agreement. As used in
this Agreement, the term "knowledge" (i) when referring to the knowledge of the
Seller shall mean the actual knowledge of an executive officer of the Seller,
and (ii) when referring to the knowledge of the Company shall mean the actual
knowledge after reasonable due inquiry of an executive officer of the Company or
a Company Subsidiary, as applicable.
5
Section 3.2 Subsidiaries; Capitalization.
(a) Section 3.2(a) of the Seller Disclosure Schedule (the "Subsidiary
Schedule") sets forth a complete list, as of the date hereof, of all of the
Company Subsidiaries and their respective jurisdictions of organization. All of
the issued and outstanding units of the membership interest of each Company
Subsidiary have been duly authorized and are validly issued, fully paid and
nonassessable, and are owned, directly or indirectly, by the Company free and
clear of any liens, claims, security interests and other encumbrances of any
nature whatsoever ("Encumbrances"). As used in this Agreement, the term
"Subsidiary" of a Person shall mean any corporation or other entity (including
partnerships and other business associations and joint ventures) of 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 managers or similar members of the governing body of such
corporation or entity (or, if there are no such voting interests, 50% or more of
the equity interests in such corporation or entity) shall at the time be held,
directly or indirectly, by such Person. The term "Company Subsidiary" shall mean
a Subsidiary of the Company. Neither the Company nor any Company Subsidiary is a
"holding company" or a "public utility company" within the meaning of Sections
2(a)(7) and 2(a)(5) of the Public Utility Holding Company Act of 1935, as
amended ("PUHCA"), respectively.
(b) All Units have been duly authorized and are validly issued, fully
paid and nonassessable and free of preemptive rights. There are no options,
warrants, calls, rights, commitments or agreements of any character to which the
Seller, the Company or any Company Subsidiary is a party or by which it is bound
obligating the Seller, the Company or any Company Subsidiary to issue, deliver
or sell, pledge, grant a security interest on or encumber or cause to be issued,
delivered or sold, pledged or encumbered or a security interest to be granted
on, any units of the membership interest of the Company or any Company
Subsidiary or obligating the Company or the Seller to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement.
Section 3.3 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. The Seller has all requisite corporate power and
authority to enter into this Agreement and, subject to the receipt of the
applicable Seller Required Statutory Approvals (as defined in Section 3.3(c)),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Seller. No vote of, or consent by, the holders of any class
or series of stock issued by the Seller is necessary to authorize the execution
and delivery by the Seller of this Agreement or the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Seller and, assuming the due authorization, execution and
delivery hereof by the Purchaser, constitutes the valid and binding obligation
of the Seller 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.
6
(b) Non-Contravention. The execution and delivery of this Agreement by
the Seller does not, and the consummation of the transactions contemplated
hereby will not, violate or result in a breach of any provision of, constitute a
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 benefit under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company or any Company Subsidiary (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 Seller and the Company and such term when used in Article IV has
a correlative meaning with respect to the Purchaser) pursuant to any provisions
of (i) the articles of incorporation, by-laws or similar governing documents of
the Seller, the Operating Agreement of the Company or the limited liability
company agreement or operating agreement of any Company Subsidiary, (ii) subject
to obtaining the Seller Required Statutory Approvals, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority (as defined in Section 3.3(c))
applicable to the Seller, the Company or any Company Subsidiary or any of their
respective properties or assets, or (iii) subject to obtaining the third-party
consents set forth in Section 3.3(b)(iii) of the Seller Disclosure Schedule (the
"Seller Required Consents"), any note, bond, mortgage, indenture, deed of trust,
pledge, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Seller, the Company
or any Company Subsidiary 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 clause (ii)
or (iii) for any such Violation which would not have a Company Material Adverse
Effect or prevent, materially delay or materially impair the Seller's ability to
consummate the transactions contemplated by this Agreement.
(c) Statutory Approvals. Except for (i) the filings by the Seller, the
Company and/or the Purchaser, as applicable, required under the HSR Act (as
defined in Section 6.2(a)), (ii) the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder, (iii) any filings with or approvals from
(w)-the Federal Energy Regulatory Commission (the "FERC"), (x) the Illinois
Commerce Commission (the "ICC"), (y) the Federal Communications Commission, and
(z) the other Governmental Authorities set forth on Section 3.3(c) of the Seller
Disclosure Schedule (the filings and approvals referred to in clauses (i)
through (iii) collectively referred to as the "Seller Required Statutory
Approvals"), no declaration, filing or registration with, or notice to or
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) or authority (each, a "Governmental
Authority") is necessary for the execution and delivery of this Agreement by the
Seller or the consummation by the Seller of the transactions contemplated
hereby, except those which the failure to obtain would not result in a Company
Material Adverse Effect or would not prevent, materially delay or materially
impair the Seller's ability to consummate the transactions contemplated by this
Agreement (it being understood that references in this Agreement to "obtaining"
such Seller 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).
7
(d) Compliance. To the knowledge of the Seller or the Company, neither
the Company nor any Company Subsidiary is in violation of, 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, rule, regulation,
ordinance or judgment of any Governmental Authority, except for possible
violations which would not have a Company Material Adverse Effect or would not
prevent, materially delay or materially impair the ability of the Seller to
consummate the transactions contemplated by this Agreement. To the knowledge of
the Seller and the Company, the Company and each Company Subsidiary have all
material permits, licenses, franchises and other governmental authorizations,
consents and approvals (collectively, "Permits") necessary to conduct their
businesses as presently conducted except those that the absence of which would
not have a Company Material Adverse Effect or would not prevent, materially
delay or materially impair the ability of the Seller to consummate the
transactions contemplated by this Agreement. Except as would not have a Company
Material Adverse Effect, (i) each Permit is in full force and effect in
accordance with its terms, (ii) there is no outstanding written nor, to the
knowledge of the Seller or the Company, any other notice of revocation, and
there are no proceedings pending or, to the knowledge of the Seller or the
Company, threatened that seek revocation, cancellation or termination of any
Permit. Neither the Company nor any Company Subsidiary 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 operating agreements or limited liability company agreements or
(ii) to the knowledge of the Seller and the Company, any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which it is a party or by which it is bound or
to which any of its property is subject, except in the case of clause (ii) for
possible violations, breaches or defaults which would not have a Company
Material Adverse Effect or would not prevent, materially delay or materially
impair the ability of the Seller to consummate the transactions contemplated by
this Agreement.
Section 3.4 Financial Statements. The audited consolidated financial
statements and unaudited interim financial statements of the Company (the
"Company Financial Statements") have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the period involved (except as may be stated in the notes thereto)
and fairly present the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if any)
of the Company and the Company Subsidiaries as of the time and for the period
referred to therein, subject, in the case of unaudited interim financial
statements, to normal, recurring audit adjustments.
Section 3.5 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
(a) Since December 31, 2001 through the date hereof, the Company and
each of the Company Subsidiaries has conducted its businesses only in the
ordinary course of business consistent with past practice and there has not been
any development or combination of developments affecting the Company or any
Company Subsidiary, of which the Seller and the Company has knowledge, that
would have a Company Material Adverse Effect.
8
(b) Neither the Company nor any of the Company Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except those which (i) are accrued or reserved against in the
Company Financial Statements or reflected in the notes thereto, (ii) were
incurred in the ordinary course of business and would not have a Company
Material Adverse Effect, (iii) have been discharged or paid in full prior to the
date hereof, or (iv) are of a nature not required to be reflected in the
consolidated financial statements of the Company and the Company Subsidiaries
prepared in accordance with GAAP consistently applied.
Section 3.6 Litigation. There are no claims, suits, actions or proceedings
before any court, governmental department, commission, agency, instrumentality
or authority or any arbitrator pending or, to the knowledge of the Seller or the
Company, threatened against, relating to or affecting the Company or any Company
Subsidiary which would have a Company Material Adverse Effect or would prevent,
materially delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. 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 Company Subsidiary except for such that would not have a Company Material
Adverse Effect or would not prevent, materially delay or materially impair the
Purchaser's ability to consummate the transactions contemplated by this
Agreement.
Section 3.7 Tax Matters.
(a) (i) The Company and each Company Subsidiary has timely filed (or
has had filed on its behalf) with appropriate taxing authorities all material
Tax Returns required to be filed by it, such Tax Returns are correct, complete
and accurate in all material respects, and all Taxes shown as due on such Tax
Returns have been paid; (ii) all material Tax withholding and deposit
requirements imposed on or with respect to the Company and each Company
Subsidiary (including any withholding with respect to wages or other amounts
paid to employees) have been satisfied in full in all material respects;
(iii) there are no outstanding requests, agreements, consents or waivers to
extend the statutory period of limitations applicable to the assessment or
collection of any material Taxes or deficiencies against the Company or any
Company Subsidiary; (iv) no federal, state, local, or foreign Audit for which
the Company, or any Company Subsidiary has received written notification are
presently pending with regard to any material Taxes or material Tax Returns
filed by or on behalf of the Seller, the Company or any Company Subsidiary;
(v) neither the Company nor any Company Subsidiary is a party to any agreement
providing for the allocation or sharing of Taxes; and (vi) neither the Company
nor any Company Subsidiary has been a member of any affiliated group filing a
consolidated federal income Tax Return (other than a group the common parent of
which is the Seller and the Company).
(b) As used in this Agreement: (i) the term "Tax" means all federal,
state, local and foreign income, profits, franchise, gross receipts,
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" means all returns and reports
(including elections, declarations, disclosures, schedules, estimates,
9
information returns, and amended returns and reports) required to be supplied to
a Tax authority relating to Taxes; and (iii) the term "Audit" means any audit,
assessment of Taxes, reassessment of Taxes, or other examination by any
Governmental Authority or any judicial or administrative proceedings or appeal
of such proceedings.
(c) The Company has elected under federal income tax law to be
taxed as a corporation for federal income tax purposes and has filed the
appropriate documentation with all applicable Governmental Authorities.
Section 3.8 Employee Benefits; ERISA.
(a) Company Plans. Section 3.8(a) of the Seller Disclosure Schedule
(the "Company Plan 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, 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, change-of-control or severance agreement; and each
other employee benefit plan, fund, program, agreement or arrangement, in each
case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company, a Company Subsidiary, or by any trade or
business, whether or not incorporated, that together with the Company, or a
Company Subsidiary, would be deemed a "single employer" within the meaning of
Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"), or to which
the Company, a Company Subsidiary or an ERISA Affiliate is a party in each case
for the benefit of any current or former employee, officer or director of the
Company or a Company Subsidiary (the "Company Plans").
(b) Deliveries. With respect to each Company Plan, the Seller has
heretofore delivered or made available to the Purchaser true and complete copies
of, as applicable, (i) the Company Plan 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 and the most
recent letter of recognition of exemption with respect to any Company Plan or
related trust that is intended to meet the requirements of Section 501(c)(9) of
the Code; (iv) the most recent summary plan description and subsequent summaries
of material modifications; (v) the most recently filed Form 5500; and (vi) the
most recently prepared actuarial valuation report.
(c) Absence of Liability. No material liability under Title IV of
ERISA has arisen with respect to the Company, a Company Subsidiary or any ERISA
Affiliate that has not been satisfied in full and which would cause the Company
or any Company Subsidiary to incur any material liability, and, to the knowledge
of the Seller or the Company, no condition exists that presents a material risk
to the Company or any Company Subsidiary of incurring any such liability, other
than liability for premiums due the Pension Benefit Guaranty Corporation
("PBGC") (which premiums have been paid when due).
10
(d) Funding. No Company Plan subject to Title IV of ERISA (a "Title IV
Company Plan"), Section 302 of ERISA or Section 412 of the Code, or any trust
established thereunder and no other plan subject to Title IV of ERISA, Section
302 of ERISA or Section 412 of the Code maintained or contributed to by any
ERISA Affiliate 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 such plan ended prior to the
Closing Date which deficiency could cause the Company or any Company Subsidiary
to incur any material liability. All contributions or payments required to be
made by the Company, any Company Subsidiary or any ERISA Affiliate with respect
to any Company Plan have been timely made. The aggregate accumulated benefit
obligations of Title IV Company Plan (as of the most recent actuarial valuation
date) do not exceed the fair market value of the assets of such plan (as of the
date of such valuation).
(e) Multiemployer Plan. 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.
(f) 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. No
investigation, audit or dispute relating to any Company Plan is pending or, to
the knowledge of the Seller and the Company, threatened before any governmental
agency. None of the Seller, the Company, the Company Subsidiaries nor, to the
knowledge of the Seller or the Company, any other "disqualified person" (within
the meaning of Section 4975 of the Code) or "party in interest" (within the
meaning of Section 3(14) of ERISA) has taken or omitted to take any action with
respect to any Company Plan which would subject any such plan (or its related
trust), the Company or any Company Subsidiary or any officer, director or
employee of any of the foregoing to any penalty or tax under Section 502(i) of
ERISA or Section 4975 of the Code or material liability for breach of fiduciary
responsibility under ERISA. Neither the Company nor any Company Subsidiary has
agreed to indemnify any other party for any liabilities or expenses which have
been or may in the future be incurred by or asserted against such person with
respect to any Company Plan, which indemnification would have a Company Material
Adverse Effect.
(g) Section 401(a) Qualification; Exemption. Each Company Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code is
so qualified except where the failure to be so qualified would not have a
Company Material Adverse Effect and has received a determination letter from the
Internal Revenue Service to the effect that it is so qualified. To the knowledge
of the Seller and the Company, nothing has occurred since the issuance of such
letter which would affect such Company Plan's qualification. Each Company Plan
or related trust intended to meet the requirements of Section 501(c)(9) of the
Code meets such requirements and has received a letter of recognition of
exemption from the Internal Revenue Service to that effect. To the knowledge of
the Seller and the Company, nothing has occurred since the issuance of such
letter which could affect such Company Plan's or related trust's exemption under
Section 501(a) of the Code by reason of Section 501(c)(9) of the Code.
(h) Post-Employment Benefits. No Company Plan provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
11
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).
(i) Deductibility. No amounts payable under the Company Plan will fail
to be deductible for federal income tax purposes by virtue of Section 280G of
the Code.
(j) Effect of Change of Control. The consummation of the transactions
contemplated by this Agreement will not, either alone or in combination with
another related event, (i) entitle any current or former employee, officer or
limited liability company manager of the Company to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee, officer or limited liability
company manager.
(k) Claims. There are no pending or, to the knowledge of the Seller
and the Company, threatened claims by or on behalf of any Company Plan, by any
current or former employee, officer or limited liability company manager or
beneficiary thereof covered under any such Company Plan, or otherwise involving
any such Company Plan (other than routine claims for benefits), and neither the
Seller nor the Company has knowledge of facts which would form a reasonable
basis for any such claim.
Section 3.9 Labor and Employee Relations. Neither the Company nor the
Company Subsidiaries are party to any collective bargaining agreement or other
labor agreement with any union or labor organization. Except to the extent as
would not have a Company Material Adverse Effect, as of the date hereof, there
is no strike, lockout, slowdown or work stoppage pending or, to the knowledge of
the Seller or the Company, threatened against the Company or any of the Company
Subsidiaries.
Section 3.10 Environmental Protection.
(a) (i) To the knowledge of the Seller or the Company, the Company and
each Company Subsidiary are in compliance with all applicable Environmental
Laws, including, but not limited to, possessing all permits and other
governmental authorizations required for their operations under applicable
Environmental Laws, except for such noncompliance that would not have a Company
Material Adverse Effect.
(ii) To the knowledge of the Seller or the Company, there is no
pending or threatened written claim, lawsuit, or administrative proceeding
against the Company or any Company Subsidiary under or pursuant to any
Environmental Law that would have a Company Material Adverse Effect.
Neither the Company nor any Company Subsidiary is subject to any
administrative or judicial consent order or decree in connection with any
Environmental Laws or the release of Hazardous Substances that is having or
would have a Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary has received written notice from any Person, including
12
but not limited to any Governmental Authority, alleging that the Company or
any Company Subsidiary is in violation or potentially in violation of any
applicable Environmental Law or otherwise may be liable under any
applicable Environmental Law, which violation or liability is unresolved
and which would have a Company Material Adverse Effect. As used in this
Agreement, the term "Person" shall mean any natural person, corporation,
general or limited partnership, limited liability company, joint venture,
trust, association or entity of any kind.
(iii) To the knowledge of the Seller or the Company, with respect
to the real property that was formerly or is currently owned or leased by
the Company or any Company Subsidiary, there have been no spills or
discharges of Hazardous Substances on or underneath any of such real
property that would result in a Company Material Adverse Effect.
(b) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all foreign, federal, state
and local laws, regulations, rules and ordinances relating to pollution or
protection of the environment, including, without limitation, laws relating
to releases or threatened releases of Hazardous Substances into the
environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata). Such laws include the
common law to the extent that it relates to injuries caused by the release
or presence of Hazardous Substances.
(ii) "Hazardous Substances" shall mean any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "hazardous
constituents", "restricted hazardous materials", "extremely hazardous
substances", "toxic substances", "contaminants", "pollutants", "toxic
pollutants", or words of similar meaning and regulatory effect under any
applicable Environmental Law including, without limitation, petroleum and
asbestos.
(c) The representations and warranties set forth in this Section 3.10
are the sole and exclusive representations and warranties relating to
environmental matters made by the Company or the Seller in this Agreement.
Section 3.11 Regulation as an EWG. Medina is an exempt wholesale generator
regulated by the FERC. Neither the Company nor any "subsidiary company" or
"affiliate" (as each such term is defined in PUHCA) of the Company (other than
Central Illinois Light Company and Central Illinois Generation, Inc.) is subject
to regulation as a public utility or public service company (or similar
designation) by the FERC or any municipality, locality or state in the United
States or any foreign country.
Section 3.12 Insurance. Each of the Company and the Company Subsidiaries is
insured and has been continuously insured since their respective dates of
13
organization with financially responsible or nationally recognized insurers in
such amounts and against such types of risks as is customary and appropriate in
its industry or otherwise deemed reasonable by the Seller except as would not
have a Company Material Adverse Effect. The Seller has not received any written
notice of cancellation or termination with respect to any insurance policy of
the Company or the Company Subsidiaries except as would not have a Company
Material Adverse Effect.
Section 3.13 Real Property. Except as would not have a Company Material
Adverse Effect: (a) the Company and the Company Subsidiaries have good and valid
title to, or a valid leasehold interest in all of the real property used by the
Company or the Company Subsidiaries, respectively (collectively, the "Company
Properties"), in each case free and clear of any Encumbrances and (b) the
Company Properties (taking into account, without limitation, all Encumbrances
related thereto, all zoning and other restrictions applicable thereto and the
condition thereof) are suitable and adequate for the conduct of the businesses
of the Company and the Company Subsidiaries as currently conducted.
Section 3.14 Affiliate Contracts. Section 3.14 of the Seller Disclosure
Schedule contains a true and complete list of each agreement or contract as of
the date hereof between (i) the Company and its Subsidiaries, on one hand, and
(ii) the Seller and any affiliate thereof (other than the Company and its
Subsidiaries) on the other (collectively, the "Affiliate Contracts").
Section 3.15 Brokers or Finders. Neither the Seller nor the Company has
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 Inc.,
whose fees and expenses will be paid by the Seller in accordance with the
Seller's agreements with such firm.
Section 3.16 Contracts.
(a) Section 3.16(a) of the Seller Disclosure Schedule contains a
complete and correct list of all contracts relating to the business of the
Company and the Company Subsidiaries as of the date hereof which (i) have a term
in excess of one year and (ii) provide for aggregate consideration in an amount
in excess of $2 million (the "Material Contracts"). There are no defaults under
any Material Contracts which have or would have a Company Material Adverse
Effect. As of the date hereof, the Seller has not received any written notice of
cancellation relating to a Material Contract and has no knowledge of facts that
a Material Contract is likely to be cancelled, except for such cancellations
which would not have a Company Material Adverse Effect. The Seller has provided
or made available to the Purchaser true, correct and complete copies of all
Material Contracts, including all amendments thereto except for such contracts
that by their terms prohibit disclosure to third parties.
(b) Each Material Contract is a valid and binding agreement and is in
full force and effect except to the extent such contract has expired by its own
terms without penalty, and enforceable by the Company or any of the Company
Subsidiaries in accordance with its terms, and none of the Company and the
Company Subsidiaries or, to the knowledge of the Seller or the Company, any
other party thereto is in default or breach under the terms of any such
14
contracts and, to the knowledge of the Seller or the Company, no event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute any event of default thereunder other than in each case defaults or
breaches that would not have a Company Material Adverse Effect.
Section 3.17 Regulatory Proceedings. Neither the Company nor any of the
Company Subsidiaries all or part of whose rates or services are regulated by a
Governmental Authority (a) has rates that have been or are being collected
subject to refund pending a final resolution of any rate proceeding pending
before a Governmental Authority or on appeal to the courts, or (b) is a party to
any rate proceeding before a Governmental Authority that in each case would
result in orders having a Company Material Adverse Effect.
Section 3.18 Limitation on Representations and Warranties. Except for the
representations and warranties contained in this Article III, neither the Seller
nor any other Person or entity acting on behalf of the Seller makes any
representation or warranty, express or implied, concerning the Units or the
business, finances, operations, assets, liabilities, prospects or any other
aspect of the Company and the Company Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller that except as set
forth in the reports, schedules, registration statements and definitive proxy
and all amendments thereto filed publicly not earlier than January 1, 2001 and
not later than the close of business on the day prior to the date of this
Agreement with the SEC by the Purchaser or any Purchaser Subsidiary (or their
predecessors) pursuant to the requirements of the Securities Act or the Exchange
Act (as such documents have since the time of their filing been amended publicly
not earlier than January 1, 2001 and not later than the close of business on the
day prior to the date of this Agreement, the "Purchaser SEC Reports") or in the
schedule delivered by the Purchaser on the date hereof (the "Purchaser
Disclosure Schedule"):
Section 4.1 Organization and Qualification. The Purchaser and each of the
Purchaser Subsidiaries (as defined below) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, 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
have a Purchaser Material Adverse Effect (as defined below) or prevent,
materially delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. As used in this Agreement, the term
"Purchaser Material Adverse Effect" shall mean any material adverse effect on
the business, assets, financial condition or results of operations of the
Purchaser and the Purchaser Subsidiaries, taken as a whole; provided, however,
that the term "Purchaser Material Adverse Effect" shall not include effects that
result from or are consequences of (i) any such effect resulting from any change
in law, rule or regulation of any Governmental Authority (as defined in Section
3.3(c)), that applies generally to similarly situated Persons (as defined in
15
Section 3.10(a)(ii)), (ii) changes or developments in international, national,
regional, state or local wholesale or retail markets for electric power or fuel
or related products, including those due to actions by competitors, (iii)
changes or developments in national, regional, state or local electric
transmission or distribution systems, (iv) changes or developments in financial
or securities markets or the economy in general or effects of weather or
meteorological events, (v) events or changes that are consequences of terrorist
activity, acts of war or acts of public enemies (other than any such event or
consequence affecting only the Purchaser or a Purchaser Subsidiary) or (vi) the
negotiation, announcement, execution, delivery, consummation or anticipation of
the transactions contemplated by, or in compliance with, this Agreement. The
term "Purchaser Subsidiary" shall mean a Subsidiary of the Purchaser.
Section 4.2 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. The Purchaser has all requisite corporate power and
authority to enter into this Agreement and, subject to the receipt of the
applicable Purchaser Required Statutory Approvals (as defined in Section
4.2(c)), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser. No vote of, or consent by, the
holders of any class or series of stock issued by the Purchaser is necessary to
authorize the execution and delivery by the Purchaser of this Agreement or the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Purchaser and, assuming the due
authorization, execution and delivery hereof by the Seller, constitutes the
valid and binding obligation of the Purchaser 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
the Purchaser 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, by-laws or similar governing documents of the
Purchaser or any of the Purchaser Subsidiaries, (ii) subject to obtaining the
Purchaser Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to the Purchaser or any of the Purchaser
Subsidiaries or any of their respective properties or assets, or (iii) subject
to obtaining the third-party consents set forth in Section 4.2(b)(iii) of the
Purchaser Disclosure Schedule (the "Purchaser Required Consents"), any 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 Purchaser or any of the Purchaser 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 clause (ii) or (iii) for any such Violation
which would not prevent, materially delay or materially impair the Purchaser's
ability to consummate the transactions contemplated by this Agreement.
(c) Statutory Approvals. Except for (i) the filings by the Seller, the
Company, and/or the Purchaser, as applicable, required under the HSR Act (as
defined below), (ii) the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder, and (iii) any filings with or
16
approvals from (x) the FERC, (y) the Federal Communications Commission and (z)
the other Governmental Authorities set forth on Section 4.2(c) of the Purchaser
Disclosure Schedule (the filings and approvals referred to in clauses (i)
through (iii) collectively referred to as the "Purchaser Required Statutory
Approvals"), no declaration, 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 Purchaser or the
consummation by the Purchaser of the transactions contemplated hereby, except
those which the failure to obtain would not prevent, materially delay or
materially impair the Purchaser's ability to consummate the transactions
contemplated by this Agreement (it being understood that references in this
Agreement to "obtaining" such Purchaser 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).
(d) Compliance. Neither the Purchaser nor any of the Purchaser
Subsidiaries 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, rule, regulation, ordinance or judgment of any Governmental Authority,
except for possible violations which would not prevent, materially delay or
materially impair the Purchaser's ability to consummate the transactions
contemplated by this Agreement. The Purchaser and the Purchaser 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 would not prevent, materially
delay or materially impair the Purchaser's ability to consummate the
transactions contemplated by this Agreement. Neither the Purchaser nor any of
the Purchaser 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 Purchaser or any Purchaser Subsidiary under (i) their respective
certificates of incorporation or by-laws or (ii) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which they are a party or by which the Purchaser
or any Purchaser Subsidiary is bound or to which any of their property is
subject, except for possible violations, breaches or defaults which would not
prevent, materially delay or materially impair the Purchaser's ability to
consummate the transactions contemplated by this Agreement.
Section 4.3 Purchaser SEC Reports; Financial Statements. The filings
required to be made by the Purchaser under the Securities Act and the Exchange
Act have been filed with the SEC and complied, as of their respective dates, in
all material respects with all applicable requirements of the appropriate
statutes and the rules and regulations thereunder. As of their respective dates,
none of the Purchaser SEC Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Purchaser included
in the Purchaser SEC Reports have been prepared in accordance with GAAP applied
on a consistent basis during the period involved (except as may be stated in the
notes thereto) and fairly present the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of the Purchaser as of the time and for the period referred to
17
therein, subject, in the case of unaudited interim financial statements, to
normal, recurring audit adjustments.
Section 4.4 Litigation. There are no claims, suits, actions or proceedings
by any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator, pending or, to the knowledge of the Purchaser,
threatened against, relating to or affecting the Purchaser or any Purchaser
Subsidiaries which would prevent, materially delay or materially impair the
Purchaser's ability to consummate the transactions contemplated by this
Agreement. 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 Purchaser or any Purchaser Subsidiaries
except for such that would not prevent, materially delay or materially impair
the Purchaser's ability to consummate the transactions contemplated by this
Agreement.
Section 4.5 Investigation by the Purchaser; the Seller's Liability. The
Purchaser has conducted its own independent investigation, review and analysis
of the business, operations, assets, liabilities, results of operations,
financial condition, software, technology and prospects of the Company and the
Company Subsidiaries, which investigation, review and analysis were done by the
Purchaser and its affiliates and, to the extent the Purchaser deemed
appropriate, by the Purchaser's representatives. The Purchaser acknowledges that
it and its representatives have been provided adequate access to the personnel,
properties, premises and records of the Company and the Company Subsidiaries for
such purpose. In entering into this Agreement, the Purchaser acknowledges that
it has relied solely upon the aforementioned investigation, review and analysis
and not on any factual representations of the Seller or its representatives
(except the specific representations and warranties of the Seller set forth in
Article III of this Agreement), and the Purchaser:
(a) acknowledges that none of the Seller, the Company, the Company
Subsidiaries or any of their respective directors, managers, officers,
shareholders, employees, affiliates, controlling Persons, agents, advisors or
representatives makes or has made any representation or warranty, either express
or implied, as to the accuracy or completeness of any of the information
(including materials furnished in the Company's data room, presentations by the
Company's management, financial projections or otherwise) provided or made
available to the Purchaser or its directors, officers, employees, affiliates,
controlling Persons, agents or representatives, and
(b) agrees, to the fullest extent permitted by law, that none of the
Seller, the Company, the Company Subsidiaries or any of their respective
directors, managers, officers, employees, shareholders, affiliates, controlling
Persons, agents, advisors or representatives shall have any liability or
responsibility whatsoever to the Purchaser or its directors, officers,
employees, affiliates, controlling Persons, agents or representatives on any
basis (including in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or statements
made (including materials furnished in the Company's data room, presentations by
the Company's management, financial projections or otherwise) to the Purchaser
or its directors, officers, employees, affiliates, controlling Persons,
advisors, agents or representatives (or any omissions therefrom), including in
respect of the specific representations and warranties of the Seller set forth
in this Agreement, except that the foregoing limitations shall not apply to the
Seller insofar as the Seller makes the specific representations and warranties
18
set forth in Article III of this Agreement, but always subject to the
limitations and restrictions contained in Article IX.
Section 4.6 Acquisition of Units for Investment; Ability to Evaluate and
Bear Risk.
(a) The Purchaser is an "accredited investor" as such term is defined
in Regulation D promulgated under the Securities Act. The Purchaser is acquiring
the Units for investment and not with a view toward, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the Units. The Purchaser agrees that the Units may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act and any applicable state
securities laws, except pursuant to an exemption from such registration under
such Act and such laws.
(b) The Purchaser is able to bear the economic risk of holding the
Units for an indefinite period, and has knowledge and experience in financial
and business matters such that it is capable of evaluating the risks of the
investment in the Units.
Section 4.7 Financing. The Purchaser will have as of the Closing,
sufficient cash in immediately available funds to pay the Estimated Purchase
Price pursuant to Article I hereof and to consummate the transactions
contemplated hereby.
Section 4.8 Brokers or Finders. The Purchaser 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 Goldman, Sachs & Co., whose fees and
expenses will be paid by the Purchaser in accordance with the Purchaser's
agreement with such firm.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.1 Covenants of the Seller. After the date hereof and prior to the
Closing or earlier termination of this Agreement, the Seller agrees that, except
as set forth in Section 5.1 of the Seller Disclosure Schedule and except (i) as
contemplated in or permitted by this Agreement, (ii) as provided for in the
annual budgets or capital budgets (copies of which, in their current form, have
been made available to the Purchaser and included in the Seller Disclosure
Schedule) for the Company and each Company Subsidiary, (iii) in connection with
necessary repairs due to breakdown or casualty, or other actions taken in
response to a business emergency or other unforeseen operational matters,
(iv) as required by law, rule or regulation, or (v) to the extent the Purchaser
shall otherwise consent, which decision regarding consent shall be made
promptly, and which consent shall not be unreasonably withheld, conditioned or
delayed:
(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 its respective commercially reasonable efforts
to preserve its business organization intact and maintain its existing relations
19
and goodwill with customers, suppliers, creditors, lessors and business
associates;
(b) the Company shall not, nor shall the Company permit any of the
Company Subsidiaries to, (i) amend their operating agreements or limited
liability company agreements other than amendments which are ministerial in
nature or otherwise immaterial; (ii) split, combine or reclassify their
outstanding Units of Membership Interests; (iii) declare, set aside or pay any
distribution payable in cash, stock or property in respect of any Units other
than (A) distributions paid to the Company or its wholly-owned Subsidiaries or
(B) dividends in respect of earnings of the Company for the period between March
31, 2002 and the Closing Date not in excess of 100% of the net income for such
period; or (iv) repurchase, redeem or otherwise acquire any of its Units of
Membership Interests or any securities convertible into or exchangeable or
exercisable for any of its Units of Membership Interests;
(c) neither the Company nor any Company Subsidiary shall issue, sell,
or dispose of any Units of, or securities convertible into or exchangeable or
exercisable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any Units of its Membership Interests or any other property or
assets;
(d) neither the Company nor any Company Subsidiary shall incur any
indebtedness except for indebtedness that is incurred in the ordinary and usual
course of business and complies with the restrictions of Section 5.1(d) of the
Seller Disclosure Schedule;
(e) neither the Company nor any Company Subsidiary shall repay
principal on existing indebtedness except in accordance with the amortization
schedule of such debt;
(f) neither the Company nor any Company Subsidiary shall make any
acquisition of, or investment in, assets or stock of any other Person or entity,
other than in the ordinary and usual course of business and not to exceed
singularly or in the aggregate $2 million in any calendar year and no
acquisition or investment shall be of any public utility company (as defined in
PUHCA) or in a business or any interest in a business which would not be
retainable by the Purchaser under PUHCA following the Closing;
(g) neither the Company nor any Company Subsidiary shall sell, lease,
license, encumber or otherwise dispose of any of its assets, other than in the
ordinary and usual course of business, and in an amount not to exceed singularly
or in the aggregate $2 million in any calendar year;
(h) neither the Company nor any Company Subsidiary shall terminate,
establish, adopt, enter into, make any new grants or awards of unit-based
compensation or other benefits under, amend or otherwise materially modify any
Company Plan or increase the salary, wage, bonus or other compensation of any
managers, officers or employees except (i) for grants or awards to managers,
officers and employees under any existing Company Plan 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 any individual Company Plan consistent with
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past practice for newly hired, appointed or promoted officers and employees), or
(iii) for actions necessary to satisfy existing contractual obligations under
any Company Plan existing as of the date hereof or to comply with applicable
law;
(i) the Company and each Company Subsidiary shall maintain insurance
with financially responsible or nationally recognized insurers in such amounts
and against such risks and losses as are consistent with the insurance
maintained by the Company and each Company Subsidiary, respectively, in the
ordinary and usual course of business;
(j) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, change any material financial or Tax accounting method,
policies, practices or election, except as required by GAAP or SEC accounting
regulations or guidelines or applicable law;
(k) the Seller and the Company shall promptly provide the Purchaser
with copies of all filings made by the Seller, the Company or any Company
Subsidiary with, and inform the Purchaser of any communications received from,
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby;
(l) the Seller, the Company and each Company Subsidiary shall use
their respective best efforts to promptly obtain all of the Seller Required
Consents and the Seller Required Statutory Approvals. The Seller shall promptly
notify the Purchaser of any failure or prospective failure to obtain any such
consents or approvals and, if requested by the Purchaser, shall provide copies
of all of the Seller Required Consents and the Seller Required Statutory
Approvals obtained by the Seller, the Company and each Company Subsidiary to the
Purchaser;
(m) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, enter into any material agreement or arrangement with any other
person that, directly or indirectly, controls or is under common control with or
is controlled by the Seller, or any of its respective subsidiaries on terms to
the Company or the Company Subsidiaries materially less favorable than could be
reasonably expected to have been obtained with an unaffiliated third party on an
arm's-length basis;
(n) the Company shall, and shall cause the Company Subsidiaries to,
use commercially reasonable efforts to maintain in effect or renew all existing
material Permits pursuant to which the Company or any of the Company
Subsidiaries operate;
(o) the Seller shall not, nor shall it permit any Subsidiary of the
Seller to, directly or indirectly, solicit for employment by such persons any of
the current officers, managers or employees of the Company or any Company
Subsidiary except for those persons specified on Section 5.1(o) of the Seller
Disclosure Schedule; provided that the Seller and the Subsidiaries of the Seller
shall not be prohibited from employing any such person who contacts the Seller
or any Subsidiary of the Seller on his or her own initiative or who responds to
a general solicitation through the use of media advertisements, the Internet or
professional search firms; and
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(p) the Company shall not, nor shall it permit any Company Subsidiary
to, transfer or assign any contracts to which the Company or any of the Company
Subsidiaries is a party, to any of the Company's affiliates (other than the
Company Subsidiaries) or to CILCORP Inc., or any of its Subsidiaries.
Section 5.2 No Solicitation and Confidentiality.
(a) From the date hereof through the Closing, none of the parties nor
their representatives (including, without limitation, investment bankers,
attorneys and accountants) shall, directly or indirectly, enter into, solicit,
initiate or continue any discussions or negotiations with, or encourage or
respond to any inquiries or proposals by, or participate in any negotiations
with, or provide any information to, or otherwise cooperate in any other way
with, any person or other entity or group, concerning any sale of all or a
portion of the Company, or of any membership units of the Company or any Company
Subsidiary or any merger, consolidation, liquidation, dissolution or similar
transaction involving the Company or any Company Subsidiary (each such
transaction being referred to herein as a "Proposed Acquisition Transaction")
other than with (i) the Purchaser and its representatives, or (ii) as required
by law. Neither the Seller nor the Company shall, directly or indirectly,
through any officer, director, employee, representative, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
person (including, without limitation, a "person" as defined in Section 13(d)(3)
of the Exchange Act) or entity relating to any Proposed Acquisition Transaction.
The Seller and the Company represent that they are not now engaged in
discussions or negotiations with any party other than the Purchaser with respect
to any of the foregoing.
(b) Notification. The Seller and the Company shall promptly notify the
Purchaser if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any information is requested with respect to any
Proposed Acquisition Transaction and notify the Purchaser of the identity of the
prospective purchaser or soliciting party and any other information relating to
such inquiry or proposal known to the Seller, the Company or any Company
Subsidiary.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access to Company Information. Upon reasonable notice, the
Seller shall, and shall cause the Company and each Company Subsidiary to, afford
to the officers, directors, managers, employees, accountants, counsel,
investment bankers, financial advisors and other representatives (collectively,
"Representatives") of the Purchaser reasonable access, during normal business
hours throughout the period prior to the Closing Date, to all of the Company's
and the Company Subsidiaries' properties, books, contracts, commitments and
records and, during such period, the Seller shall, and shall cause the Company
and each Company Subsidiary to, furnish promptly to the Purchaser and its
Representatives, (i) access to each report, schedule and other document filed or
received by the Company, each Company Subsidiary pursuant to the requirements of
federal or state securities laws or filed with or sent to any federal or state
regulatory agency or commission and (ii) access to all information concerning
the Company, each Company Subsidiary and its respective managers and officers
and such other matters as may be reasonably requested by the Purchaser or its
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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. The Purchaser agrees to
indemnify and hold the Seller, 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 Purchaser, and any loss, damage
to or destruction of any property owned by the Seller, the Company or the
Company Subsidiaries or others (including claims or liabilities for loss of use
of any property) resulting directly or indirectly from the action or inaction of
any of the Representatives of the Purchaser 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 6.1 or otherwise. None of the Purchaser
nor any of its Representatives shall conduct any environmental testing or
sampling on any of the business or property sites of the Company or the Company
Subsidiaries prior to the Closing Date. 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 15, 2001, as amended, entered into by
and between the Seller and the Purchaser (the "Confidentiality Agreement").
Section 6.2 Regulatory Matters.
(a) HSR Filings. Each party hereto shall, as soon as practicable as
mutually agreed by the parties, file or cause to be filed with the Federal Trade
Commission (the "FTC") and the Department of Justice (the "DOJ") 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 shall use all 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 best efforts to prepare and file as soon as practicable all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use best efforts to obtain all necessary permits,
consents, approvals and authorizations of all Governmental Authorities necessary
or advisable to obtain the Seller Required Statutory Approvals and the Purchaser
Required Statutory Approvals. The parties further agree to use best efforts (i)
to take any act, make any undertaking or receive any clearance or approval
required by any Governmental Authority or applicable law and (ii) to satisfy any
conditions imposed by any Governmental Authority in all Final Orders (as defined
in and for purposes of Section 7.1(b)). Each of the parties shall (i) respond as
promptly as practicable to any inquiries or requests received from any
Governmental Authority for additional information or documentation, and (ii) not
enter into any agreement with any Governmental Authority not to consummate the
transactions contemplated by this Agreement, except with the prior consent of
the other party hereto (which shall not be unreasonably withheld or delayed).
Each of the parties shall make best efforts to avoid or eliminate each and every
impediment under any antitrust, competition, or trade or energy regulation law
(including the Federal Power Act, as amended, and the FERC's regulations
thereunder) that may be asserted by any Governmental Authority with respect to
the transactions contemplated hereby so as to enable the Closing Date to occur
as soon as reasonably possible. The steps involved in the preceding sentence
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shall include proposing, negotiating, committing to and effecting, by consent
decree, hold separate order or otherwise, the sale, divestiture or disposition
of such assets or businesses of the Purchaser or its affiliates (including their
respective Subsidiaries) or agreeing to such limitations on its or their conduct
or actions as may be required in order to obtain the Seller Required Statutory
Approvals and the Purchaser Required Statutory Approvals as soon as reasonably
possible, to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying the
Closing Date, and defending through litigation on the merits, including appeals,
any claim asserted in any court by any party.
(c) Exception. Notwithstanding anything to the contrary in Section
6.2, neither party shall be required to take any actions that would have a
Company Material Adverse Effect or a Purchaser Material Adverse Effect, and,
further, any terms or conditions imposed by the FERC, the FTC or the Antitrust
Division of the DOJ relating to market power, including but not limited to,
divestiture of generation or transmission improvements, shall not constitute a
Company Material Adverse Effect or a Purchaser Material Adverse Effect.
(d) Responsibilities. The Seller and the Purchaser agree that (i) the
Purchaser shall have primary responsibility for the preparation and filing of
any applications with or notifications to the FERC, the FTC and/or the DOJ and
the SEC under PUHCA and (ii) the Seller and the Purchaser shall have joint
responsibility for the preparation and filing of any applications with or
notifications to the ICC. Each party shall have the right to review and approve
in advance drafts of all such necessary applications, notices, petitions,
filings and other documents made or prepared in connection with the transactions
contemplated by this Agreement, which approval shall not be unreasonably
withheld or delayed.
Section 6.3 Consents. The Seller and the Purchaser agree to use reasonable
best efforts to obtain the Seller Required Consents and the Purchaser Required
Consents, respectively, and to cooperate with each other in connection with the
foregoing.
Section 6.4 Managers' and Officers' Indemnification.
(a) Indemnification. From and after the Closing Date, the Purchaser
shall cause the Company, to the fullest extent permitted under applicable law,
to indemnify and hold harmless (and advance funds in respect of each of the
foregoing) each present and former employee, agent, manager or officer of the
Company and the Company Subsidiaries (each, together with such person's heirs,
executors or administrators, an "Indemnified Party" and collectively, the
"Indemnified Parties") against any costs or expenses (including advancing
attorneys' fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law), judgments, fines, losses, claims, damages, liabilities
and amounts paid in settlement in connection with any actual or threatened
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative (an "Action"), arising out of, relating to or in
connection with any action or omission by such Indemnified Party in his or her
capacity as an employee, agent, manager or officer occurring or alleged to have
occurred whether before or after the Closing Date (including acts or omissions
in connection with such person's service as an officer, manager or other
fiduciary in any entity if such service was at the request or for the benefit of
24
the Company or any of the Company Subsidiaries) or this Agreement or the
transactions contemplated hereby. In the event of any such Action, the Purchaser
shall cooperate with the Indemnified Party in the defense of any such Action.
(b) Survival of Indemnification. To the fullest extent not prohibited
by law, from and after the Closing Date, all rights to indemnification now
existing in favor of the Company Indemnified Parties with respect to their
activities as such prior to or on the Closing Date, as provided in the Company's
and each Company Subsidiary's respective articles of incorporation, by-laws,
other organizational documents or indemnification agreements in effect on the
date of such activities or otherwise in effect on the date hereof, shall survive
the Closing and shall continue in full force and effect for a period of not less
than six years from the Closing Date, provided that, in the event any claim or
claims are asserted or made within such six-year period, all such rights to
indemnification in respect of any claim or claims shall continue until final
disposition of such claim or claims.
(c) Insurance. For a period of six years after the Closing Date, the
Purchaser shall or the Purchaser shall cause the Company to maintain in effect
policies of directors' and officers' liability insurance equivalent to those
maintained by the Seller on behalf of the Company prior to the Closing Date for
the benefit of those persons who are currently covered by such policies on terms
no less favorable than the terms of such current insurance coverage; provided,
however, that the Purchaser will not be required to expend in any year an amount
in excess of 200% of the annual aggregate premiums currently paid by the Seller
or the Company, as the case may be, for such insurance; provided, further, that
if the annual premiums of such insurance coverage exceed such amount, the
Purchaser shall cause the Company to obtain a policy with the best coverage
available, in the reasonable judgment of the board of directors of the Purchaser
for a cost not exceeding such amount.
(d) Successors. In the event that, after the Closing Date, the Company
or the Purchaser or any of their respective successors or assigns (i)
consolidates with or merges into any other Person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or a substantial portion of its properties and assets to any
Person or entity, then and in either such case, proper provisions shall be made
so that the successors and assigns of the Company or the Purchaser, as the case
may be, shall assume the obligations set forth in this Section 6.4.
(e) Benefit. The provisions of this Section 6.4 are intended to be for
the benefit of, and shall be enforceable by, each Company Indemnified Party, his
or her heirs, executors or administrators and his or her other representatives.
Section 6.5 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 Seller and the Purchaser shall use reasonable efforts
to consult with each other prior to issuing any press releases or otherwise
making public announcements with respect to this Agreement and the transactions
contemplated hereby and the parties shall consult with each other regarding any
press releases initially announcing the execution of this Agreement.
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Section 6.6 Workforce Matters. If any employee of the Company or any
Company Subsidiary who was an employee immediately prior to the Closing (an
"Affected Employee") is discharged by the Company or any Company Subsidiary as
of or after the Closing, then the Purchaser shall be responsible for any and all
severance costs for such Affected Employee, including payments owing under those
agreements, plans or arrangements listed in Section 3.8(a) of the Seller
Disclosure Schedule. The Purchaser shall be responsible for providing any
continuation coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") in respect of Affected
Employees who experience or have experienced a qualifying event (within the
meaning of COBRA) prior to, on or after the Closing Date including, without
limitation, all other employees of the Company or any Company Subsidiary who
experience such a qualifying event before the Closing Date but who do not
provide notice of the qualifying event until on or after the Closing Date. The
Purchaser shall be responsible and assume all liability for all notices or
payments due to any Affected Employees under the Worker Adjustment and
Retraining Notification Act and regulations promulgated thereunder (the "WARN
Act") or to any employee of the Company or any Company Subsidiary who becomes
entitled to receive notice as required under the WARN Act on account of the
aggregation of "employment losses" in accordance with the WARN Act, and all
notices, payments, fines or assessments due to any Governmental Authority,
pursuant to any applicable foreign, federal, state or local law, common law,
statute, rule or regulation with respect to the employment, discharge or layoff
of employees by the Company or any Company Subsidiary after the Closing Date,
including the WARN Act, and any comparable state or local law.
Section 6.7 Tax Matters.
(a) Tax Returns.
(i) The Seller shall file or cause to be filed when due all Tax
Returns that are required to be filed by or with respect to the Company and
each Company Subsidiary for taxable years or periods ending on or before
the Closing Date. The Seller shall include the income of the Company and
each Company Subsidiary (including any deferred intercompany income
triggered under Treasury Regulation Section 1.1502-13 or its predecessors
and any excess loss account taken into income under Treasury Regulation
Section 1.1502-19) on the AES Consolidated U.S. federal Tax Returns for all
periods ending on or before the Closing Date.
(ii) The Purchaser shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company
and each Company Subsidiary for taxable years or periods ending after the
Closing Date.
(iii)Any Tax Return required to be filed by the Purchaser
relating to any taxable year or period that includes but does not end on
the Closing Date (a "Straddle Period") shall be prepared in accordance with
past practice (to the extent permitted under applicable law) and submitted
(with copies of any relevant schedules, work papers and other documentation
then available) to the Seller for the Seller's approval not less than
26
forty-five (45) days prior to the due date (including extensions) for the
filing of such Tax Return. The Seller's approval shall not be unreasonably
withheld.
(iv) Upon the written request of the Purchaser setting forth in
detail the computation of the amount owed, the Seller shall pay to the
Purchaser, no later than two (2) days prior to the due date for the
applicable Tax Return, the Taxes for which the Seller is liable pursuant to
Section 6.7(b) and that are payable with any Tax Return to be filed by the
Purchaser with respect to any Straddle Period.
(v) Within thirty (30) days after the Closing Date (and from
time to time thereafter if the Seller reasonably requests), the Seller
shall provide to the Purchaser a list of the specific Tax information
materials required to enable the Seller to prepare and file all Tax Returns
required to be prepared and filed by the Seller pursuant to Section
6.7(a)(i). Within sixty (60) days after receiving any list, the Purchaser
shall cause the Company and each Company Subsidiary to prepare and provide
to the Seller a package containing the Tax information materials identified
in any list. The Purchaser shall prepare such package in good faith in a
manner substantially consistent with the Seller's past practice.
(b) Liability for Taxes.
(i) The Seller shall be liable for all Taxes with respect to Tax
Returns described in Section 6.7(a)(i), for all Taxes apportioned to the
Seller under Section 6.7(b)(iii), and for 50% of the Taxes described in
Section 6.7(m). Notwithstanding the foregoing, the Seller shall not be
liable for Taxes other than Income Taxes ("Non-Income Taxes") with respect
to Tax Returns described in Section 6.7(a)(i) and for all Taxes apportioned
to the Seller under Section 6.7(b)(iii) to the extent that Non-Income Taxes
reduce Working Capital.
(ii) The Purchaser shall be liable for all Taxes with respect to
Tax Returns described in Section 6.7(a)(ii), for all Taxes apportioned to
the Purchaser under Section 6.7(b)(iii), for 50% of the Taxes described in
Section 6.7(m) and for Non-Income Taxes to the extent that Non-Income Taxes
reduce Working Capital.
(iii) For purposes of this Section 6.7, where it is necessary to
apportion between the Seller and the Purchaser the Tax liability of an
entity for a Straddle Period (which is not treated under Treasury
Regulation Section 1.1502-76(b) or similar provisions of state, local, or
other law as closing on the Closing Date), such liability shall be
apportioned between the period deemed to end at the close of the Closing
Date, and the period deemed to begin at the beginning of the day following
the Closing Date on the basis of an interim closing of the books, except
that Taxes (such as real property Taxes) imposed on a periodic basis shall
be allocated or a daily basis.
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(iv) In determining the Seller's liability for Taxes pursuant to
this Agreement, the Seller shall be credited with the amount of estimated
Taxes and any Taxes under the United States Federal Unemployment Tax Act or
the United States Federal Insurance Contributions Act that are paid by or
on behalf of the Company or any Company Subsidiary prior to the Closing. To
the extent that the Seller's liability for Taxes for a taxable year or
period is less than the amount of such Taxes previously paid by or on
behalf of the Company or any Company Subsidiary with respect to all or a
portion of such taxable year or period, the Purchaser shall pay the Seller
the difference within two (2) days of filing the Tax Return relating to
such Taxes. To the extent that Non-Income Taxes paid by the Company or any
Company Subsidiary with respect to any pre-Closing period are less than the
amount of such Non-Income Taxes that reduce Working Capital, the Purchaser
shall pay the Seller the difference within two (2) days of filing each Tax
Return relating to such Non-Income Taxes.
(c) Refunds.
(i) Any Tax refund (including any interest in respect thereof)
received by the Purchaser, the Company, or any Company Subsidiary, and any
amounts credited against Taxes to which the Purchaser or a Purchaser
Subsidiary (including the Company, or any Company Subsidiary) becomes
entitled (including by way of any amended Tax Returns but excluding Tax
Returns from a carryback filing), that relate to any taxable period, or
portion thereof of the Company or a Company Subsidiary ending on or before
the Closing Date, shall be for the account of the Seller, and the Purchaser
shall pay over to the Seller any such refund or the amount of any such
credit within fifteen (15) days after receipt of such refund or utilization
of such credit. Any Tax refund from a carryback filing not prohibited under
Section 6.7(e)(iii) shall be for the account of the Purchaser.
(ii) The Purchaser shall pay the Seller interest at the rate
prescribed under Section 6621(a)(1) of the Code, compounded daily, on any
amount not paid when due under this Section 6.7(c). For purposes of this
Section 6.7(c), where it is necessary to apportion a refund or credit
between the Purchaser and the Seller for a Straddle Period, such refund or
credit shall be apportioned between the period deemed to end at the close
of the Closing Date and the period deemed to begin at the beginning of the
day following the Closing Date on the basis of an interim closing of the
books of the Company and any Company Subsidiary, except that Taxes (such as
real property Taxes) imposed on a periodic basis shall be allocated on a
daily basis.
(iii)The Purchaser shall cooperate, and shall cause the Company
and any Company Subsidiary to cooperate, in obtaining, at the Seller's
expense, any Tax refund (other than a refund based on a carryback from a
taxable year or period beginning after the Closing Date) that the Seller
reasonably believes is available based on substantial authority, including
through filing appropriate forms with the applicable Tax authority.
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(d) Certain Post-Closing Settlement Payments.
(i) If the examination of any federal, state, local or other Tax
Return of the Seller for any taxable period ending on or before the Closing
Date shall result (by settlement or otherwise) in any adjustment that
permits the Purchaser, the Company, or any Company Subsidiary to increase
deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such adjustments)
have been reported or taken into account (including by way of any increase
in basis) by the Purchaser, the Company, or any Company Subsidiary for one
or more periods beginning and ending within ten (10) years after the
Closing Date, the Seller shall notify the Purchaser and provide it with
adequate information so that the Purchaser can reflect on its, the
Company's, or Company Subsidiary's Tax Returns such increases in
deductions, losses or tax credits or decreases in income, gains or
recapture of tax credits. The Purchaser shall pay to the Seller, within
thirty (30) days of the filing of the Tax Returns for the taxable year in
which the Tax Benefit was realized, the amount of any resulting Tax
Benefit. "Tax Benefit" shall mean the amount of any refund, credit or
reduction in otherwise required Tax payments, including any interest
payable thereon, actually realized, provided, that, for these purposes, Tax
items shall be taken into account in accordance with the ordering
principles of the Code or other applicable law. For purposes of this
Section 6.7(d)(i), estimated Tax payments shall not be considered Tax
Returns and Tax Benefits shall be based on Tax Returns as filed.
(ii) If the examination of any federal, state, local or other Tax
Return of the Purchaser, the Company, or any Company Subsidiary for any
taxable period ending after the Closing Date shall result (by settlement or
otherwise) in any adjustment that permits the Seller to increase
deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such adjustments)
have been reported or taken into account (including by way of any increase
in basis) by the Seller for one or more periods ending on or before the
Closing Date, the Purchaser shall notify the Seller and provide it with
adequate information so that the Seller can reflect on its Tax Returns such
increases in deductions, losses or tax credits or decreases in income,
gains or recapture of tax credits. The Seller shall pay to the Purchaser,
within thirty (30) days of the receipt of such information, fifty percent
(50%) of the amount of any resulting Tax Benefits.
(e) Post-Closing Actions that Affect the Seller's Liability for Taxes.
(i) The Purchaser shall not take, or cause or permit the Company
or any Company Subsidiary (or any of their affiliates) to take, any action,
with respect to the taxable year or period of the Purchaser, the Company,
any Company Subsidiary, or affiliate, as applicable, which includes the
Closing Date, which would be reasonably likely to increase the Seller's or
any of its affiliates' liability for Taxes (including any liability of the
Seller to indemnify the Purchaser for Taxes pursuant to this Agreement)
including, for example, any action that would be reasonably likely to,
29
result in, or change the character of, any income or gain that the Seller
or any Seller affiliate must report on any Tax Return.
(ii) None of the Purchaser or any affiliate of the Purchaser
shall (or shall cause or permit the Company or any of the Company
Subsidiaries to) amend, refile or otherwise modify any Tax Return relating
in whole or in part to the Company or any of the Company Subsidiaries with
respect to any taxable year or period ending on or before the Closing Date
(or with respect to any Straddle Period) without the prior written consent
of the Seller, which consent may be withheld in the sole discretion of the
Seller; provided, that the Seller's consent shall not be required for
modifications that relate exclusively to the post-Closing Date portion of a
Straddle Period and that would not be reasonably likely to increase the
Seller's liability for Taxes under Section 6.7(i) of this Agreement.
(iii) Except to the extent otherwise required by law, none of the
Purchaser or any affiliate of the Purchaser shall (or shall cause or permit
the Company or any of the Company Subsidiaries to) carry back for federal,
state, local or foreign tax purposes to any taxable period, or portion
thereof, of the Company or any of the Company Subsidiaries or the Seller or
any affiliate of the Seller ending on or before, or which includes, the
Closing Date any operating losses, net operating losses, capital losses,
tax credits or similar items arising in, resulting from, or generated in
connection with a taxable year of the Purchaser or any affiliate of the
Purchaser, or portion thereof, ending after the Closing Date.
(f) Tax Payments. The Purchaser agrees that, pursuant to any Tax
sharing, Tax allocation, or Tax indemnity agreements between the Seller or any
Seller affiliate on the one hand and the Company or any Company Subsidiary on
the other hand, the Company or any Company Subsidiary may make tax sharing
payments to the Seller on any date or dates up to and including the Closing
Date. Any payment made pursuant to this Section 6.7(f) shall comply with the
terms of the agreement to which it relates (other than terms requiring payment
on a specified date or dates). Payments to the Seller pursuant to this Section
6.7(f) shall reduce the cash component of Working Capital as of the Closing
Date.
(g) Assistance and Cooperation. After the Closing Date, each of the
Seller and the Purchaser shall, and shall cause their respective affiliates to,
execute any forms necessary to filing a Tax Return and provide information to
the other party regarding the Company or any Company Subsidiary in connection
with (i) the other party preparing any Tax Returns that such other party is
responsible for preparing and filing and (ii) the other party preparing for any
audits of, or disputes with any Tax authority regarding, any Tax Returns of the
Company or any Company Subsidiary. In connection therewith, the Seller and the
Purchaser shall not dispose of any Tax work papers, books or records relating to
the Company or any Company Subsidiary during the six-year period following the
Closing Date, and thereafter shall give the other parties reasonable written
notice before disposing of such items.
(h) Section 338 Elections. The Purchaser agrees that if the Seller
notifies the Purchaser in writing, on or prior to the 120th day following the
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Closing Date, of its intention to make an election under Section 338(h)(10) of
the Code, and any corresponding elections under state and local law, with
respect to the purchase and sale of Units hereunder (such elections collectively
the "Section 338(h)(10) Election"), the Purchaser shall join with the Seller in
timely making such joint Section 338(h)(10) Election. If the Seller elects to
make a Section 338(h)(10) Election, prior to the 120th day following the Closing
Date, the Seller shall (i) determine the aggregate deemed sale price ("ADSP")
(within the meaning of Treasury Regulations Section 1.338-4T) of the Company and
the adjusted grossed-up basis ("AGUB") (within the meaning of Treasury
Regulations Section 1.338-5T) of the Company's assets for Tax purposes;
(ii) determine the proper allocation ("Allocation") (in accordance with Treasury
Regulations Section 1.338-6T and 1.338-7T) of the ADSP and AGUB among the assets
of the Company for Tax purposes; and (iii) deliver the Allocation to Purchaser.
If the Purchaser notifies the Seller in writing of a disagreement with respect
to an Allocation, the Seller and the Purchaser shall attempt to resolve their
differences within thirty (30) days of the Seller's receipt of such notice from
the Purchaser. If no agreement can be reached within sixty (60) days of the
Seller's receipt of such notice from Purchaser, the Seller and the Purchaser
shall agree to an Allocation based on an appraisal of the assets performed by an
accounting firm with national standing agreed upon by the Seller and the
Purchaser. In the absence of a notice from the Purchaser, or in the event that
the Seller and the Purchaser agree to an Allocation, the Seller and the
Purchaser shall (i) be bound by such Allocation for purposes of determining any
Taxes, (ii) prepare and file their Tax Returns consistent with such Allocations,
and (iii) take no position inconsistent with such Allocation on any Tax Return,
in any proceeding before any Taxing authority or otherwise. If a Section
338(h)(10) Election is not made, for purposes of all Tax Returns and other
applicable filings, the Seller and the Purchaser will each report the Units
purchase as a sale and purchase, respectively, of the Units.
(i) Indemnification by the Seller. Notwithstanding any other provision
of this Agreement other than Section 6.7(b)(iv), the Seller shall indemnify the
Purchaser from and against and in respect of:
(i) any liability for Taxes imposed on the Company or any Company
Subsidiary as members of the "affiliated group" (within the meaning of
Section 1504(a) of the Code) of which the Seller (or any predecessor or
successor) is the common parent that arises under Treasury Regulation
Section 1.1502-6(a) or any comparable provision of foreign, state or local
law;
(ii) any liability for Taxes imposed on the Company or any
Company Subsidiary for any taxable year or period that ends on or before
the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period deemed to end on and include the Closing Date;
provided, that any indemnification for Non-Income Tax liabilities under
this Section 6.7(i)(ii) shall apply only to the extent such Non-Income Tax
liabilities exceed the amount by which Non-Income Taxes reduce Working
Capital; and
(iii) any liability for Taxes for which the Seller is responsible
under Section 6.7(m).
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Any indemnification under this Section 6.7(i) shall give effect to any related
Tax Benefit and be net of any reserves and amounts recovered from third parties,
including amounts recovered through utility rate increases. The indemnification
pursuant to this Section 6.7(i) shall be the sole and exclusive remedy of the
Purchaser against the Seller with respect to any liability for Taxes in
connection with this Agreement.
(j) Indemnification by the Purchaser. Notwithstanding any other
provision of this Agreement, the Purchaser shall indemnify the Seller from and
against and in respect of:
(i) any liability for Taxes imposed on any of the Company or any
Company Subsidiary for any taxable year or period that begins after the
Closing Date and, with respect to any Straddle Period, the portion of such
Straddle Period beginning the day after the Closing Date; and
(ii) any liability for Taxes for which the Purchaser is
responsible under Section 6.7(m).
Any indemnification under this Section 6.7(j) shall give effect to any related
Tax Benefit and be net of any reserves and amounts recovered from third parties,
including amounts recovered through utility rate increases. The indemnification
pursuant to this Section 6.7(j) shall be the sole and exclusive remedy of the
Seller against the Purchaser with respect to any liability for Taxes in
connection with this Agreement.
(k) Contests.
(i) Notice. After the Closing Date, the Seller and the Purchaser
each shall notify the other party in writing within fifteen (15) days of
the commencement of any Tax audit or administrative or judicial proceeding
affecting the Taxes of any of the Company or any Company Subsidiary that,
if determined adversely to the taxpayer (the "Tax Indemnitee") or after the
lapse of time would be grounds for indemnification under this Section 6.7
by the other party (the "Tax Indemnitor"). Such notice shall contain
factual information describing any asserted Tax liability in reasonable
detail and shall include copies of any notice or other document received
from any Tax authority in respect of any such asserted Tax liability. If
either the Seller or the Purchaser fails to give the other party prompt
notice of an asserted Tax liability as required under this Agreement, then
(A) if the Tax Indemnitor is precluded by the failure to give prompt notice
from contesting the asserted Tax liability in any judicial forum, then such
party shall not have any obligation to indemnify the other party for any
losses arising out of such asserted Tax liability and (B) if the Tax
Indemnitor is not so precluded from contesting, if such failure to give
prompt notice results in a detriment to the Tax Indemnitor, then any amount
which the Tax Indemnitor is otherwise required to pay pursuant to this
Section 6.7 with respect to such liability shall be reduced by the amount
of such detriment.
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(ii) Control of Contests Involving Pre-Closing Periods or
Straddle Periods. In the case of an audit or administrative or judicial
proceeding involving any asserted liability for Taxes relating to any
taxable years or periods ending on or before the Closing Date or any
Straddle Period of the Company or any Company Subsidiary, the Seller shall
have the right, at its expense, to control the conduct of such audit or
proceeding; provided, however, that (i) the Seller shall keep the Purchaser
reasonably informed with respect to the status of such audit or proceeding
and provide the Purchaser with copies of all written correspondence with
respect to such audit or proceeding in a timely manner and (ii) if such
audit or proceeding would be reasonably expected to result in a material
increase in Tax liability of the Company or any Company Subsidiary for
which the Purchaser would be liable under this Section 6.7, (A) the
Purchaser may participate in the conduct of such audit or proceeding at its
own expense and (B) the Seller shall not settle any such audit or
proceeding without the consent of Purchaser, which consent shall not be
unreasonably withheld.
(iii) Control of Contests Involving Post-Closing Periods. In the
case of an audit or administrative or judicial proceeding involving any
asserted liability for Taxes relating to any taxable years or periods
beginning after the Closing Date, the Purchaser shall have the right, at
its expense, to control the conduct of such audit or proceeding; provided,
however, that if such audit or proceeding would be reasonably expected to
result in a material increase in Tax liability of the Company or any
Company Subsidiary for which the Seller would be liable under this Section
6.7, (A) the Seller may participate in the conduct of such audit or
proceeding at its own expense and (B) the Purchaser shall not settle any
such audit or proceeding without the consent of the Seller, which consent
shall not be unreasonably withheld.
(l) Termination Tax Sharing Agreements. On or before the Closing Date,
the Seller shall cause all Tax sharing, Tax allocation, or Tax indemnity
agreements between the Seller or any Seller affiliate on the one hand, and the
Company or any Company Subsidiary on the other hand, to be terminated as of the
Closing Date (or any earlier date) and the agreements will have no further
effect for any taxable year (current, future, or past).
(m) Transfer Taxes. Notwithstanding any other provision of this
Agreement to the contrary, the Purchaser and the Seller shall each pay 50% of
(i) all transfer (including real property transfer and documentary transfer)
Taxes and fees imposed with respect to the sale and transfer of Shares
contemplated hereby and (ii) all sales, use, gains (including state and local
transfer gains), excise and other transfer or similar Taxes imposed with respect
to the sale and transfer of Shares contemplated hereby. The Seller shall execute
and deliver to the Purchaser at the Closing any certificates or other documents
as the Purchaser may reasonably request to perfect any exemption from any such
transfer, documentary, sales, use, gains, excise or other Taxes, or to otherwise
comply with any applicable reporting requirements with respect to any such
Taxes.
(n) Retention of Tax Attributes. The Seller may elect to retain the
Tax attributes of the Company or any Company Subsidiary, including net operating
33
losses and capital loss carryovers of such entities, to the extent permitted
under the Code, Treasury Regulations, other pronouncements of the Internal
Revenue Service, or other applicable law. At the Seller's request, the Purchaser
will, and will cause any Purchaser Subsidiary, the Company, and any Company
Subsidiary to, take any actions necessary to effect such elections of the
Seller.
(o) Treatment of Purchase Price. The Seller, the Purchaser and their
respective Subsidiaries shall treat the Final Purchase Price as the purchase
price for the sale, conveyance, assignment, transfer and delivery to the
Purchaser of the Shares in preparing and filing their Tax Returns and shall take
no position inconsistent therewith in any proceeding before any taxing authority
or otherwise unless otherwise required pursuant to a final resolution of any Tax
for a taxable year that, under applicable law, is not subject to further appeal,
review or modification through proceedings or otherwise.
Section 6.8 Financial Information.
(a) After the Closing, upon reasonable written notice, the Purchaser
and the Seller shall furnish or cause to be furnished to each other and their
respective accountants, counsel and other representatives, during normal
business hours, such information (including records pertinent to the Company) as
is reasonably necessary for financial reporting and accounting matters.
(b) The Purchaser shall retain all of the books and records of the
Company and the Company Subsidiaries after the Closing Date for so long as
required by law. After the end of such period, before disposing of such books or
records, the Purchaser shall give notice to such effect to the Seller and give
the Seller an opportunity to remove and retain all or any part of such books or
records as the Seller may select.
Section 6.9 Termination of Affiliate Contracts. Except as set forth on
Section 6.9 of the Seller Disclosure Schedule and except as agreed to in writing
by the Seller and the Purchaser, all Affiliate Contracts, including any
agreements or understandings (written or oral) with respect thereto, shall
terminate simultaneously with the Closing without any further action or
liability on the part of the parties thereto. Notwithstanding the foregoing, in
the absence of a written agreement, the provision of any services (similar to
those contemplated by the preceding sentence) by the Seller to the Company or
any Company Subsidiary from and after the Closing, which services may be
provided by the Seller in its sole discretion, shall be for the convenience, and
at the expense, of the Purchaser, upon mutually agreed terms.
Section 6.10 Seller's Name. The Purchaser shall not acquire, nor shall the
Company and its Subsidiaries retain, any rights to the name "AES" (or any
derivation thereof) or any trademark, trade name or symbol related thereto. As
soon as reasonably practicable after the Closing but not later than sixty (60)
days after the Closing Date, the Purchaser shall cause the Company and its
Subsidiaries to remove the name "AES" (or any derivation thereof) and all
trademarks, trade names or symbols related thereto from the properties and
assets of the Company and its Subsidiaries.
Section 6.11 Further Assurances. Each party will, and will cause its
Subsidiaries to, execute such further documents or instruments and take such
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further actions as may reasonably be requested by the other party in order to
consummate the transaction in accordance with the terms hereof.
Section 6.12 Prepayment Alternative. Notwithstanding anything contained in
this Agreement to the contrary, the Purchaser shall waive the condition set
forth in Section 7.2(d) if so requested by the Seller in which event Seller
shall cause the Company and the Company Subsidiaries to pay off the indebtedness
pertaining to the Seller Required Consents and such indebtedness shall not
constitute Assumed Obligations for purposes of this Agreement (including Section
1.2(b)).
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.
The respective obligations of each party to effect the Closing 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 9.3 by the joint action of the parties
hereto:
(a) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the transactions contemplated hereby shall have been issued and
be continuing in effect, and the transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation
(collectively, "Restraints"); provided, however, that each of the parties shall
have used all reasonable efforts to prevent the entry of any such Restraints and
to appeal as promptly as possible any such Restraints that may be entered.
(b) Statutory Approvals. The Seller Required Statutory Approvals and
the Purchaser Required Statutory Approvals shall have been obtained at or prior
to the Closing Date by a Final Order. A "Final Order" shall mean 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 thereby may be
consummated has expired (but without the requirement for expiration of any
applicable rehearing or appeal period), and as to which all conditions to the
consummation of such transactions prescribed by law, regulation or order have
been satisfied.
(c) HSR Act. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
(d) Stock Purchase Agreement. The Stock Purchase Agreement between the
Seller and the Purchaser of even date herewith regarding the sale of all of the
issued and outstanding shares of CILCORP Inc. shall have been consummated in
accordance with its terms.
Section 7.2 Conditions to Obligation of the Purchaser to Effect the
Closing. The obligation of the Purchaser to effect the Closing 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 Purchaser in writing pursuant to
Section 9.3:
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(a) Performance of Obligations of the Seller. The Seller 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 Closing.
(b) Representations and Warranties. The representations and warranties
of the Seller 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 would not result in a Company Material Adverse Effect.
(c) Closing Certificates. The Purchaser shall have received a
certificate signed by the Seller, dated the Closing Date, to the effect that the
conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied
and to the further effect that there has not been any development or combination
of developments affecting the Company or any Company Subsidiary, of which the
Seller or the Company has knowledge, that would have a Company Material Adverse
Effect.
(d) Seller Required Consents. The Seller Required Consents, the
failure of which to obtain would have a Company Material Adverse Effect, shall
have been obtained.
(e) Regulatory Approvals. The Final Orders of any Governmental
Authority having authority over the transactions contemplated by this Agreement
shall not impose terms or conditions (which are in addition to terms and
conditions due to existing laws, rules or regulations), which would have a
Company Material Adverse Effect or a Purchaser Material Adverse Effect,
provided, however, that any terms or conditions imposed by the FERC, the FTC or
the Antitrust Division of the DOJ relating to market power, including but not
limited to, divestiture of generation or transmission improvements, will not
constitute a Company Material Adverse Effect or a Purchaser Material Adverse
Effect.
(f) Estoppel Letter. The Purchaser shall have received a letter from
Caterpillar waiving its termination rights pursuant to Section 4 of Appendix E
of the Service Agreement dated as of December 29, 1999 and amended as of
February 15, 2001 between Central Illinois Light Company and Caterpillar with
respect to the transactions contemplated by this Agreement.
Section 7.3 Conditions to Obligation of the Seller to Effect the Closing.
The obligation of the Seller to effect the Closing 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 Seller in writing pursuant to Section 9.3:
(a) Performance of Obligations of the Purchaser. The Purchaser (and/or
its appropriate Subsidiaries) will have performed in all material respects its
36
agreements and covenants contained in or contemplated by this Agreement which
are required to be performed by it at or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties
of the Purchaser 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 would not prevent, materially delay or materially impair
the Purchaser's ability to consummate the transaction contemplated by this
Agreement.
(c) Closing Certificates. The Seller shall have received a certificate
signed by the Purchaser, dated the Closing Date, to the effect that the
conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied
and to the further effect that, as of the respective dates of reports filed with
the SEC by the Purchaser under the Securities Act and Exchange Act since January
1, 2001, and as of the Closing Date, such reports did 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.
(d) Purchaser Required Consents. The Purchaser Required Consents, the
failure of which to obtain would prevent, materially delay or materially impair
the Purchaser's ability to consummate the transactions contemplated by this
Agreement, shall have been obtained.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date (the "Termination Date"):
(a) by mutual written consent of the Seller and the Purchaser;
(b) by the Purchaser or the Seller, 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 Closing, or by any party hereto 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 Closing, and such order, judgment or decree shall have become final and
nonappealable;
(c) by the Purchaser or the Seller, by written notice to the other
party, if the Closing Date shall not have occurred on or before March 27, 2003
(the "Initial Termination Date"); provided, however, that the right to terminate
the Agreement under this Section 8.1(c) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have
proximately contributed to the failure of the Closing Date to occur on or before
37
such date; and provided, further, that if on the Initial Termination Date the
conditions to the Closing set forth in Sections 7.1(b), 7.1(c), 7.1.(d), 7.2(e)
and/or 7.2(f) 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 for a twelve-month period;
(d) by the Purchaser, by written notice to the Seller, if there shall
have been a material breach of any representation or warranty, or a material
breach of any covenant or agreement of the Seller hereunder, which breaches
would result in a Company Material Adverse Effect, and such breach shall not
have been remedied within thirty (30) days after receipt by the Seller of notice
in writing from the Purchaser, specifying the nature of such breach and
requesting that it be remedied or the Purchaser shall not have received adequate
assurance of a cure of such breach within such thirty (30) day period or the
Seller shall not have made a capital contribution to the Company in an amount
equal to the expected damages from such breach;
(e) by the Seller, by written notice to the Purchaser, if there shall
have been a material breach of any representation or warranty, or a material
breach of any covenant or agreement of the Purchaser hereunder, which breaches
would prevent, materially delay or materially impair the Purchaser's ability to
consummate the transactions contemplated by this Agreement, and such breach
shall not have been remedied within thirty (30) days after receipt by the
Purchaser of notice in writing from the Seller, specifying the nature of such
breach and requesting that it be remedied or the Seller shall not have received
adequate assurance of a cure of such breach within such thirty (30) day period;
(f) by the Purchaser or the Seller, by written notice to the other
party, if the condition to each party's obligation to effect the Closing
contained in Section 7.1(d) cannot be met; or
(g) by the Purchaser, by written notice to the Seller, to the extent
the Purchaser is not in breach of this Agreement, if the condition to the
Purchaser's obligation to effect the Closing contained in Section 7.2(e) cannot
be met in spite of the Purchaser's use of its best efforts to obtain such Seller
Required Regulatory Approvals and Purchaser Required Regulatory Approvals,
including seeking to exhaust any rehearing or refiling opportunities relating to
such approvals.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Purchaser pursuant to Section 8.1, there
shall be no liability on the part of either the Seller or the Purchaser or their
respective officers or directors hereunder, except (a) that nothing herein shall
relieve any party from liability for any breach of any representation, warranty,
covenant or agreement of such party contained in this Agreement and (b) that
Sections 8.2, 9.2, 9.4, 9.6, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, and the agreement
contained in the last sentence of Section 6.1 shall survive the termination.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Obligations. All representations, warranties,
covenants, obligations and agreements of the parties contained in this Agreement
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or in any instrument, certificate, opinion or other writing provided for herein,
shall not survive the Closing; provided, however, that the representation and
warranty of the Seller contained in Section 3.2(b) and the covenants of the
Seller and the Purchaser contained in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9,
6.10, 6.11 and the second sentence of Section 6.1 shall survive the Closing and
provided further, that the prohibition on solicitation for employment contained
in Section 5.1(o) shall continue in full force and effect for 12 months
following the Closing Date.
Section 9.2 Amendment and Modification. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by each of the parties hereto expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 9.3 Extension; Waiver. At any time prior to the Closing Date, a
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party 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.
Section 9.4 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses except that the fee payable in connection with the
filing required by the HSR Act shall be shared one-half by Seller and one-half
by Purchaser. Notwithstanding the foregoing, in any action or proceeding brought
to enforce any provisions of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees and disbursements in addition to its costs and
expenses and any other available remedy.
Section 9.5 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):
(i) If to the Seller, to
The AES Corporation
1001 N. 19th Street
Arlington, VA 22209
Attn: General Counsel
Telecopy: (703) 528-4510
Telephone: (703) 522-1315
39
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attn: Pankaj K. Sinha, Esq.
Telecopy: (202) 393-5760
Telephone: (202) 371-7000
and with a copy to
Baker & McKenzie
One Prudential Plaza
130 East Randolph Drive
Chicago, Illinois 60601
Attn: James P. O'Brien, Esq.
Telecopy: (312) 861-2899
Telephone: (312) 861-8000
and
(ii) if to the Purchaser, to
Ameren Corporation
One Ameren Plaza
1901 Chouteau Avenue
St. Louis, MO 63103
Attn: Steven R. Sullivan, Esq.
Vice President/General Counsel and Secretary
Telecopy: (314) 554-4014
Telephone: (314) 554-2098
with a copy to
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attn: William J. Harmon, Esq.
Telecopy: (312) 782-8585
Telephone: (312) 782-3939
Section 9.6 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the Confidentiality Agreement, the Side Agreement Relating to CILCO/ENRON
Contract of even date herewith among the Seller, CILCORP Inc. and the Purchaser,
and the Stock Purchase Agreement between the Seller and the Purchaser of even
date herewith (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof and (b) are not intended to
40
confer, and shall not confer, upon any Person other than the parties hereto and
thereto and Company Indemnified Parties as set forth in Section 6.4 any
remedies, claims of liability or reimbursement, causes of action or any other
rights whatsoever.
Section 9.7 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 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
Section 9.9 Venue. Each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court 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 the State of Delaware.
Section 9.10 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) 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 9.11 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
Section 9.12 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; provided, however, that the Seller may transfer the Units to a
wholly owned Subsidiary of the Seller as long as such Subsidiary agrees in
writing to be bound by the applicable terms of this Agreement and no such
assignment shall relieve the Seller from its obligations hereunder.
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Section 9.13 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section 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." Any item or other matter referenced
or disclosed in one section of the Seller Disclosure Schedule or the Purchaser
Disclosure Schedule, as the case may be, shall be deemed to have been referenced
or disclosed in all sections of such Disclosure Schedule where such reference or
disclosure is required. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 9.14 Counterparts; Effect. This Agreement may be executed and
delivered (including via facsimile) in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
THE AES CORPORATION
By: /s/ Lenny M. Lee
------------------------
Name: Lenny M. Lee
Title: Vice President
AMEREN CORPORATION
By: /s/ Steven R. Sullivan
------------------------
Name: Steven R. Sullivan
Title: Vice President & General Counsel
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