EXHIBIT 10.23
LLC PURCHASE AGREEMENT
by and among
AQUASOURCE, INC.
and
DQE, INC.,
on the one hand,
and
SOUTHWEST WATER COMPANY,
on the other hand
Dated as of September 14, 2002
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF MEMBERSHIP INTERESTS.............................................................. 7
Section 1.1 Sale and Transfer of Membership Interests................................................... 7
Section 1.2 The Purchase Price.......................................................................... 7
Section 1.3 Certain Liabilities, Accounts Receivable and Accounts Payable............................... 8
Section 1.4 Ongoing Revenues Statement.................................................................. 9
Section 1.5 Closing Statements and Payments............................................................. 9
ARTICLE II THE CLOSING...........................................................................................10
Section 2.1 Closing.....................................................................................10
Section 2.2 Closing Transactions........................................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................................11
Section 3.1 Organization and Qualification..............................................................11
Section 3.2 Subsidiaries................................................................................12
Section 3.3 Ownership and Possession of Membership Interests; Capitalization; Ownership and
Possession of Integrated Assets................................................................12
Section 3.4 Authority; Non-Contravention; Statutory Approvals; Compliance...............................13
Section 3.5 Financial Statements........................................................................14
Section 3.6 Absence of Certain Changes or Events........................................................15
Section 3.7 Litigation..................................................................................15
Section 3.8 Tax Matters.................................................................................15
Section 3.9 Employee Benefits; ERISA....................................................................16
Section 3.10 Labor and Employee Relations...............................................................18
Section 3.11 Environmental Matters......................................................................19
Section 3.12 No Breaches or Defaults....................................................................20
Section 3.13 Insurance..................................................................................21
Section 3.14 Brokers or Finders.........................................................................21
Section 3.15 Competing Lines of Business................................................................21
Section 3.16 Limitation on Representations and Warranties...............................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER...........................................................21
Section 4.1 Organization and Qualification..............................................................21
Section 4.2 Authority; Non-Contravention; Statutory Approvals; Compliance...............................22
Section 4.3 Litigation..................................................................................23
Section 4.4 Investigation by the Buyer; the Seller's Liability..........................................24
Section 4.5 Acquisition of Membership Interests for Investment; Ability to Evaluate
and Bear Risk..................................................................................25
Section 4.6 Financing...................................................................................25
Section 4.7 Brokers or Finders..........................................................................25
ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING................................................................25
Section 5.1 Covenants of the Seller.....................................................................25
Section 5.2 Covenants of the Buyer......................................................................27
Section 5.3 Mutual Covenants of the Parties.............................................................28
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ARTICLE VI ADDITIONAL AGREEMENTS.................................................................................29
Section 6.1 Access to Company Information...............................................................29
Section 6.2 Regulatory Matters..........................................................................30
Section 6.3 Consents....................................................................................30
Section 6.4 Directors' and Officers' Indemnification....................................................31
Section 6.5 Public Announcements........................................................................32
Section 6.6 Workforce Matters...........................................................................32
Section 6.7 Seller Plans................................................................................34
Section 6.8 Tax Treatment...............................................................................35
Section 6.9 Tax Indemnity and Tax Returns...............................................................35
Section 6.10 Transfer Taxes.............................................................................37
Section 6.11 Financial Information......................................................................38
Section 6.12 Transition Services........................................................................38
Section 6.13 Update of the Seller Disclosure Schedule...................................................39
Section 6.14 AquaSource Name............................................................................39
Section 6.15 Officer and Director Resignations..........................................................39
Section 6.16 Non-Competition Covenants..................................................................39
Section 6.17 Enforcement of Other Covenants.............................................................42
Section 6.18 Surety Bonds...............................................................................42
Section 6.19 Further Assurances.........................................................................43
ARTICLE VII CONDITIONS...........................................................................................43
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.................................43
Section 7.2 Conditions to Obligation of the Buyer to Effect the Closing.................................45
Section 7.3 Conditions to Obligation of the Seller to Effect the Closing................................46
ARTICLE VIII TERMINATION.........................................................................................47
Section 8.1 Termination.................................................................................47
Section 8.2 Effect of Termination.......................................................................49
ARTICLE IX INDEMNIFICATION.......................................................................................49
Section 9.1 Indemnification Obligations.................................................................49
Section 9.2 Certain Definitions.........................................................................50
Section 9.3 Limitations on Indemnification..............................................................51
Section 9.4 Defense of Claims...........................................................................54
Section 9.5 Certain Covenants in Respect of Excluded Assets.............................................58
ARTICLE X GENERAL PROVISIONS.....................................................................................58
Section 10.1 Survival of Obligations....................................................................58
Section 10.2 Amendment and Modification.................................................................58
Section 10.3 Extension; Waiver..........................................................................58
Section 10.4 Expenses...................................................................................59
Section 10.5 Notices....................................................................................59
Section 10.6 Entire Agreement; No Third Party Beneficiaries.............................................60
Section 10.7 Severability...............................................................................60
Section 10.8 Governing Law..............................................................................61
Section 10.9 Venue......................................................................................61
Section 10.10 Waiver of Jury Trial and Certain Damages..................................................61
Section 10.11 Assignment................................................................................61
Section 10.12 Interpretation............................................................................62
ii
Section 10.13 No Specific Enforcement...................................................................62
Section 10.14 Counterparts; Effect......................................................................62
iii
INDEX OF PRINCIPAL TERMS
Term Page
90 Day Ongoing Revenues..........................................................................................9
Actual Cost.....................................................................................................40
Affected Employees..............................................................................................34
Affiliate.......................................................................................................43
Agreement........................................................................................................7
Assumed Defense.................................................................................................60
Audit...........................................................................................................39
Business Employees..............................................................................................17
Buyer............................................................................................................7
Buyer Disclosure Schedule.......................................................................................22
Buyer Indemnifiable Loss........................................................................................52
Buyer Indemnified Liabilities...................................................................................52
Buyer Indemnitee................................................................................................52
Buyer Material Adverse Effect...................................................................................23
Buyer Required Consents.........................................................................................23
Buyer Required Statutory Approvals..............................................................................24
Buyer Subsidiary................................................................................................23
Closing.........................................................................................................10
Closing Date....................................................................................................10
COBRA...........................................................................................................35
Code............................................................................................................18
Company..........................................................................................................7
Company Financial Statements....................................................................................15
Company Indemnified Parties.....................................................................................32
Company Indemnified Party.......................................................................................32
Company Material Adverse Effect.................................................................................12
Company Subsidiary..............................................................................................12
Confidential Information........................................................................................43
Confidentiality Agreement.......................................................................................31
Contracts.......................................................................................................21
Covered Excluded Assets.........................................................................................60
December 31, 2001 Balance Sheet.................................................................................15
Deficiency......................................................................................................10
Designated Employees............................................................................................44
Direct Claim....................................................................................................59
DQE..............................................................................................................7
Encumbrances....................................................................................................11
Environmental Laws..............................................................................................21
Environmental Whitepaper........................................................................................20
ERISA...........................................................................................................17
ERISA Affiliate.................................................................................................17
Estimated Closing Statement......................................................................................9
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Term Page
Excepted Liabilities............................................................................................53
Excess..........................................................................................................10
Excluded Assets.................................................................................................29
Final Closing Statement..........................................................................................9
Final Order.....................................................................................................46
Governmental Authority..........................................................................................14
Hazardous Substances............................................................................................21
Hiring Conditions...............................................................................................34
Indemnifiable Loss..............................................................................................52
Indemnity Basket................................................................................................54
Indemnity Cap...................................................................................................54
Indemnity Period................................................................................................52
Initial Termination Date........................................................................................50
Integrated Assets...............................................................................................13
June 30, 2002 Balance Sheet.....................................................................................15
knowledge.......................................................................................................12
Membership Interests.............................................................................................7
Net Accounts Receivable..........................................................................................8
Notified Persons................................................................................................60
Other Unbilled Revenue...........................................................................................8
Party at Fault..................................................................................................51
Pending Litigation Matter.......................................................................................60
Permitted Encumbrances..........................................................................................11
Person..........................................................................................................12
Pre-Closing APs..................................................................................................9
Prohibited Activity.............................................................................................42
Purchase Price...................................................................................................7
Qualifying Offer................................................................................................34
Representatives.................................................................................................25
Retention Agreements............................................................................................19
Revenue Statement................................................................................................9
Securities Act..................................................................................................11
Seller...........................................................................................................7
Seller Disclosure Schedule......................................................................................11
Seller Indemnifiable Loss.......................................................................................52
Seller Indemnified Liabilities..................................................................................53
Seller Indemnitee...............................................................................................52
Seller Plans....................................................................................................17
Seller Required Consents........................................................................................14
Seller Required Statutory Approvals.............................................................................14
Services I.......................................................................................................7
Services II......................................................................................................7
Services, LP.....................................................................................................7
Severance Obligations...........................................................................................34
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Term Page
Severance Policy................................................................................................34
Straddle Period.................................................................................................38
Subsidiary......................................................................................................12
Tax.............................................................................................................17
Tax Claim.......................................................................................................38
Tax Return......................................................................................................17
Third Party Claim...............................................................................................57
Unbilled Active Work Order Revenue...............................................................................8
Violation.......................................................................................................14
vi
LLC PURCHASE AGREEMENT
This LLC Purchase Agreement, dated as of September 14, 2002 (this
"Agreement"), is entered into by and among AquaSource, Inc., a Delaware
corporation (the "Seller"), and DQE, Inc., a Pennsylvania corporation ("DQE"),
on the one hand, and Southwest Water Company, a Delaware corporation (the
"Buyer"), on the other hand.
WHEREAS, the Seller owns all of the issued and outstanding
membership interest (the "Membership Interests") of AquaSource Services I, LLC,
a Delaware limited liability company ("Services I");
WHEREAS, Services I and its Subsidiaries (as defined in Section
3.2), AquaSource Services II, LLC, a Delaware limited liability company
("Services II"), and AquaSource Services, LP, a Texas limited partnership
("Services, LP"), together with the Company Subsidiaries (as defined in Section
3.2), are collectively referred to in this Agreement as the "Company"; and
WHEREAS, each of the Boards of Directors of the Buyer and the
Seller and DQE, as applicable, has approved, and deems it advisable and in the
best interests of its respective shareholders to consummate, the acquisition of
the Company by the Buyer, which acquisition is to be effected by the purchase of
all of the Membership Interests by the Buyer 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 MEMBERSHIP INTERESTS
Section 1.1 Sale and Transfer of Membership Interests. Subject
to the terms and conditions of this Agreement, on the Closing Date (as defined
in Section 2.1), the Seller agrees to sell, convey, assign, transfer and deliver
to the Buyer, and the Buyer agrees to purchase and accept from the Seller, all
of the Seller's rights, title and interest in and to the Membership Interests.
Section 1.2 The Purchase Price. Subject to the terms and
conditions of this Agreement, in consideration of the aforesaid sale,
conveyance, assignment, transfer and delivery to the Buyer of the Membership
Interests, the Buyer shall pay to the Seller the following amounts (together,
the "Purchase Price") pursuant to the provisions of this Section 1.2:
(a) $7,500,000 in cash at Closing;
(b) An amount of cash equal to ninety percent (90%) of the
Net Accounts Receivable at Closing. For purposes of this Agreement, "Net
Accounts
7
Receivable" shall mean the aggregate amount of the Company's
outstanding accounts receivable as of the Closing Date, calculated in accordance
with existing practices and procedures used by the Company, minus the amount of
any allowance for doubtful accounts attributable to such accounts receivable
then included on the books of the Company, provided that the amount of any such
allowance for doubtful accounts shall be calculated by taking the aggregate
amount of all accounts receivable then included on the books of the Company that
have aged more than 120 days, multiplying such aggregate amount by a factor of
0.08, and then adding to the resulting product the amount of $450,000;
(c) An amount of cash equal to fifty percent (50%) of the
Unbilled Active Work Order Revenue at Closing. For purposes of this Agreement,
"Unbilled Active Work Order Revenue" shall mean the aggregate amount of the
Company's unbilled revenue attributable to active work orders of the Company for
work or services not then fully completed and shall be calculated by determining
the number of such active work orders in accordance with existing practices and
procedures used by the Company and multiplying such number by $288.29; and
(d) An amount of cash equal to one hundred percent (100%)
of the Other Unbilled Revenue at Closing. For purposes of this Agreement, "Other
Unbilled Revenue" shall mean the aggregate amount of the Company's unbilled
revenue attributable to any source other than active work orders of the Company
for work or services not then fully completed, including, but not limited to,
revenue attributable to base fees, retainer fees or similar fees and revenue
attributable to work or services that have been fully completed, and shall be
calculated in accordance with existing practices and procedures used by the
Company.
Section 1.3 Certain Liabilities, Accounts Receivable and
Accounts Payable.
(a) Consistent with the June 30, 2002 Balance Sheet (as
defined in Section 3.5), but subject to agreements in Section 1.3(b) below
regarding Pre-Closing APs (as defined in Section 1.3(b)), the Seller agrees that
at Closing the Company will have no accounts payable, no cash and no
intercompany receivables or payables. However, the Buyer agrees that it will
assume vacation accruals, but expressly not accrued payroll for any employees,
through the Closing Date for employees who accept the Company's Qualifying Offer
made pursuant to Section 6.6(a) below. Additionally, the Keystone, South Dakota,
industrial revenue bond obligation will remain an obligation of the Company
after the Closing.
(b) The Seller or DQE will pay, in the ordinary course and
consistent with past practice, all of the Company's accounts payable for
obligations incurred prior to Closing ("Pre-Closing APs") that are received in
the ordinary course of business prior to the Closing. The Buyer will forward to
the Seller all Pre-Closing APs received by the Company in the ordinary course of
business during the thirty (30) day period commencing on the Closing Date, and
Seller will pay such Pre-Closing APs. All Pre-Closing APs received by the
Company after such thirty (30) day period will be paid
8
by the Buyer, but all amounts so paid will each be a Buyer Indemnifiable Loss
(as defined in Section 9.1) in accordance with the terms of Article IX.
Section 1.4 Ongoing Revenues Statement. On the Closing Date,
the earned revenues of the Company for the ninety (90) day period prior to the
Closing Date for ongoing customer relations and customer contracts (the "90 Day
Ongoing Revenues") must total at least $3,750,000. At the same time that the
Seller prepares and delivers to the Buyer the Final Closing Statement (as
defined below), the Seller will prepare and deliver to the Buyer a statement
(the "Revenue Statement") showing the calculation and amount of the 90 Day
Ongoing Revenues. Such calculation will be performed according to the methods
and procedures historically used by the Company for calculating earned revenues.
Together with the Revenue Statement, the Seller will provide to the Buyer copies
of the worksheets and other documentation showing in reasonable detail how the
90 Day Ongoing Revenues were calculated. In the event that the 90 Day Ongoing
Revenues are less than $3,750,000, then together with delivery of the Revenue
Statement, the Seller will make a payment to Buyer in the amount of $.45 for
each $1 by which the 90 Day Ongoing Revenues are less than $3,750,000.
Section 1.5 Closing Statements and Payments.
(a) At least ten (10) calendar days prior to the Closing
Date, the Seller shall prepare and deliver to the Buyer in good faith its
estimate of the Purchase Price as calculated pursuant to Section 1.2 (the
"Estimated Closing Statement"). For the avoidance of doubt, at the Closing, the
Buyer shall pay to the Seller the Purchase Price as reflected on the Estimated
Closing Statement.
(b) Within fifteen (15) calendar days following the
Closing Date, the Seller shall prepare and deliver to the Buyer in good faith a
Final Closing Statement setting forth the Purchase Price as calculated pursuant
to Section 1.2 (the "Final Closing Statement"). Within fifteen (15) calendar
days following the Buyer's receipt of the Final Closing Statement and the
Revenue Statement, the Buyer may object in good faith to the Final Closing
Statement and/or the Revenue Statement in writing. In the event of any such
objection, the Buyer and the Seller shall attempt to resolve their differences
by negotiation. If such parties are unable to do so within thirty (30) calendar
days following the Seller's receipt of the Buyer's objection, the Seller and the
Buyer shall appoint a nationally recognized accounting firm mutually acceptable
to each of the Seller and the Buyer, which shall, at the Seller's and the
Buyer's joint expense, review the Final Closing Statement and the Revenue
Statement, as applicable, and determine the Purchase Price and the 90 Day
Ongoing Revenues, as applicable, within thirty (30) calendar days of such
appointment. The Seller and the Buyer shall be entitled to make a written
submission to such accounting firm setting forth their respective positions and
proposed Purchase Price and amount of 90 Day Ongoing Revenues, as applicable. In
addition, the Seller and the Buyer agree to cooperate with such accounting firm
and provide it with such information as it reasonably requests to enable it to
make such determination. The finding of such accounting firm shall be binding on
the parties hereto but is expressly limited to (i) a determination of the
Purchase Price that neither exceeds the Seller's proposed Purchase Price nor is
less than the Buyer's proposed Purchase Price, and (ii) a
9
determination of the amount of 90 Day Ongoing Revenues that neither exceeds the
Seller's proposed amount of such revenues nor is less than the Buyer's proposed
amount of such revenues, as applicable. Upon determination by agreement of the
Seller and the Buyer or by binding determination of said accounting firm of the
Purchase Price or the amount of the 90 Day Ongoing Revenues, as applicable, (i)
if the Purchase Price or the amount of the 90 Day Ongoing Revenues, as
applicable, that is finally agreed upon or determined exceeds the Purchase Price
or the amount of the 90 Day Ongoing Revenues, as applicable, that was reflected
on the Estimated Closing Statement or the Revenue Statement, as applicable (such
excess amount, the "Deficiency"), the Buyer shall pay to the Seller an amount of
cash equal to the Deficiency, or (ii) if the Purchase Price or the amount of the
90 Day Ongoing Revenues, as applicable, that was reflected on the Estimated
Closing Statement or the Revenue Statement, as applicable, exceeds the Purchase
Price that is finally agreed upon or determined (such excess amount, the
"Excess"), the Seller shall pay to the Buyer an amount of cash equal to the
Excess. Any amount of cash in respect of any Deficiency or Excess owed hereunder
shall be paid to the party owed the same by the party owing the same by wire
transfer in immediately available funds to an account designed by the party owed
the same no later than five (5) business days following the determination by
agreement of the Seller and the Buyer or by binding determination of said
accounting firm of the Purchase Price.
ARTICLE II
THE CLOSING
Section 2.1 Closing. The consummation of the sale and transfer
of the Membership Interests by the Seller to the Buyer (the "Closing") shall
take place at the Washington, D.C. office of Skadden, Arps, Slate, Meagher &
Flom LLP at 10:00 a.m., local time, on the fifth business day immediately
following the date on which the last of the conditions set forth in Article VII
hereof is fulfilled or waived, or at such other time, date and place as the
Seller and the Buyer shall mutually agree (the "Closing Date").
Section 2.2 Closing Transactions. At the Closing:
(a) The Seller shall deliver to the Buyer (i) free and
clear of any liens, claims, security interests and other encumbrances of any
nature whatsoever (collectively, "Encumbrances"), except for those Encumbrances
arising pursuant to restrictions on the transfer of securities imposed under the
Securities Act of 1933, as amended (the "Securities Act") or any applicable
state securities laws and those Encumbrances created by this Agreement or the
Buyer (collectively, "Permitted Encumbrances"), certificates representing the
Membership Interests, each such certificate to be duly and validly endorsed in
favor of the Buyer or accompanied by a separate instrument of assignment
sufficient to vest in the Buyer good title to the Membership Interests and (ii)
such other documents as are required to be delivered by the Seller to the Buyer
pursuant hereto; and
(b) The Buyer shall deliver to the Seller (i) the portion
of the Purchase Price to be paid at the Closing, by wire transfer in immediately
available funds
10
to an account designated by the Seller prior to the Closing, and (ii) such other
documents as are required to be delivered by the Buyer to the Seller pursuant
hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller and, only where specifically noted, DQE, represent and
warrant to the Buyer as follows, provided, however, that notwithstanding any
other provision of this Agreement to the contrary, the Seller and DQE make no
representations or warranties with respect to any of the Excluded Assets (as
defined in Section 5.3) and all representations and warranties of the Seller
and, as applicable, DQE, contained herein expressly exclude such Excluded Assets
and shall not be read or deemed to be a representation or warranty regarding any
Excluded Asset, consequently, as used in this Article III, the terms "Company",
"Company Subsidiary" and "Company Subsidiaries" shall not be read or deemed to
include the Excluded Assets.
Section 3.1 Organization and Qualification.
(a) Except as set forth in Section 3.1(a) of the schedule
delivered by the Seller to the Buyer on the date hereof and attached to this
Agreement (the "Seller Disclosure Schedule"), (i) the Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and (ii) Services I, Services II, Services, LP and each Company
Subsidiary is a limited liability company, limited partnership or corporation
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 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 in good standing or be so qualified neither is having nor is
reasonably likely to have a Company Material Adverse Effect (as defined in
Section 3.1(b)). True and correct copies of the articles of incorporation and
by-laws (or equivalent documents) of Services I, Services II, Services, LP and
each Company Subsidiary have been delivered to the Buyer.
(b) 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, taken as a whole;
provided, however, that the term "Company Material Adverse Effect" shall not
include (i) any such effect resulting from any change in law, rule, or
regulation of any Governmental Authority (as defined in Section 3.4(c)) that
applies generally to similarly situated Persons (as defined in Section 3.1(c))
or (ii) effects relating to or resulting from general changes in the industries
in which the Company operates its assets or conducts its businesses.
(c) As used in this Agreement, (i) the term "knowledge"
when referring to the knowledge of the Seller shall mean the knowledge, after
reasonable inquiry of employees who are reasonably likely to have the relevant
information, of the
11
executive officers of the Seller identified by name and/or title in Section
3.1(c) of the Seller Disclosure Schedule, and (ii) 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.
Section 3.2 Subsidiaries. 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. Except as set forth in Section 3.2 of the Seller Disclosure
Schedule, all of the issued and outstanding capital stock or other ownership
interests of each Company Subsidiary are owned, directly or indirectly, by
Services, LP free and clear of any Encumbrances, except for Permitted
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) 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 Services, LP.
Section 3.3 Ownership and Possession of Membership Interests;
Capitalization; Ownership and Possession of Integrated Assets. As of the date
hereof, (i) the Seller owns beneficially and of record all of the Membership
Interests of Services I free and clear of any Encumbrances, except for Permitted
Encumbrances; (ii) Services I owns beneficially and of record all of the
membership interests of Services II free and clear of any Encumbrances, except
for Permitted Encumbrances; (iii) Services I and Services II, collectively, own
beneficially and of record all of the partnership interests of Services, LP free
and clear of any Encumbrances, except for Permitted Encumbrances, and (iv)
except as set forth on Section 3.2 of the Seller Disclosure Schedule, Services,
LP owns beneficially and of record all of the ownership interests of the Company
Subsidiaries free and clear of any Encumbrances, except for Permitted
Encumbrances. Other than as set forth in the immediately preceding sentence,
there are no member, partner or equity interests in the Services I, Services II,
Services, LP or any Company Subsidiary outstanding. There are no options,
warrants, calls, rights, commitments or agreements of any character to which
DQE, the Seller, Services I, Services II, Services, LP or any Company Subsidiary
is a party or by which it is bound obligating DQE, the Seller, Services I,
Services II, Services, LP or any Company Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional membership, partnership or
equity interests of Services I, Services II, Services, LP or any Company
Subsidiary or obligating DQE, the Seller, Services I, Services II, Services, LP
or any Company Subsidiary to grant, extend or enter into any option, warrant,
call, right, commitment or agreement in respect of membership, partnership or
equity interests of Services I, Services II, Services, LP or any Company
Subsidiary. All of the assets listed on Section 3.3 of the Seller Disclosure
Schedule (the "Integrated Assets") are owned, directly or indirectly, by the
Seller free and clear of any Encumbrances, except for Permitted Encumbrances.
The assets of the Company, together with the Integrated Assets,
12
constitute substantially all of the assets used in the ordinary course of
business of the Company as it is currently being conducted.
Section 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. The Seller and DQE have 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 3.4(c)) and the applicable Seller Required Consents (as defined in
Section 3.4(b)), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by the Seller and
DQE of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Seller and DQE. No vote of, or
consent by, the holders of any class or series of stock issued by the Seller or
DQE is necessary to authorize the execution and delivery by the Seller and DQE
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
DQE and, assuming the due authorization, execution and delivery hereof by the
Buyer, constitutes the valid and binding obligation of each of the Seller and
DQE enforceable against it in accordance with its terms, subject to, to the
extent applicable, bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(b) Non-Contravention. Except as set forth in Section
3.4(b)(i) of the Seller Disclosure Schedule, the execution and delivery of this
Agreement by the Seller and DQE 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, except for Permitted Encumbrances, upon any of the
properties or assets of the Company (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 DQE (in respect of the
Company), the Seller (in respect of the Company) and the Company, and such term
when used in Article IV has a correlative meaning with respect to the Buyer and
the Buyer Subsidiaries) pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of the Seller, Services I,
Services II, Services, LP 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 applicable to DQE (in respect of the Company), the Seller
(in respect of the Company) or the Company or any of their respective properties
or assets, or (iii) subject to obtaining the third-party consents set forth in
Section 3.4(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 Services I, Services II, Services, LP or any
Company Subsidiary is a party or by which they or any of their
13
respective properties or assets may be bound or affected, except in the case of
clause (ii) or (iii) for any such Violation which neither is having nor is
reasonably likely to have a Company Material Adverse Effect.
(c) Statutory Approvals. Except as described in Section
3.4(c) of the Seller Disclosure Schedule (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 DQE
or the Seller or the consummation by the Seller of the transactions contemplated
hereby, except those which the failure to obtain neither is having nor is
reasonably likely to result in a Company Material Adverse Effect (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).
(d) Compliance. Except as set forth in Section 3.4(d)(i),
Section 3.7, Section 3.10(a) or Section 3.11 of the Seller Disclosure Schedule,
the Company is not in violation of, has not been given notice of and is not
currently being charged with any violation of, and, to the knowledge of the
Seller, is not under investigation with respect to any violation of any law,
statute, order, rule, regulation, ordinance or judgment of any Governmental
Authority, except for possible violations which neither are having nor are
reasonably likely to have a Company Material Adverse Effect. Except as set forth
in Section 3.4(d)(ii) or Section 3.12 of the Seller Disclosure Schedule, to the
knowledge of the Seller, Services I, Services II, Services, LP and each Company
Subsidiary has all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
conducted since July 1, 2001, except those that the absence of which neither are
having nor are reasonably likely to have a Company Material Adverse Effect.
Except as set forth in Section 3.4(d)(iii) of the Seller Disclosure Schedule,
neither Services I, Services II, Services, LP nor any Company Subsidiary is in
breach or violation of any term or provision of their respective articles of
incorporation or by-laws.
Section 3.5 Financial Statements. True and complete copies of
the Company Financial Statements (as defined below) are set forth in Section 3.5
of the Seller Disclosure Schedule. The Company Financial Statements have been
prepared from, are in accordance with, and accurately reflect the books and
records of the Company, comply in all material respects with applicable
accounting requirements, 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 Company as of the time and for the period referred to
therein. As used in this Agreement, the term "Company Financial Statements"
shall mean the consolidated balance sheet of the Company as at December 31, 2001
(the "December 31, 2001 Balance Sheet") and as at June 30, 2002 (the "June 30,
2002
14
Balance Sheet"), in each case together with the consolidated statements of
income, shareholders' equity and cash flows for the twelve (12) and six (6)
month periods, respectively, then ended. The Company Financial Statements are
not audited and reflect only the Company, including the related assets and
liabilities, contemplated to be transferred to the Buyer pursuant to this
Agreement.
Section 3.6 Absence of Certain Changes or Events. Except as set
forth in Section 3.6 of the Seller Disclosure Schedule, since December 31, 2001,
the Company has conducted its business 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, of which the Seller has
knowledge, that is having or is reasonably likely to have a Company Material
Adverse Effect.
Section 3.7 Litigation. Except as set forth in Section 3.7,
Section 3.8(a), Section 3.9(i), Section 3.10(a) or Section 3.11 of the Seller
Disclosure Schedule, (a) 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,
threatened, nor are there, to the knowledge of the Seller, any investigations or
reviews by any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator pending or threatened against,
relating to or affecting the Services I, Services II, Services, LP or any
Company Subsidiary, and (b) there are no judgments, decrees, injunctions, rules
or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Services I,
Services II, Services, LP or any Company Subsidiary, except, in the case of
clause (a) and clause (b), for such that are not having nor are reasonably
likely to have a Company Material Adverse Effect.
Section 3.8 Tax Matters.
(a) Except as set forth in Section 3.8(a) of the Seller
Disclosure Schedule: (i) Services I, Services II, Services, LP 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 or, for
periods during which Services I, Services II or Services, LP is a member, the
affiliated group filing a consolidated federal income tax return the common
parent of which is DQE on or prior to the date hereof, such Tax Returns (as
defined in Section 3.8(b)) are correct, complete and accurate in all material
respects, and all material Taxes (as defined in Section 3.8(b)) owed by Services
I, Services II, Services, LP and each Company Subsidiary (whether or not shown
on any Tax Return) have been paid; (ii) all material Tax withholding and deposit
requirements imposed on or with respect to Services I, Services II, Services, LP
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 liens for Taxes upon any property or assets of the
Company, except for liens for Taxes not yet due and payable; (iv) there are no
outstanding requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment or collection of any Taxes or
deficiencies against the Company; (v) neither Services I, Services II, Services,
LP nor any Company Subsidiary has been a member of any affiliated group filing a
15
consolidated federal income Tax Return (other than a group the common parent of
which is the Seller or DQE); (vi) each of Services I and Services II is, and has
been at all times during its existence, properly disregarded as an entity
separate from its owner for federal income Tax purposes pursuant to Treasury
Regulation Section 301.7701-3(b)(ii) and has not at any time during its
existence made any election pursuant to Treasury Regulation Section
301.7701-3(c) to be classified as an association taxable as a corporation for
federal income tax purposes; (vii) Services, LP has properly made an election
pursuant to Treasury Regulation Section 301.7701-3(c) to be classified as an
association taxable as a corporation for federal income Tax purposes; (viii) no
claim has ever been asserted in writing by any Tax authority in a jurisdiction
where Services I, Services II, Services, LP, or any Company Subsidiary does not
file Tax Returns that Services I, Services II, Services, LP, or any Company
Subsidiary is or may be subject to taxation by such jurisdiction; (ix) Services
II is not, and has never been at any time during its existence, a limited
liability company or corporation that does business in the state of Texas,
organized in the state of Texas, or authorized to do business in the state of
Texas, as set forth in Section 171.001 of the Texas Tax Code or any other
applicable Texas statute, regulation, or pronouncement; and (x) neither Services
I, Services II, Services, LP nor any Company Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of (A) any "excess parachute
payment" within the meaning of Section 280G of the Tax Code (or any
corresponding provision of state, local or foreign Tax law) or (B) any amount
that will not be fully deductible as a result of Section 162(m) of the Tax Code
(or any corresponding provision of state, local or foreign Tax law).
(b) As used in this Agreement: (i) the term "Tax" includes
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; and (ii) the term "Tax Return" includes all returns and
reports (including elections, declarations, disclosures, Schedules, estimates
and information returns) required to be supplied to a Tax authority relating to
Taxes.
Section 3.9 Employee Benefits; ERISA.
(a) Seller Plans. Section 3.9(a) of the Seller Disclosure
Schedule contains a list of each employee benefit plan, program, agreement or
arrangement (including without limitation any employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), in each case, that is sponsored, maintained or
contributed to or required to be contributed to by the Seller, DQE or by any
trade or business, whether or not incorporated that together with the Company,
the Seller or DQE would be deemed a "single employer" within the meaning of
Section 4001(b) of ERISA (an "ERISA Affiliate"), or to which the Seller, DQE or
an ERISA Affiliate is a party, for the benefit of any employee or former
employee of the Company, the Seller or any affiliate of the Seller whose
employment is (in the case of current employees) or was (in the case of former
employees) principally
16
attributable to the businesses carried on by or in respect of the Company (such
individuals, the "Business Employees," and such plans, programs, agreements or
arrangements, collectively, the "Seller Plans"). The Company does not sponsor,
maintain, contribute to, and is not a party to, or within the last six (6) years
preceding the Closing has not sponsored, maintained, or contributed to, been
required to contribute to, or been a party to, any Seller Plans or any other
employee benefit plan within the meaning of Section 3(3) of ERISA.
(b) Information Regarding Affected Employees. On even date
herewith, the Seller has delivered to the Buyer a schedule containing the work
location and wage or salary information for each of the Affected Employees (as
defined in Section 6.6), which information is true and correct as of the date of
this Agreement.
(c) Absence of Liability. Except as set forth in Section
3.9(c) of the Seller Disclosure Schedule, no liability under Title IV of ERISA
has been incurred by the Company or any ERISA Affiliate with respect to a Seller
Plan that has not been satisfied in full, and, to the knowledge of the Seller,
no condition exists that presents a material risk to the Company of incurring
any such liability, other than liability for premiums due the Pension Benefit
Guaranty Corporation (which premiums have been paid when due).
(d) Multiemployer Plan. Except as set forth in Section
3.9(d) of the Seller Disclosure Schedule, no Seller Plan is a "multiemployer
plan," as defined in Section 4001(a)(3) of ERISA, nor is any Seller Plan a plan
described in Section 4063(a) of ERISA.
(e) No Violations. Except as set forth in Section 3.9(e)
of the Seller Disclosure Schedule, each Seller Plan has been operated and
administered in all material respects in accordance with its terms and
applicable law, including without limitation ERISA and the Internal Revenue Code
of 1986, as amended (the "Code"), and there have been no prohibited transactions
(within the meaning of Section 4975 of ERISA and Section 406 of ERISA) involving
any Seller Plan for which the Buyer would have any liability.
(f) Section 401(a) Qualification. Each Seller Plan
"intended" or "designed" to be "qualified" within the meaning of Section 401(a)
of the Code has received or timely applied for a current determination letter
from the Internal Revenue Service to the effect that it is so qualified and any
distribution to an Affected Employee (as defined in Section 6.6(a)) from each
such plan will be eligible for treatment as an eligible rollover distribution
within the meaning of Section 402(c)(4) of the Code.
(g) Post-Employment Benefits. Except as set forth in
Section 3.9(g) of the Seller Disclosure Schedule, no Seller Plan provides
medical, surgical, hospitalization, death or similar benefits (whether or not
insured) for Business Employees 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
17
"pension plan," or (iii) benefits the full cost of which is borne by the
Business Employee (or his beneficiary).
(h) Effect of Change of Control. Except to the extent that
the Company expressly assumes Severance Obligations (as defined in Section
6.6(b)) or obligations under the Retention Agreements (as defined in Section
3.10(b)), no liability will be incurred by the Company for severance pay or
acceleration of compensation or benefits as a result of the transactions
contemplated by this Agreement.
(i) Claims. Except as set forth in Section 3.9(i) of the
Seller Disclosure Schedule, there are no pending, or to the knowledge of the
Seller threatened, material claims by or on behalf of any Seller Plan, by any
Business Employee or Business Employee beneficiary covered under any such Seller
Plan, or otherwise involving any such Seller Plan (other than routine claims for
benefits), and there are no pending or, to the knowledge of the Seller,
threatened audits, investigations, enforcement actions, or other similar
proceedings conducted by any state or federal agency involving any Seller Plan.
Section 3.10 Labor and Employee Relations.
(a) As of the date hereof, except as disclosed in Section
3.10(a) of the Seller Disclosure Schedule, neither Services I, Services II,
Services, LP nor any Company Subsidiary is a party to any collective bargaining
agreement or other labor agreement with any union or labor organization. Except
as disclosed in Section 3.10(a) of the Seller Disclosure Schedule or except to
the extent not reasonably likely to have a Company Material Adverse Effect, (i)
there is no strike, lockout, slowdown or work stoppage pending or, to the
knowledge of the Seller or DQE, threatened against or involving the Company, and
(ii) there is no proceeding, claim, suit, action or governmental investigation
pending or, to the knowledge of the Seller or DQE, threatened in respect of
which any director, officer, employee or agent of the Company is or may be
entitled to claim indemnification from Services I, Services II, or Services, LP
or any Company Subsidiary pursuant to their articles of incorporation, by-laws
or any indemnification agreement.
(b) Except as set forth in Section 3.10(b) of the Seller
Disclosure Schedule, prior to the Closing, Services I, Services II, Services, LP
and any Company Subsidiary did not have any employees, and on the Closing Date
will not have any obligation to persons who provided services to the Company
prior to the Closing in any capacity for DQE or the Seller, including employees,
consultants, independent contractors, subcontractors, officers or directors of
DQE or the Seller. Effective after the Closing, Services I, Services II,
Services, LP and the Company Subsidiaries will have only such obligations to the
employees that they hire that arise out of services provided by such employees
commencing after the Closing which obligations will include the Severance
Obligations (as defined in Section 6.6(b)), and obligations under the Retention
Agreements (as defined below). The term "Retention Agreements" shall mean (i)
the Retention Agreement between Bryan S. Chapline and the Seller dated June 6,
2002, and
18
(ii) the Retention Agreement between Randolph S. Jones and the Seller dated
February 14, 2002.
(c) Section 3.10(c) of the Seller Disclosure Schedule
lists all agreements between DQE, the Seller or the Company and the Designated
Employees (as defined in Section 6.17) that include covenants not to compete.
Section 3.11 Environmental Matters.
(a) Except as set forth in Section 3.11 of the Seller
Disclosure Schedule and except for those matters disclosed in the "Environmental
White Paper" relating to the Company delivered by the Seller to the Buyer on
even date herewith (the "Environmental Whitepaper"):
(i) To the knowledge of the Seller, each of Services
I, Services II, Services, LP and each Company Subsidiary is in compliance
with all applicable Environmental Laws (as defined in Section 3.11(b)(i)),
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 neither is having
nor is reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect.
(ii) (A) To the knowledge of the Seller, there is no
pending or threatened claim, notice of violation, lawsuit, demand, action,
or administrative proceeding against the Seller (in respect of the
Company), DQE (in respect of the Company), Services I, Services II,
Services, LP or any Company Subsidiary under or pursuant to any
Environmental Law that is having or is reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect; (B)
neither the Seller (in respect of the Company), DQE (in respect of the
Company), Services I, Services II, Services, LP nor any Company Subsidiary
is subject to any administrative or judicial consent order or decree in
connection with any Environmental Laws or the release or threat of release
of Hazardous Substances (as defined in Section 3.11(b)(ii)) that is having
or is reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect; and (C) neither the Seller (in respect of
the Company), DQE (in respect of the Company), Services I, Services II,
Services, LP nor any Company Subsidiary has received written notice from
any Person, including but not limited to any Governmental Authority,
alleging that the Seller (in respect of the Company), DQE (in respect of
the Company), Services I, Services II, Services, LP 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
have or may, individually or in the aggregate, have or may have a Company
Material Adverse Effect.
19
(iii) To the knowledge of the Seller, with respect to
the real property that was formerly or is currently owned or leased by the
Seller (in respect of the Company), DQE (in respect of the Company),
Services I, Services II, Services, LP or any Company Subsidiary, there have
been no releases or threats of releases of Hazardous Substances on or
underneath or from any of such real property that, individually or in the
aggregate, have or would be reasonably likely to result in a Company
Material Adverse Effect.
(b) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all federal,
state and local laws, common law, regulations, codes, policies, guidance
documents, rules and ordinances relating to occupational health and safety,
or pollution or protection of the environment, including, without
limitation, laws (such as the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (CERCLA))
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).
(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 3.11 are the sole and exclusive representations and warranties relating
to environmental matters made by the Seller in this Agreement.
Section 3.12 No Breaches or Defaults. Except as disclosed on
Section 3.7 or Section 3.12 of the Seller Disclosure Schedule, the Company is
not 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 the lapse of
time or action by a third party, could result in a default by the Company under,
nor, to the knowledge of the Seller, is any third party in breach or default in
any material respect under, any Contract (as defined below), except, in any such
case, for such breaches and defaults by the Company as to which requisite
waivers or consents have been or will be obtained prior to the Closing Date and
for such breaches and defaults that are not having nor are reasonably likely to
have a Company Material Adverse Effect. The term "Contracts" means all written
notes, bonds, mortgages, indentures, deeds of trust, licenses, franchises,
permits, contracts, leases or other instruments, obligations or agreements of
any kind to which Services I, Services II, Services, LP or any Company
Subsidiary is a party or by which their properties or assets
20
may be bound, provided, however, that for purposes of this Section 3.12,
Contracts shall not include Seller Plans or agreements, if any, with any
Governmental Authority regarding compliance with Environmental Laws.
Section 3.13 Insurance. Section 3.13 of the Seller Disclosure
Schedule describes the fire and casualty, general liability, business
interruption, product liability, pollution and sprinkler and water damage
insurance policies maintained by the Seller or DQE on behalf of the Company as
well as a description of any self-insurance arrangement by or affecting the
Company, including any reserves thereunder. To the knowledge of the Seller, all
of such policies are in full force and effect, all premiums with respect thereto
are currently paid and neither the Seller nor DQE has received any notice of
cancellation or termination with respect to any such insurance policy.
Section 3.14 Brokers or Finders. The Seller has not entered into
any agreement or arrangement entitling any agent, broker, investment banker,
financial advisor or other firm or Person to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except Lehman Brothers, whose fees and expenses
will be paid by the Seller in accordance with the Seller's agreements with such
firm.
Section 3.15 Competing Lines of Business. Except as set forth in
Section 3.15 of the Seller Disclosure Schedule, to the knowledge of the Seller,
neither DQE, the Seller nor any Subsidiary of the Seller is, or owns, indirectly
or directly, any interest in any other business which is a competitor of the
Company.
Section 3.16 Limitation on Representations and Warranties.
Except for the representations and warranties contained in this Article III,
neither the Seller, DQE nor any other Person or entity acting on behalf of the
Seller or DQE makes any representation or warranty, express or implied,
concerning the Membership Interests or the business, assets, or liabilities of
the Company or any other matter. In addition, notwithstanding any other
provision of this Agreement to the contrary, neither the Seller nor DQE makes
any representations or warranties with respect to any of the Excluded Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
Section 4.1 Organization and Qualification. Except as set forth
in Section 4.1 of the Schedule delivered by the Buyer to the Seller on the date
hereof and attached to this Agreement (the "Buyer Disclosure Schedule") the
Buyer is a corporation 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 to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its assets
21
and properties makes such qualification necessary other than in such
jurisdictions where the failure to be in good standing or be so qualified is not
reasonably likely, individually or in the aggregate, to have a Buyer Material
Adverse Effect (as defined below). As used in this Agreement, the term "Buyer
Material Adverse Effect" shall mean any material adverse effect on the ability
of the Buyer to consummate the transactions contemplated by this Agreement and
to perform its obligations hereunder; provided, however, that any such effect
resulting from any change in law, rule, or regulation of any Governmental
Authority that applies generally to similarly situated Persons shall not be
included in the term "Buyer Material Adverse Effect." The term "Buyer
Subsidiary" shall mean a Subsidiary of the Buyer.
Section 4.2 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. The Buyer has all requisite corporate power
and authority to enter into this Agreement and, subject to the receipt of the
applicable Buyer Required Statutory Approvals (as defined in Section 4.2(c)) and
applicable Buyer Required Consents (as defined in Section 4.2(b)), to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by the Buyer of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Buyer. No vote of, or consent by, the holders of any class or series of
stock issued by the Buyer is necessary to authorize the execution and delivery
by the Buyer of this Agreement or the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Buyer and, assuming the due authorization, execution and delivery hereof by the
Seller and DQE, constitutes the valid and binding obligation of the Buyer
enforceable against it in accordance with its terms, subject to, to the extent
applicable, bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(b) Non-Contravention. Except as set forth in Section
4.2(b)(i) of the Buyer Disclosure Schedule, the execution and delivery of this
Agreement by the Buyer 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 Buyer or any of the Buyer Subsidiaries, (ii) subject to obtaining the
Buyer Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to the Buyer or any of the Buyer Subsidiaries
or any of its or their respective properties or assets, or (iii) subject to
obtaining the third-party consents set forth in Section 4.2(b)(iii) of the Buyer
Disclosure Schedule (the "Buyer 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
Buyer or any of the Buyer 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 is not reasonably
likely to have a Buyer Material Adverse Effect.
22
(c) Statutory Approvals. Except as described in Section
4.2(c) of the Buyer Disclosure Schedule (the "Buyer 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 Buyer or the
consummation by the Buyer of the transactions contemplated hereby, except those
which the failure to obtain is not reasonably likely to have a Buyer Material
Adverse Effect (it being understood that references in this Agreement to
"obtaining" such Buyer 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. Except as set forth in Section 4.2(d)(i)
or Section 4.3 of the Buyer Disclosure Schedule, neither the Buyer nor any of
the Buyer 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 are not reasonably likely to
have a Buyer Material Adverse Effect. Except as set forth in Section 4.2(d)(ii)
of the Buyer Disclosure Schedule or as disclosed in the Buyer SEC Reports filed
prior to the date hereof, the Buyer and the Buyer 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 is not reasonably likely to have a Buyer
Material Adverse Effect. Except as set forth in Section 4.2(d)(iii) of the Buyer
Disclosure Schedule, neither the Buyer nor any Buyer 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 Buyer or any Buyer 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 Buyer or any Buyer Subsidiary is bound or to which any of their
property is subject, except for possible violations, breaches or defaults which
are not reasonably likely to have a Buyer Material Adverse Effect.
Section 4.3 Litigation. Except as set forth in Section 4.3 of
the Buyer Disclosure Schedule, (a) 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 Buyer, threatened, nor are there, to the knowledge of the Buyer, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against, relating to or affecting the Buyer or any Buyer Subsidiary which are
reasonably likely to have a Buyer Material Adverse Effect, and (b) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to the Buyer or any Buyer Subsidiaries except for such that are not
reasonably likely to have a Buyer Material Adverse Effect.
23
Section 4.4 Investigation by the Buyer; the Seller's Liability.
The Buyer 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, which
investigation, review and analysis was done by the Buyer and its affiliates and,
to the extent the Buyer deemed appropriate, by the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, "Representatives") of Buyer. The Buyer
acknowledges that it and its Representatives have been provided adequate access
to the personnel, properties, premises and records of the Company for such
purpose. In entering into this Agreement, the Buyer acknowledges that it has
relied solely upon the aforementioned investigation, review and analysis and not
on any factual representations of the Seller, DQE or the Seller's or DQE's
Representatives (except the specific representations and warranties of the
Seller and, as applicable, DQE set forth in Article III of this Agreement), and
the Buyer:
(a) acknowledges, except for the specific representations
and warranties of the Seller and, as applicable, DQE set forth in Article III of
this Agreement, that none of the Seller, Services I, Services II, Services, LP,
or any Company Subsidiary or any of their respective 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 in materials furnished in the Seller's data room, in presentations by
the Seller's management, on site visits or otherwise) provided or made available
to the Buyer 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, Services I, Services II, Services, LP, or any Company
Subsidiary 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
Buyer 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 in materials furnished
in the Seller's data room, in presentations by the Seller's management, on site
visits or otherwise) to the Buyer 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 and, as applicable, DQE set forth in Article III of
this Agreement.
For the avoidance of doubt, the foregoing limitations,
representations and warranties, acknowledgments and agreements of the Buyer set
forth in this Section 4.4 shall not modify, limit or effect in any way the
specific representations and warranties of the Seller and, as applicable, DQE
set forth in Article III of this Agreement, and shall not apply to or limit the
Seller's and DQE's indemnification obligations contained in Article IX,
recognizing that such indemnification obligations are always subject to the
limitations and restrictions contained in Articles IX and X.
24
Section 4.5 Acquisition of Membership Interests for Investment;
Ability to Evaluate and Bear Risk.
(a) The Buyer is acquiring the Membership Interests 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 Membership Interests. The Buyer acknowledges that the Membership Interests
have not been registered under the Securities Act and agrees that the Membership
Interests 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 the Securities Act and any applicable state securities laws.
(b) The Buyer is able to bear the economic risk of holding
the Membership Interests 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 Membership Interests.
Section 4.6 Financing. The Buyer has or will have available,
prior to the Closing, sufficient cash in immediately available funds to pay the
Purchase Price pursuant to Article I hereof and to consummate the transactions
contemplated hereby.
Section 4.7 Brokers or Finders. The Buyer 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 API, whose fees and expenses will be paid
by the Buyer in accordance with the Buyer's agreement with such firm.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.1 Covenants of the Seller. As used in this
Section 5.1, the terms "Company", "Company Subsidiary" and "Company
Subsidiaries", and any reference to their assets, shall not be read or deemed to
include the Excluded Assets. 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
expressly contemplated in or permitted by this Agreement or (ii) to the extent
the Buyer shall otherwise consent in writing, which decision regarding consent
shall be made as soon as reasonably practical, and which consent shall not be
unreasonably withheld, conditioned or delayed:
(a) the business of the Company 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 shall use its
commercially reasonable efforts to preserve its business organization intact and
maintain its existing relations and
25
goodwill with customers, suppliers, creditors, regulators, lessors, employees
and business associates;
(b) neither Services I, Services II, Services, LP nor any
Company Subsidiary shall (i) amend its certificate of formation, operating
agreement or other operating documents; (ii) issue any new membership or other
ownership interests; (iii) declare, set aside or pay any dividend payable in
cash, stock or property in respect of any of its membership or other ownership
interests; or (iv) repurchase, redeem or otherwise acquire any of its membership
or other ownership interests or any securities convertible into or exchangeable
or exercisable for any of its membership or other ownership interests;
(c) neither Services I, Services II nor Services, LP nor
any Company Subsidiary shall (i) issue, sell, pledge, dispose of or encumber any
equity interests of, or securities convertible into or exchangeable or
exercisable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any of its equity interests; or (ii) make any commitments for, make
or authorize any capital expenditures (other than (A) capital expenditures not
in excess of $150,000 in the aggregate incurred in connection with the repair or
replacement of facilities destroyed or damaged due to casualty or accident (to
the extent not covered by insurance), (B) as required by law or by any consent
agreement with a Governmental Authority by which the Company, or its assets, is
bound, or (C) in amounts less than $150,000 in the aggregate);
(d) the Company shall not terminate, establish, adopt,
enter into, make any new grants or awards of stock-based or membership-based
compensation or other benefits under, amend or otherwise modify any Seller 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 Seller 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 Seller Plans consistent with past practice for newly
hired or appointed officers and employees), or (iii) for actions necessary to
satisfy existing contractual obligations under Seller Plans existing as of the
date hereof; provided, however, that the Seller shall have satisfied its
obligations with respect to the Seller Plans under this provision if DQE
maintains the Seller Plans in such a manner as to comply with this provision;
(e) the Seller, on behalf of the Company, shall maintain
insurance in such amounts and against such risks and losses as are consistent
with the insurance heretofore maintained by the Seller or DQE on behalf of the
Company; provided, however, that the Seller shall have satisfied its obligations
under this provision if DQE maintains such insurance on behalf of the Seller;
(f) the Seller shall promptly provide the Buyer with
copies of all filings made by the Seller or the Company with, and inform the
Buyer of any communications received from, any state or federal court,
administrative agency,
26
commission or other Governmental Authority in connection with this Agreement and
the transactions contemplated hereby;
(g) the Seller shall, and shall cause the Company to, use
all commercially reasonable efforts to promptly obtain all of the Seller
Required Consents and the Seller Required Statutory Approvals. The Seller shall
promptly notify the Buyer of any failure or prospective failure to obtain any
such consents or approvals and shall provide copies of all of the Seller
Required Consents and the Seller Required Statutory Approvals obtained by the
Seller and the Company to the Buyer;
(h) The Seller will promptly notify the Buyer in writing
if the Seller becomes aware of any fact or condition that causes or constitutes
a breach of any of the Seller's representations or warranties, or that would
constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of the occurrence or
discovery of such fact or condition or if such representation or warranty were
not qualified by the term Company Material Adverse Effect. The Seller will
promptly notify the Buyer of the occurrence of any breach of any covenant of
Seller in this Agreement, or of the occurrence or any event that may make the
satisfaction of the conditions in Sections 7.1 and 7.2 impossible or unlikely;
and
(i) the Seller shall not, and the Seller shall not permit
the Company to, willfully take any action that would or is reasonably likely to
result in a breach of any provision of this Agreement or in any of its
representations and warranties set forth in this Agreement being untrue on and
as of the Closing Date or to unduly delay the Closing.
Section 5.2 Covenants of the Buyer. After the date hereof and
prior to the Closing Date or earlier termination of this Agreement, the Buyer
agrees, as to itself and to each of the Buyer Subsidiaries, as follows except as
expressly contemplated or permitted in this Agreement or to the extent the
Seller shall otherwise consent in writing, which decision regarding consent
shall be made as soon as reasonably practical, and which consent shall not be
unreasonably withheld, conditioned or delayed:
(a) the Buyer shall promptly provide the Seller with
copies of all filings made by the Buyer or any of the Buyer Subsidiaries with,
and inform the Seller 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;
(b) the Buyer shall, and shall cause the Buyer
Subsidiaries to, use all commercially reasonable efforts to promptly obtain all
of the Buyer Required Consents and the Buyer Required Statutory Approvals. The
Buyer shall promptly notify the Seller of any failure or prospective failure to
obtain any such consents or approvals and, if requested by the Seller, shall
provide copies of all of the Buyer Required Consents and the Buyer Required
Statutory Approvals obtained by the Buyer to the Seller;
27
(c) the Buyer will promptly notify the Seller in writing
if the Buyer becomes aware of any fact or condition that causes or constitutes a
breach of any of the Buyer's representations or warranties, or that would
constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of the occurrence or
discovery of such fact or condition or if such representation or warranty were
not qualified by the term Buyer Material Adverse Effect. The Buyer will promptly
notify the Seller of the occurrence of any breach of any covenant of the Buyer
in this Agreement, or of the occurrence of any event that may make the
satisfaction of the conditions in Sections 7.1 and 7.3 impossible or unlikely;
and
(d) the Buyer shall not, and the Buyer shall not permit
any of the Buyer Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement or in any of its representations and warranties set forth in this
Agreement being untrue on and as of the Closing Date or to unduly delay the
Closing.
Section 5.3 Mutual Covenants of the Parties.
(a) Notwithstanding any other provision of this Agreement
to the contrary, the Seller and the Buyer expressly agree that prior to the
Closing, the Seller shall cause any and all of Services I's, Services II's,
Services, LP's and the Company Subsidiaries' right, title and interest in and to
all of those assets set forth on Section 5.3 of the Seller Disclosure Schedule
(collectively, the "Excluded Assets") to be assigned and transferred, without
any warranty of title, condition or otherwise, and all such Excluded Assets to
be delivered, by Services I, Services II, Services, LP, and the Company
Subsidiaries, as applicable, to the Seller or such third party as the Seller may
designate, and all of the obligations and liabilities of Services I, Services
II, Services, LP or any Company Subsidiary in respect of any such Excluded
Assets to be assumed by the Seller or such third party, as the case may be. For
the avoidance of doubt, liabilities and obligations of DQE, the Seller or the
Company relating to the Excluded Assets shall be Buyer Indemnifiable Losses and
subject to the Seller's and DQE's indemnification obligations under Article IX.
(b) Notwithstanding any other provision of this Agreement
to the contrary, the Seller and the Buyer expressly agree that prior to the
Closing, the Seller shall cause any and all of the Seller's and any Subsidiary
of the Seller's right, title and interest in and to the Integrated Assets to be
assigned and transferred free and clear of all Encumbrances (other than
Permitted Encumbrances), but without any other warranty of condition or
otherwise, and all such Integrated Assets to be delivered, by the Seller or any
Subsidiary of the Seller, as applicable, to the Company, and all of the
performance obligations of DQE, the Seller, any Subsidiary of the Seller and the
Company which arise after the Closing and relate to the contracts included among
the Integrated Assets listed on Section 3.3 of the Seller Disclosure Schedule
and all liabilities of the Seller, any Subsidiary of DQE, the Seller, any
Subsidiary of the Seller and the Company, direct or indirect, known or unknown,
absolute or contingent, which arise after the Closing and relate to the
Integrated Assets listed on Section 3.3 of the Seller Disclosure Schedule,
provided, however, that the provisions of this Section 5.3(b) shall not limit
the
28
representations and warranties of the Seller set forth in the last sentence of
Section 3.3 or the Seller's and DQE's indemnification obligations under Article
IX, recognizing that such indemnification obligations are always subject to the
limitations and restrictions contained in Articles IX and X. For avoidance of
doubt, liabilities and obligations of DQE, the Seller, any Subsidiary of the
Seller or the Company relating to the Integrated Assets which arise prior to the
Closing shall be Buyer Indemnifiable Losses and subject to the Seller's and
DQE's indemnification obligations under Article IX, and liabilities and
obligations of DQE, the Seller, any Subsidiary of the Seller or the Company
relating to the Integrated Assets which arise after the Closing and are not a
breach of a representation or warranty made by the Seller in respect of any such
Integrated Asset shall be Seller Indemnifiable Losses and subject to the Buyer's
indemnification obligations under Article IX recognizing that all such
indemnification obligations are always subject to the limitations and
restrictions contained in Articles IX and X.
(c) The parties agree that the Buyer shall not be
responsible for any, and the Seller agrees to pay for all, costs or expenses
associated with assigning and transferring the Excluded Assets and the
Integrated Assets, as contemplated by Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access to Company Information. Upon reasonable
notice, the Seller shall, and shall cause Services I, Services II or Services,
LP, and each Company Subsidiary, to, afford to the Representatives of the Buyer
reasonable access, during normal business hours throughout the period prior to
the Closing Date, to all of the Company's properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) and the
Affected Employees and, during such period, the Seller shall, and shall cause
Services I, Services II or Services, LP, and each Company Subsidiary, to,
furnish promptly to the Buyer and its Representatives, (i) access to each
report, Schedule and other document filed or received by the Seller (with
respect to the Company) or the Company 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 Integrated Assets and the Company and its respective directors and officers
and such other matters as may be reasonably requested by the Buyer or its
Representatives in connection with any filings, applications or approvals
required or contemplated by this Agreement or for any other reason related to
the transactions contemplated by this Agreement; provided, however, that (i) any
such access shall be granted only in such a manner as not to interfere
unreasonably with the Seller's business operations in respect of the Company or
otherwise, (ii) upon being granted such access, the Buyer shall not interfere
with the Seller's business operations in respect of the Company or otherwise,
(iii) in granting any such access the Seller, Services I, Services II, Services,
LP and the Company Subsidiaries shall not be required to take any action that
would constitute a waiver of any legal privilege, including the attorney-client
privilege, the work product privilege and the self critical investigation
privilege, (iv) in granting any such access, the Seller, Services I, Services
II, Services, LP and the Company Subsidiaries shall not be required to provide
the Buyer with access to any
29
information which the Seller, Services I, Services II, Services, LP or any
Company Subsidiary is under a legal or contractual obligation to withhold from
disclosure, and (v) in granting such access, the Seller, Services I, Services
II, Services, LP and the Company Subsidiaries shall not be required to provide
the Buyer with access to any information that relates exclusively to the
Excluded Assets, provided that, in all cases, the Seller shall be entitled to
redact information relating to the Excluded Assets from any information to which
the Buyer is granted access. The Buyer shall, and shall cause its Subsidiaries
and Representatives to, hold in strict confidence all documents and information
concerning the Seller or the Company furnished or made available to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated January 5, 2001, entered into by and
among the Seller, DQE and the Buyer (as amended on April 12, 2002, the
"Confidentiality Agreement"); provided, however, that the Buyer shall not be in
breach of the Confidentiality Agreement if, following the Closing, it uses
Proprietary Information (as defined in the Confidentiality Agreement) that is or
was developed for, used by, or otherwise related to the operations of the
Company; provided, further, that notwithstanding the foregoing, in no event
shall the Buyer or any Buyer Subsidiary (including after the Closing, the
Company) directly disclose any such Proprietary Information in any manner that
is inconsistent with paragraph (iv) of the Acknowledgment and Amendment to the
Confidentiality Agreement dated April 12, 2002 (except for disclosures made
after the Closing to either Robert Haas or Violet Vela Divin but, in either
case, only if such person shall have been hired by the Company and except for
disclosures of (i) employee information related to Affected Employees, (ii)
purchase contracts for goods and services of the Company that were in effect
prior to the Closing, (iii) work orders of the Company relating to the balance
sheet of the Company at the Closing, and (iv) such other information the
disclosure of which is approved by the Seller and DQE).
Section 6.2 Regulatory Matters. The Seller and the Buyer shall
cooperate and use all commercially reasonable efforts to promptly prepare and
file all necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to use all commercially reasonable
efforts to obtain all necessary permits, consents, approvals and authorizations
of all Governmental Authorities necessary or advisable to obtain the Seller
Required Statutory Approvals and the Buyer Required Statutory Approvals;
provided, however, that the Seller and the Buyer shall cooperate to prepare and
file any such applications, notices, petitions, filings and other documents
timely in order to obtain all such approvals on or before the Initial
Termination Date (as defined in Section 8.1(c)) and shall thereafter cooperate
to diligently prosecute all such applications, notices, petitions, filings and
other documents. The Buyer shall not be required to dispose of or change any
portion of its existing business or to incur any other burden expense to obtain
a Seller Required Statutory Approval and the Seller shall not be required to
dispose of or change any portion of its existing business or to incur any other
burden expense to obtain a Buyer Required Statutory Approval. The Buyer shall be
precluded from including in any application for regulatory approval
contingencies relating to rate treatment of acquisition premiums.
Section 6.3 Consents. The Seller and the Buyer agree to use all
commercially reasonable efforts to obtain the Seller Required Consents and the
Buyer
30
Required Consents, respectively, and to cooperate with each other in connection
with the foregoing. The Buyer shall not be required to dispose of or change any
portion of its existing business or to incur any other burden expense to obtain
a Seller Required Consent and the Seller shall not be required to dispose of or
change any portion of its existing business or to incur any other burden expense
to obtain a Buyer Required Consent.
Section 6.4 Directors' and Officers' Indemnification.
(a) Indemnification. To the fullest extent permitted by
law, from and after the Closing Date, all rights to indemnification existing
immediately prior to the Closing in favor of the current and former employees,
agents, directors or officers of Services I, Services II, Services, LP and each
Company Subsidiary (each, a "Company Indemnified Party" and, collectively, the
"Company Indemnified Parties") with respect to their activities as such prior to
or on the Closing Date, as provided in Services I's, Services II's, Services,
LP's and each Company Subsidiary's respective certificates of formation,
operating agreement, or other organizational documents 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 (6) years from the Closing Date, provided that, in the event any claim
or claims are asserted or made within such six (6) year period, all such rights
to indemnification in respect of any claim or claims shall continue until final
disposition of such claim or claims. For the avoidance of doubt, liabilities and
obligations of the Company to Company Indemnified Parties resulting from the
rights to indemnification contemplated by this Section 6.4 and attributable to
pre-Closing activities shall be Buyer Indemnifiable Losses and subject to the
Seller's and DQE's indemnification obligations under Article IX, recognizing
that such indemnification obligations are always subject to the limitations and
restrictions contained in Articles IX and X.
(b) Insurance. For a period of six (6) years after the
Closing Date, DQE or the Seller shall maintain policies of directors' and
officers' liability insurance for those Persons covered by such policies
maintained by the Seller or DQE on behalf of the Company immediately prior to
the Closing in respect of pre-Closing acts or omissions on terms no less
favorable than the terms of such current insurance coverage.
(c) Successors. In the event that after the Closing Date,
Services I, Services II, Services, LP or any Company Subsidiary 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 substantially
all 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
Services I, Services II, Services, LP or any such Company Subsidiary, as the
case may be, shall assume the obligations set forth in this Section 6.4.
(d) 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 and his or her representatives.
31
Section 6.5 Public Announcements. Except as may be required by
law, applicable rules and regulations, or by obligations pursuant to any listing
agreement with or rules of any national securities exchange, DQE, the Seller and
the Buyer shall 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 shall keep the terms of this Agreement
confidential prior to Closing and shall not make any disclosure of this
Agreement to any Person. The Seller and the Buyer shall consult with each other
concerning the means by which the Company's employees, customers, suppliers and
other Persons dealing with the Company will be informed of the transaction
contemplated by this Agreement and representatives of the Buyer shall have the
right to be present for any such communication at any general meeting of the
employees.
Section 6.6 Workforce Matters.
(a) Prior to the Closing, the Buyer shall make a
"qualifying offer" of employment as that term is defined in the AquaSource
Severance Policy dated January 1, 2002 (the "Severance Policy" and, such
qualifying offer, a "Qualifying Offer") to each of the employees of the Seller
identified in Section 6.6(a) of the Seller Disclosure Schedule (such
individuals, the "Affected Employees"). The Qualifying Offers shall be subject
to Closing and contingent on the Affected Employee satisfying the Buyer's drug
testing policy and other requirements imposed by applicable law, such as the
Immigration Reform and Control Act of 1986, as applicable (the "Hiring
Conditions"). Subject to Closing and satisfaction of the applicable Hiring
Conditions, such Qualifying Offers shall be accepted or rejected by the Affected
Employees prior to the Closing Date, to be effective immediately after the
Closing. In connection with the hiring process for Affected Employees, the Buyer
shall comply with applicable laws pertaining to labor and employment, including,
without limitation, Title VII of the Civil Rights Act of 1964, as amended, the
Age Discrimination in Employment Act, the Americans With Disabilities Act, the
Rehabilitation Act and comparable state and local laws.
(b) Effective immediately after the Closing, the Company
shall assume, and continue in effect for a period of not less than twelve (12)
months from the Closing Date, the Severance Policy for the benefit of all
Affected Employees who have accepted Qualifying Offers and satisfied the Hiring
Conditions (the "Severance Obligations"), except that for purposes of the
assumption, all references in the Severance Policy to "AquaSource" shall be to
the Company, and all references to "any DQE Subsidiary" shall be to any Buyer
Subsidiary. If any Affected Employee does not accept a Qualifying Offer or does
not satisfy the Hiring Conditions, then the Buyer shall have no further
obligation to such Affected Employee or to the Seller or DQE with regard to such
Affected Employee. For the avoidance of doubt, liabilities and obligations in
respect of Affected Employees who do not accept a Qualifying Offer or satisfy
the applicable Hiring Conditions shall be Buyer Indemnifiable Losses and subject
to the Seller's and DQE's indemnification obligations under Article IX,
recognizing that such indemnification obligations are always subject to the
limitations and restrictions contained in Articles IX and X. As between the
Seller and the Buyer, neither the Seller nor DQE shall be obligated to provide
any severance or separation pay benefits to any
32
Affected Employee who has accepted a Qualifying Offer and satisfied the Hiring
Conditions on account of any termination of such Affected Employee's employment
after the Closing. Pursuant to Section 10 of the Retention Agreements, effective
upon the Closing, the Company hereby assumes and agrees to perform the Seller's
obligations under the Retention Agreements in the same manner and to the same
extent that the Seller would be required to perform, had such succession not
taken place. In addition, effective upon the Closing, (i) DQE and the Seller
hereby assign to the Company those agreements set forth in Section 3.10(c) of
the Seller Disclosure Schedule and (ii) the Company hereby assumes and agrees to
perform the Seller's or DQE's obligations which arise after the Closing under
those agreements set forth in Section 3.10(c) of the Seller Disclosure Schedule,
provided, however, that DQE and the Seller retain sufficient rights under such
agreements necessary to satisfy their respective obligations contemplated by the
last sentence of Section 6.17(a). For the avoidance of doubt, liabilities and
obligations of DQE, the Seller or the Company which arise after the Closing
under the Retention Agreement and those agreements set forth in Section 3.10(c)
of the Seller Disclosure Schedule shall be Seller Indemnifiable Losses and
subject to the Seller's indemnification obligations under Article IX,
recognizing that such indemnification obligations are always subject to the
limitations and restrictions contained in Articles IX and X.
(c) The Buyer 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 a qualifying event (within the meaning of COBRA) after
the Closing, except for those Affected Employees who do not accept a Qualifying
Offer or who do not satisfy the Hiring Conditions. The Buyer shall not have any
further responsibility for compliance with the continuation coverage
requirements under COBRA with respect to any other employees of the Seller or
DQE. The Seller shall be responsible for providing continuation coverage
required under COBRA in respect of Affected Employees who experience a
qualifying event (within the meaning of COBRA) before the Closing Date and in
respect of Affected Employees who do not accept a Qualifying Offer or who do not
satisfy the Hiring Conditions.
(d) The Seller shall be responsible for any notices
required to be given under, or otherwise comply with, the WARN Act or similar
statutes or regulations of any jurisdiction relating to any "plant closing" or
"mass layoff" or similar triggering event ordered by DQE or the Seller with
respect to the Affected Employees prior to or on the Closing Date. The Buyer
shall be responsible for any notices required to be given under, or otherwise
comply with, the WARN Act or similar statutes or regulations of any jurisdiction
relating to any "plant closing" or "mass layoff" or similar triggering event
ordered by the Buyer or any Buyer Subsidiary after the Closing with respect to
the Affected Employees who have accepted a Qualifying Offer and satisfied the
Hiring Conditions. For the avoidance of doubt, for purposes here, the parties
intend for the "effective date" within the meaning of the WARN Act to refer to
and mean the Closing Date. To the extent possible, the Buyer and the Seller
agree to treat the Buyer as a "successor employer" and the Seller or one or more
of its affiliates as a "predecessor employer" within the meaning of Sections
3121(a)(1) and 3306(b)(1) of the Code, with
33
respect to Affected Employees, for purposes of Taxes imposed under the United
States Federal Unemployment Tax or the United States Federal Insurance
Contributions Act. Provided that the Buyer fully performs its obligations to
make Qualifying Offers and to employ Affected Employees who accept such
Qualifying Offers pursuant to this Section 6.6, the Seller and DQE shall,
jointly and severally, indemnify and hold harmless the Buyer against any
liabilities related to any WARN Act obligations arising from the transactions
contemplated hereby attributable to the actions of the Seller or DQE.
(e) The Buyer expressly agrees that (i) from the date
hereof until the first anniversary of the Closing Date, it will not directly or
indirectly solicit for employment, other than through solicitations made to the
general public, any of those persons listed on Section 6.6(e) of the Seller
Disclosure Schedule, and from the Closing Date until the first anniversary of
the Closing Date, it will cause the Company not to directly or indirectly
solicit for employment, other than through solicitations made to the general
public, those persons listed on Section 6.6(e) of the Seller Disclosure Schedule
and (ii) from the date hereof until the first anniversary of the Closing Date,
it will not employ any of those persons listed on Section 6.6(e) of the Seller
Disclosure Schedule, unless it shall have first given notice to the Seller of
its intent to make an offer of employment to any such persons, and, from the
Closing Date until the first anniversary of the Closing Date, it will cause the
Company not to employ any of those persons listed on Section 6.6(e) of the
Seller Disclosure Schedule, unless it shall have first given notice to the
Seller of its intent to make an offer of employment to any such persons.
Section 6.7 Seller Plans.
(a) Continued Employment; Service Credit. The Buyer does
not, indirectly or directly, assume or otherwise take responsibility for
contribution to benefits under, COBRA continuation coverage under, or the
administration, maintenance, or sponsorship of, any Seller Plan other than the
Severance Obligations and the Retention Agreements, nor shall there be any
transfer of assets or liabilities of any Seller Plan to any plan, program or
arrangement maintained by the Buyer or any of its affiliates. For the avoidance
of doubt, liabilities and obligations of the Seller Plans (other than the
Severance Obligations and the Retention Agreements) shall be Buyer Indemnifiable
Losses and subject to the Seller's and DQE's indemnification obligations under
Article IX, recognizing that such indemnification obligations are always subject
to the limitations and restrictions contained in Articles IX and X. However, if
any Affected Employee becomes a participant in any employee benefit plan,
practice or policy of the Buyer or any of its affiliates to the extent
reasonably permitted by applicable law and existing insurance contracts, such
Affected Employee shall be given credit under such plan for all service prior to
the Closing Date with the Company, any of its affiliates, any ERISA Affiliate or
any predecessor employer to the extent such credit was given by the Company, any
of its affiliates, any ERISA Affiliate or any predecessor employer under a
Seller Plan, and for all service with the Buyer or any of its affiliates on and
after the Closing Date but prior to the time such employee becomes such a
participant, for purposes of determining eligibility, vesting, benefit accrual
and for all other purposes for which such service is either taken into account
or recognized; provided, however, such service need not be credited to the
extent it would result in a duplication of benefits,
34
including for purposes of benefit accrual under defined benefit plans. Further,
the Buyer shall, and shall cause its affiliates to, to the extent reasonably
permitted by applicable law and existing insurance contracts, (i) waive all
limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to each Affected
Employee under any welfare plan or welfare benefit plan in which the Affected
Employee participates on or after the Closing Date, except to the extent of
limitations or waiting periods that are already in effect with respect to the
Affected Employee as of the Closing Date under the Seller Plans and that have
not been satisfied as of the Closing Date and (ii) credit each Affected Employee
for any co-payments and deductibles paid prior to the Closing Date in satisfying
any applicable deductible or out-of-pocket requirements for the year in which
the Closing Date occurs under any welfare plan or welfare benefit plan in which
the Affected Employee participates on or after the Closing Date. The parties
acknowledge that the welfare plans which the Buyer will make available to the
Affected Employees will provide benefits substantially similar to those provided
by the welfare plans of the Buyer and the Buyer Subsidiaries for their current
employees. As of the Closing, the Company and its affiliates shall cease to
provide coverage and benefits for Affected Employees and their dependents and
beneficiaries under any benefit plan maintained by the Seller or DQE or any of
their respective affiliates, except as required by applicable law. The
provisions of this Section 6.7 shall not create or modify any Seller Plan (other
than the Severance Obligations) or employee benefit plans or agreements of the
Buyer.
(b) Continuation of Agreements. The Buyer shall, and shall
cause the Company to, assume and honor the obligations arising under the
Severance Obligations and the Retention Agreements according to the terms
thereof.
Section 6.8 Tax Treatment. Neither the Seller nor the Buyer
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 purchase of the Membership Interests (or the acquisition of shares in any
Company Subsidiary) in connection with the transactions contemplated by this
Agreement. For purposes of all Tax Returns and other applicable filings, the
Buyer and the Seller will each report the transactions contemplated hereby as a
purchase and sale, respectively, of the Membership Interests.
Section 6.9 Tax Indemnity and Tax Returns. Notwithstanding any
other provision of this Agreement to the contrary, the Seller and DQE shall,
jointly and severally, indemnify, defend and hold harmless each Buyer Indemnitee
(as defined in Section 9.1(a)), and the Buyer shall indemnify, defend and hold
harmless each Seller Indemnitee (as defined in Section 9.1(b)) from and against
any and all of the liabilities of the Seller and DQE, and the Buyer,
respectively, as set forth below:
(a) The Seller and DQE shall be liable for, shall pay to
the appropriate Tax authorities (or shall pay to the Company as a reimbursement
of Taxes paid to the appropriate Tax authorities for a Straddle Period (as
defined below) Tax Return), and shall indemnify and hold the Buyer and the
Company harmless against, all Taxes of the Company that relate to (i) the
taxable periods ending before or on the Closing Date (other than Taxes
attributable to transactions not in the ordinary course of
35
business occurring after the Closing which are effectuated or initiated by the
Buyer), (ii) any taxable period that includes but does not end on the Closing
Date (a "Straddle Period"), but only to the extent that such Taxes relate to the
portion of such Straddle Period up to and including the Closing Date, and (iii)
any liability for Taxes of the consolidated group of which DQE or the Seller is
the common parent arising under Treasury Regulations section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferor or successor,
by contract or otherwise. The Seller shall be entitled to all Tax refunds
(including interest) attributable to the taxable periods for which it is liable.
(b) The Buyer shall be liable for, shall pay to the
appropriate Tax authorities, and shall indemnify and hold the Seller and DQE
harmless against all Taxes of the Company that relate to (i) the taxable periods
that begin after the Closing Date (including, for this purpose, any Taxes
attributable to transactions not in the ordinary course of business occurring
after the Closing which are effectuated or initiated by the Buyer) and (ii) the
portion of any Straddle Period commencing with the first day after the Closing
Date. The Buyer shall be entitled to any Tax refund (including interest)
attributable to the taxable periods for which it is so liable.
(c) The obligations of the parties to indemnify each other
pursuant to this Section 6.9 shall continue until the statutory period of
limitations (taking into account any extensions or waivers thereof) for the
assessment of Taxes, covered by this Section 6.9, has expired. Any payment due
to an indemnified party pursuant to this Section 6.9 shall be paid promptly by
the indemnifying party upon receipt of written notice and, for further
clarification, shall not be subject to, or included in, the Indemnity Basket (as
defined in Section 9.3(b)) or the Indemnity Cap (as defined in Section 9.3(b)).
(d) No party shall take any action the purpose and intent
of which is to prejudice the defense of any claim subject to indemnification
hereunder or to induce a third party to assert a claim subject to
indemnification hereunder.
(e) After the Closing, each of the Seller and the Buyer
shall notify the chief tax officer of the other party in writing (including by
telecopier) within ten (10) days of the receipt of any written notice of any
pending or threatened Audit (as defined below) which, if determined adversely,
could be grounds for indemnification under this Section 6.9 (a "Tax Claim");
provided, however, that any failure to give such notice shall not affect the
rights of the parties hereunder unless and to the extent such failure materially
and adversely affects the indemnifying party's right to participate in and
defend such Tax Claim. The Seller shall have the right at its expense to
participate in and control the conduct of any Tax Claim of or attributable to
the Company relating to taxable periods ending on or before the Closing Date and
to employ counsel of its own choice at its expense; provided, however, that the
Seller shall not settle any such Tax Claim or make or agree to any adjustment in
any manner without the consent of the Buyer, which consent shall not be
unreasonably withheld, conditioned or delayed; and provided, further, that the
Buyer shall have the right to participate in (but not to control) such Tax
Claim. If the Seller fails to participate in any Tax Claim of the Company
relating to taxable periods ending on or before the Closing Date for which
notice was
36
provided pursuant to this Section 6.9(e), the Buyer may defend and settle such
Tax Claim in such manner as it may deem appropriate in its sole discretion.
Except as set forth above in the first sentence of this Section 6.9(e), the
Buyer shall control the conduct of any Tax Claim of the Company relating to any
taxable period ending after the Closing Date and may defend and settle such Tax
Claim in such manner as it may deem appropriate in its sole discretion. 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.
(f) All indemnity payments made by DQE or the Seller to
the Buyer, or by the Buyer to the Seller, pursuant to this Agreement shall, to
the maximum extent permitted under the Code (or other applicable Tax law), be
treated for all Tax purposes as adjustments to the consideration paid with
respect to the Membership Interests.
(g) The Seller shall prepare and file, or cause to be
prepared and filed, when due all Tax Returns that are required to be filed by or
with respect to the Company for taxable years or periods ending on or before the
Closing Date. The Buyer shall prepare and file, or cause to be prepared and
filed, when due all Tax Returns that are required to be filed by or with respect
to the Company for taxable years or periods ending after the Closing Date. Any
Tax Return required to be filed by the Buyer relating to any Straddle Period
shall be prepared based on past practice 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 thirty (30) days prior to the due
date for the filing of such Tax Return, which approval shall not be unreasonably
withheld. The Seller and the Buyer shall make available all books and records
and cooperate with each other as reasonably necessary for the preparation and
filing of any Tax Returns relating to the Company.
(h) Except as otherwise provided in this Agreement, any
tax sharing agreement between DQE and/or the Seller (including any of its
Subsidiaries) and the Company will be terminated with respect to the Company as
of the Closing Date, and the Company shall not have any obligation after the
Closing Date to make any payment under any such tax sharing agreement.
Section 6.10 Transfer Taxes. Notwithstanding any other provision
of this Agreement to the contrary, the Buyer shall pay (a) all transfer
(including real property transfer and documentary transfer) Taxes and fees
imposed with respect to the transactions contemplated hereby and (b) all sales,
use, gains (including state and local transfer gains), excise and other transfer
or similar Taxes imposed with respect to the transactions contemplated hereby;
provided, however, that the Buyer shall not be responsible for any, and the
Seller shall pay all, costs, fees or Taxes imposed in respect of the transfer of
the Excluded Assets and the Integrated Assets, as contemplated by Section 5.3 of
this Agreement. The Seller shall execute and deliver to the Buyer, and the Buyer
shall execute and deliver to the Seller at the Closing any certificates or other
documents as the requesting party may reasonably request in order to perfect any
exemption from
37
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.
Section 6.11 Financial Information.
(a) After the Closing, upon reasonable written notice, the
Buyer 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 of the
party to whom information is furnished.
(b) At the Closing, all books and records of the Company,
including all financial and accounting information and all of the books,
records, files and other information maintained with respect to the business of
the Company, will be either delivered to Buyer or made available for pickup by
Buyer. The Buyer shall retain all such books and records of the Company for such
period after the Closing Date as Buyer may determine, provided that before
disposing of such books or records, the Buyer shall give notice of its intent to
do so to the Seller and give the Seller an opportunity for thirty (30) days
after such notice to remove and retain all or any part of such books or records
as the Seller may select.
(c) Without limiting the generality of the provisions of
Section 6.16(b) below, any information provided by the Buyer to the Seller under
the provisions of this Section 6.11 shall be Confidential Information of the
Company (as defined in Section 6.16(b)).
Section 6.12 Transition Services. Except as agreed to in writing
by the Seller and the Buyer, all data processing, accounting, insurance,
banking, personnel, legal, communications and other products and services
provided to the Company by the Seller or any affiliate of the Seller, 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, at the Buyer's request, the Seller shall
provide, for a period of six (6) months after the Closing, services (similar to
those contemplated by the preceding sentence as shall be mutually agreed to by
the parties) to the Company, which services, at the Buyer's request, shall be
provided at a price for such services that is equal to DQE's or the Seller's
Actual Cost (as defined below) for such services, as the case may be, to be paid
on a monthly basis by the Buyer to DQE or the Seller. The term "Actual Cost"
shall mean the sum of (A) the reasonable costs or expenses actually incurred by
the Seller or DQE attributable to the provision of transition services to the
Buyer, including (i) the reasonable salary and benefits for personnel performing
transition services for those hours when such personnel are performing
transition services, (ii) reasonable payments to temporary contract employees
for, or related to, transition services, and (iii) reasonable payments to
vendors and other third parties for, or related to, transition services, and (B)
costs of the Seller or DQE, including all overheads, that cannot be specifically
identified with a particular service or product provided to the Buyer but that
are reasonably allocable to the products or services
38
rendered by the Seller or DQE. At the request of the Buyer prior to Closing, the
Seller and the Buyer will cooperate to negotiate reasonable and mutually
acceptable terms upon which specific transition services will be provided after
the Closing. In addition, at the request of the Buyer prior to the Closing, the
Seller and the Buyer will cooperate to negotiate reasonable and mutually
acceptable terms pursuant to which the Seller, to the extent it retains,
following the Closing, an ownership or leasehold interest in the office building
located in the Brittmoore-Tanner Industrial Park, shall lease to the Company for
a period of one (1) year following the Closing Date (or such shorter period of
time in the event that the Seller's ownership or leasehold interest shall expire
or terminate prior to the conclusion of such one year period) such space in said
office building that is substantially equivalent to the space that the Company
is using in said building on the date hereof at a monthly rent payment equal to
the Seller's actual costs in respect of such space.
Section 6.13 Update of the Seller Disclosure Schedule. The
Seller may from time to time prior to or on the Closing Date by notice in
accordance with this Agreement supplement or amend the Seller Disclosure
Schedule, including one or more supplements or amendments thereto, to promptly
disclose any fact, event or circumstance that has arisen, occurred or changed
since the date of this Agreement. Notwithstanding any other provision hereof to
the contrary, the Seller Disclosure Schedule and the representations and
warranties made by the Seller and DQE shall be deemed for all purposes to
include and reflect such supplements and amendments as of the date hereof and at
all times thereafter, including the Closing Date.
Section 6.14 AquaSource Name. The Seller agrees that on the
Closing Date, and continuing until the sixth month anniversary of Closing Date,
it shall grant to Buyer the non-exclusive, fully-paid license to use the name
"AquaSource" or any derivations thereof that may have been used by the Company
on the date hereof anywhere in the United States of America.
Section 6.15 Officer and Director Resignations. At the Closing,
the Seller will cause each officer and director of the Company to resign, or the
Seller shall remove each such officer and director, from such position as an
officer and/or director.
Section 6.16 Non-Competition Covenants.
(a) Prohibited Activities. Each of the Seller and DQE
agree that effective upon the Closing it will not, for a period of five (5)
years following the Closing Date, directly or indirectly, either in its own
capacity or as a partner, agent, consultant, through an Affiliate (as defined in
Section 6.16(c)), or otherwise, or by means of any corporate device, do any of
the following, such activity constituting a "Prohibited Activity":
(i) engage in any business identical to or which
competes with the business providing water and wastewater services for
municipal utility districts and municipalities, as such business was
conducted by the Company during the period commencing on January 1, 2001
and continuing through the Closing Date, within 100 miles of the
39
downtown business districts of the cities of Houston, Texas and Denver,
Colorado, or engage in any business which would require use, directly or
indirectly, of the Company's trade secrets or the Company's confidential or
privileged information; provided, however, that the limitations provided
for in this Section 6.16(a)(i) shall not apply to the Seller or DQE with
regard to those systems within 100 miles of the downtown business district
of the city of Houston, Texas listed on Exhibit 6.16(a)(i);
(ii) solicit, induce, recruit or encourage any of
Company's employees, consultants or independent contractors, to leave their
employment or terminate their relationship with the Company, provided,
however, that neither the Seller nor DQE shall be in violation of this
Section 6.16(a)(ii) by continuing to utilize those consultants and
independent contractors listed on Exhibit 6.16(a)(ii) or those consultants
and independent contractors who, on the date of this Agreement, are
performing services for DQE, the Seller or Subsidiaries of the Seller
(other than the Company); or
(iii) solicit any person or entity which is, or which
has been within one (1) year prior to the date of solicitation, a customer
of the Company for the purpose of selling to such customer services or
products which are in direct competition with the services or products
offered by the Company prior to the Closing.
(b) The Seller and DQE recognize and acknowledge that it
and its Affiliates had in the past, currently have, and in the future will have,
access to Confidential Information of the Company (as defined in this Section
6.16(b)). The Seller and DQE agree that from the Closing Date until April 12,
2005 neither the Seller nor any of its Affiliates will disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose whatsoever, unless (i) such Confidential Information
becomes known to the public generally through no fault of the Seller, or (ii)
disclosure is required by law or the order of any governmental authority,
provided, that prior to disclosing any Confidential Information pursuant to this
clause (ii) the Seller shall, if possible, give prior written notice thereof to
the Buyer and provide the Buyer with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by the Seller or any of its
Affiliates of the provisions of this Section 6.16(b), the Buyer shall be
entitled to an injunction restraining the Seller or any of its Affiliates from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting the Buyer from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
For purposes of this Section 6.16(b), "Confidential Information" shall mean all
information of the Company which is not generally known in the industries in
which the Company is engaged during the period commencing on January 1, 2001 and
continuing through the Closing Date, about the Company's business, products,
processes and services, including, without limitation, information relating to
research, development, inventions, computer program designs, flow charts, source
and object codes, products and services under development, pricing and pricing
strategies, marketing and selling strategies, servicing,
40
purchasing, accounting, engineering, costs and costing strategies, sources of
supply, customer lists, customer requirements, business methods or practices,
training and training programs, proprietary information, trade secrets,
confidential information supplied from outside sources, and related
documentation, provided that, notwithstanding any other provision of this
Section 6.16(b), neither DQE nor the Seller shall be in violation of this
Section 6.6(b) by using information that is or was developed for, used by, or
otherwise related to the operations of DQE, the Seller or any of their
Affiliates other than the Company.
(c) Reasonable Restraint. The Seller and DQE acknowledge
that the covenants in this Section 6.16 impose a reasonable restraint on the
Seller and DQE in light of the activities and business of the Buyer and the
Company on the date of the execution of this Agreement and the current plans of
the Buyer and the Company. The Seller and DQE further acknowledge that the
covenants in this Section 6.16 contain limitations as to time, geographic area
and scope of activity to be restrained that are reasonable and do not impose a
greater restraint than is necessary to protect the good will or other business
interests of the Buyer and the Company.
(d) Affiliate. For purposes of this Section 6.16, the term
"Affiliate" shall mean a Person that directly or indirectly controls, or is
controlled by or under common control with the Seller or DQE; provided, that,
this Section 6.16 shall not apply to any Person who has ceased to be an
Affiliate for any reason. Control including the terms "controlled by" and "under
common control with," with respect to any entity includes officers, directors,
and 10% or greater owners, and other individuals or entities with the power to
direct or cause the direction of the management and policies of such entity,
directly or indirectly, whether through ownership of voting securities or by
contract or otherwise.
(e) Equitable Relief. Because of the difficulty of
measuring economic losses to the Buyer or the Company as a result of a breach of
the covenants in this Section 6.16, and because of the immediate and irreparable
damage that could be caused to the Buyer or the Company for which they would
have no other adequate remedy, the Seller and DQE agree that the covenants in
this Section 6.16 may be enforced by Buyer or the Company by injunctions,
restraining orders and other equitable actions.
(f) Severability; Reformation; Survival. The covenants in
this Section 6.16 are severable and separate, and the unenforceability of any
specific covenant shall not affect the continuing validity and enforceability of
any other covenant. In the event that any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth in this
Section 6.16 are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed. The covenants in this Section 6.16
shall survive the Closing.
(g) Material Covenants. The Seller and DQE acknowledge
that their agreement with the covenants in this Section 6.16 are material
conditions to Buyer's
41
agreement to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, are essential elements of this Agreement and
without the agreement of Seller and DQE to comply with such covenants, Buyer
would not have agreed to purchase the Membership Interests pursuant to this
Agreement.
(h) Independent Covenants. All of the covenants in this
Section 6.16 shall be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of Seller or DQE against Buyer, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Buyer of such
covenants. It is specifically agreed that the respective periods during which
the covenants of the Seller or DQE made in this Section 6.16 shall survive and
shall be computed by excluding from such computation any time during which
Seller or DQE is in violation of any provision of this Section 6.16. The
covenants contained in this Section 6.16 shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 6.17 Enforcement of Other Covenants.
(a) The Buyer may attempt to negotiate agreements with
Bryan K. Chapline, Kenneth W. Lindsey, James L. Coursey, Robert G. Haas, and
Randolph S. Jones (the "Designated Employees"), which agreements will become
effective only upon the Closing and will include covenants not to compete, on
terms mutually acceptable to the Buyer and each Designated Employee. Prior to
and after the Closing, the Seller shall cooperate with the Buyer and use all
actions reasonably necessary to enforce the "Covenants Against Competition" set
forth in the agreements listed in Section 3.10(c) of the Seller Disclosure
Schedule, including by seeking legal damages and/or injunctions or other
equitable relief. The Seller and DQE shall, prior to the Closing and for a
period of one (1) year after the Closing, cooperate with the Buyer and the
Company and use all actions reasonably necessary to enforce David Beyer's
existing covenants not to compete for the benefit of the Company.
(b) The Buyer shall reimburse the Seller or DQE, as
applicable, for any reasonable costs and expenses, including reasonable legal
fees, incurred by the Seller or DQE, as applicable, after the Closing in
complying with their respective obligations set forth in Section 6.17(a).
Section 6.18 Surety Bonds.
(a) After the Closing, the Buyer shall, and shall cause
the Company to, use all commercially reasonable efforts to recover and replace
those surety bonds listed in Exhibit 6.18(a) and to have such surety bonds
returned to Seller within ninety (90) calendar days of the Closing Date.
(b) The Buyer expressly acknowledges that, after the
Closing, the Seller and/or DQE may cancel those surety bonds listed in Exhibit
6.18(b) without notice to the Buyer, subject to the terms of the bond documents.
42
(c) After the Closing, the Buyer shall, and shall cause
the Company to, use all commercially reasonable efforts to replace the Seller as
guarantor under that certain Marshall Office Park II Lease Agreement between
MOPII, B1, LLC and AquaSource Services, LP, dated November 13, 2001.
Section 6.19 Further Assurances. Each party will, and will cause
its Subsidiaries to, execute such further documents or instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the transaction contemplated hereby in accordance with the terms
hereof or otherwise perform those obligations required hereunder. In the event
that any asset reflected in the Company Financial Statements to be conveyed,
assigned, transferred and delivered hereunder to the Company shall not have been
so conveyed, assigned, transferred and delivered to the Company at the Closing,
the Seller shall as promptly as practicable after the Closing Date convey,
assign, transfer and deliver such asset to the Company at which time the Buyer
shall cause the Company to assume all liabilities and obligations, and be
entitled to all benefits, associated therewith that are due, or received, after
(but not before) such assignment, transfer and delivery and such asset shall
thereafter be deemed to be an Integrated Asset for all other purposes under this
Agreement, including Article IX, except that they shall be deemed to have been
included among the Integrated Assets as of the date of such assignment and
transfer.
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 10.3 of this
Agreement:
(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.
(b) Statutory Approvals. The Seller Required Statutory
Approvals and the Buyer Required Statutory Approvals shall have been obtained at
or prior to the Closing Date, such approvals shall have become Final Orders (as
defined below) and such Final Orders shall not, individually or in the
aggregate, impose terms or conditions (other than the preclusion of recovery of
an acquisition premium) which would have a material adverse effect on the
business, operations, properties, assets, financial condition, or results of
operations of the Company and the Buyer and their respective Subsidiaries taken
as a whole. A "Final Order" means action by the relevant regulatory authority
which has not been reversed, stayed, enjoined, set aside, annulled or suspended,
with respect to which any waiting period prescribed by law before the
transactions contemplated hereby may be consummated has expired, and as to which
all
43
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(c) Assignment, Transfer and Delivery of Excluded Assets
and Assumption of Related Liabilities. All of Services I's, Services II's,
Services, LP's and the Company Subsidiaries' right, title and interest in and to
the Excluded Assets shall have been assigned and transferred, and all such
Excluded Assets shall have been delivered, to the Seller or such third party as
the Seller may designate, and the Seller or such third party, as the case may
be, shall have assumed all of the obligations and liabilities of Services I,
Services II, Services, LP and the Company Subsidiaries in respect of such
Excluded Assets, as contemplated by Section 5.3(a) of this Agreement; provided,
however, that if any such assignment, transfer or delivery requires the approval
or consent of any third party which shall not have been obtained, the parties
shall use commercially reasonable efforts, at the Seller's expense, to secure
such consent or otherwise effect such assignment, transfer and delivery
following the Closing and the Seller shall fully indemnify the Buyer and the
Company for and against any consequences of the failure to secure such consent
prior to the Closing. For the avoidance of doubt, liabilities and obligations of
DQE, the Seller or the Company relating to the Excluded Assets shall be Buyer
Indemnifiable Losses and subject to the Seller's and DQE's indemnification
obligations under Article IX.
(d) Assignment, Transfer and Delivery of Integrated Assets
and Assumption of Related Liabilities. All of the Seller's and any Subsidiary of
the Seller's right, title and interest in and to the Integrated Assets shall
have been assigned and transferred, and all such Integrated Assets shall have
been delivered, to the Company, and the Company shall have assumed all of the
performance obligations of DQE, the Seller, any Subsidiary of the Seller and the
Company which arise after the Closing and relate to the contracts included among
the Integrated Assets listed on Section 3.3 of the Seller Disclosure Schedule
and all liabilities of DQE, the Seller, any Subsidiary of the Seller and the
Company, direct or indirect, known or unknown, absolute or contingent, which
arise after the Closing and relate to the Integrated Assets listed on Section
3.3 of the Seller Disclosure Schedule, as contemplated by Section 5.3(b) of this
Agreement; provided, however, that if any such assignment, transfer or delivery
requires the approval or consent of any third party which shall not have been
obtained, the parties shall use commercially reasonable efforts, at the Seller's
expense, to secure such consent or otherwise effect such assignment, transfer
and delivery following the Closing and the Seller shall fully indemnify the
Buyer and the Company for and against any consequences of the failure to secure
such consent prior to the Closing. For avoidance of doubt, liabilities and
obligations of DQE, the Seller, any Subsidiary of the Seller or the Company
relating to the Integrated Assets which arise prior to the Closing shall be
Buyer Indemnifiable Losses and subject to the Seller's and DQE's indemnification
obligations under Article IX, and liabilities and obligations of DQE, the
Seller, any Subsidiary of the Seller or the Company relating to the Integrated
Assets which arise after the Closing shall be Seller Indemnifiable Losses and
subject to the Buyer's indemnification obligations under Article IX, recognizing
that all such indemnification obligations are always subject to the limitations
and restrictions contained in Articles IX and X.
44
Section 7.2 Conditions to Obligation of the Buyer to Effect the
Closing. The obligation of the Buyer 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 Buyer in writing pursuant to Section
9.3:
(a) Performance of Obligations of the Seller. The Seller
(and/or DQE or the Company) 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 of the Seller. The
representations and warranties of the Seller (and DQE in Section 3.4) 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 provided that the Seller's representations and warranties in Section 3.3
shall be true and correct on and as of the Closing Date) except in each of cases
(i) and (ii) for such failures of representations or warranties to be true and
correct (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which, individually or in
the aggregate, would not result in a Company Material Adverse Effect.
(c) Closing Certificates of the Seller. The Buyer shall
have received a certificate signed by a duly authorized officer on behalf of the
Seller and DQE, 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.
(d) Company Material Adverse Effect. No Company Material
Adverse Effect shall have occurred and there shall exist no facts or
circumstances that, individually or in the aggregate, are reasonably likely to
have a Company Material Adverse Effect. For the purpose of this Section 7.2(d):
(w) events, facts or circumstances need not constitute, or be likely to
constitute, a breach of a representation or warranty in order to have, or be
reasonably likely to have, a Company Material Adverse Effect, (x) no materiality
or knowledge qualification or standard contained in the representations and
warranties shall be taken into account in determining whether or not events,
facts or circumstances, have, or are reasonably likely to have a Company
Material Adverse Effect, (y) if a Designated Employee is subject to a "Covenant
Against Competition" with the Seller, and such Designated Employee's employment
with the Seller is terminated prior to the Closing, then such termination of
employment or any impact on the Company resulting therefrom will not constitute
a Company Material Adverse Effect so long as the Seller and DQE are complying
with their obligations to use all actions reasonably necessary actions to
enforce the "Covenants Against Competition" set forth in the agreements listed
in Section 3.10(c) of the Seller Disclosure Schedule, as contemplated by Section
6.17(a) of this Agreement, and (z) the inability of the Company to own or
operate its assets in materially the same manner as such assets are owned or
operated by the Company on the date hereof resulting specifically from any
change in
45
law, rule or regulation of any Governmental Authority, which change is made
specifically in order to enhance or protect the safety and security of water and
wastewater systems in light of concerns arising due to national or international
occurrences, and which change applies generally to parties providing water and
wastewater services for municipal utility districts and/or municipalities, will
be taken into account in determining whether or not there is, or there is
reasonably likely to be, a Company Material Adverse Effect.
(e) The Seller Required Consents. The Seller Required
Consents, the failure of which to obtain would have a Company Material Adverse
Effect, shall have been obtained.
(f) Additional Documents. Each of the following documents
shall have been delivered to the Buyer:
(i) A certified copy of resolutions of the Seller's
Board of Directors, and of DQE's Board of Directors, as applicable,
authorizing the transactions contemplated by this Agreement, and the
authority of the parties acting on behalf of the Seller to execute and
deliver documents in connection therewith;
(ii) Certificates of Good Standing and Existence (or
the equivalent) with respect to Services I, Services II, Services, LP and
each Company Subsidiary, dated no earlier than five (5) business days prior
to the Closing Date; and
(iii) Such additional documents as the Buyer may
reasonably request for the purpose of facilitating or in connection with
the Closing of 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 Buyer. The Buyer
(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 Buyer 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
46
representations and warranties) which, individually or in the aggregate, would
not result in a Buyer Material Adverse Effect.
(c) Closing Certificates. The Seller shall have received a
certificate signed by a duly authorized officer of the Buyer, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied.
(d) Buyer Material Adverse Effect. No Buyer Material
Adverse Effect shall have occurred and there shall exist no fact or circumstance
that would result in a Buyer Material Adverse Effect.
(e) Buyer Required Consents. The Buyer Required Consents,
the failure of which to obtain would have a Buyer Material Adverse Effect, shall
have been obtained.
(f) Additional Documents. Each of the following documents
shall have been delivered to the Seller:
(i) A certified copy of resolutions of the Buyer's
Board of Directors authorizing the transactions contemplated by this
Agreement, and the authority of the parties acting on behalf of the Buyer
to execute and deliver documents in connection therewith;
(ii) Certificate of Good Standing and Existence (or
the equivalent) with respect to the Buyer, dated no earlier than five (5)
business days prior to the Closing Date; and
(iii) Such additional document as the Buyer may
reasonably request for the purpose of facilitating or in connection with
the Closing of the transactions contemplated by this Agreement.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by mutual written consent of the Seller and the Buyer;
(b) by the Buyer 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 the Buyer or the Seller, 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, in either case, if such order, rule, regulation,
judgment or decree shall have become final and nonappealable;
47
(c) by the Buyer or the Seller, by written notice to the
other party, if the Closing shall not have occurred on or before sixty (60) days
after the date hereof (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, or whose Affiliate's failure, to fulfill
any obligation under this Agreement shall have proximately contributed to the
failure of the Closing 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), 7.2(e) and/or 7.3(e) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Initial Termination Date shall be extended to one hundred
twenty (120) days after the date hereof;
(d) by the Buyer if, at the Closing, any breach or
breaches of any of the Seller's representations or warranties, covenants or
agreements result, or are reasonably likely to result, individually or in the
aggregate, in a Company Material Adverse Effect and such breach or breaches
shall not have been cured by the Seller or in respect of which the Seller shall
not have agreed to indemnify the Buyer (pursuant to which indemnity agreement,
all Indemnifiable Losses relating to, resulting from or arising out of such
breach or breaches shall be Buyer Indemnifiable Losses subject to the Seller's
indemnification obligations under Article IX but shall not be limited by, or
taken into account in determining whether Buyer Indemnifiable Losses exceed, the
Indemnity Cap or be limited by the Indemnity Period). For the avoidance of
doubt, if at the Closing there are any breaches of the Seller's representations
and warranties that do not result, or are not reasonably likely to result,
individually or in the aggregate, in a Company Material Adverse Effect, then
following the Closing all Indemnifiable losses relating to, resulting from or
arising out of such breaches, to the extent uncured by the Seller, shall be
Buyer Indemnifiable Losses subject to the Seller's indemnification obligations
under Article IX, recognizing that such indemnification obligations are always
subject to the limitations and restrictions contained in Articles IX and X.
(e) by the Seller if, at the Closing any breach or
breaches of any of the Buyer's representations or warranties, covenants or
agreements result, or are reasonably like to result, individually or in the
aggregate, in a Buyer Material Adverse Effect and such breach or breaches shall
not have been cured by the Buyer or in respect of which the Buyer shall not have
agreed to indemnity the Seller (pursuant to which indemnity agreement all
Indemnifiable Losses relating to, resulting from or arising out of such breach
or breaches shall be Seller Indemnifiable Losses, subject to the Buyer's
indemnification obligations under Article IX but shall not be limited by, or
taken into account in determining whether Seller Indemnifiable Losses exceed,
the Indemnity Cap or be limited by the Indemnity Period). For the avoidance of
doubt, if at the Closing there are any breaches of the Buyer's representations
and warranties that do not result, or are not reasonably likely to result,
individually or in the aggregate, in a Buyer Material Adverse Effect, then
following the Closing all Indemnifiable Losses relating to, resulting from or
arising out of such breaches, to the extent uncured by the Buyer, shall be
Seller Indemnifiable Losses subject to the Buyer's indemnification obligations
under Article IX, recognizing that such indemnification obligations are always
subject to the limitations and restrictions contained in Articles IX and X.
48
(f) by the Buyer if one or more supplements to or
amendments of any sections of the Seller Disclosure Schedule made by the Seller
pursuant to Section 6.13, individually or in the aggregate, materially and
adversely affects the benefits to be obtained by the Buyer under this Agreement.
Section 8.2 Effect of Termination. In the event of termination
of this Agreement by either the Seller or the Buyer pursuant to Section 8.1
there shall be no liability on the part of either the Seller or the Buyer or
their respective officers or directors hereunder, except that:
(a) in the event of fraud or willful breach of this
Agreement by one party (the "Party at Fault"), or in the event of the failure of
a condition to a party's obligation to effect the Closing that results from the
other party's (also the "Party at Fault") willful breach of its obligations
under this Agreement, then the party who is not the Party at Fault shall have
the right to terminate this Agreement and pursue all available legal remedies
against the Party at Fault, which right shall survive termination unimpaired,
and in addition to the foregoing, upon such termination, the Party at Fault
shall pay the party who is not the Party at Fault the sum of one million dollars
($1,000,000).
(b) Sections 8.2, 10.2, 10.4, 10.5, 10.8, 10.9, 10.10,
10.11, 10.12 and 10.13, and the agreement contained in the last sentence of
Section 6.1 shall survive the termination.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnification Obligations.
(a) Subject to the limitations set forth in Sections 9.3
and 9.4 hereof, the Seller and DQE shall, jointly and severally, indemnify,
defend and hold harmless the Buyer, the Buyer Subsidiaries (including, after the
Closing, the Company), and its and their officers, directors, employees,
shareholders, affiliates and agents (each, a "Buyer Indemnitee") from and
against any and all Indemnifiable Losses (as defined below) asserted against or
suffered by any Buyer Indemnitee (each, a "Buyer Indemnifiable Loss") and for
which a Buyer Indemnitee makes a claim during the Indemnity Period (as defined
below) in any way relating to, resulting from or arising out of (i) any breach
by the Seller of the representations and warranties contained in Article III
hereof, and (ii) the Buyer Indemnified Liabilities (as defined below).
(b) Subject to the limitations set forth in Sections 9.3
and 9.4 hereof, the Buyer shall, jointly and severally, indemnify, defend and
hold harmless the Seller, DQE, its and their Subsidiaries, officers, directors,
employees, shareholders, affiliates and agents (each, a "Seller Indemnitee")
from and against any and all Indemnifiable Losses asserted against or suffered
by any Seller Indemnitee (each, a "Seller Indemnifiable Loss") during the
Indemnity Period in any way relating to, resulting from or arising out of (i)
any breach by the Buyer of the representations and
49
warranties contained in Article IV hereof, and (ii) the Seller Indemnified
Liabilities (as defined below).
Section 9.2 Certain Definitions. As used in this Agreement:
(a) the term "Indemnity Period" shall mean the period of
time commencing with the Closing Date and continuing until the second (2nd)
anniversary of the Closing Date;
(b) the term "Indemnifiable Loss" shall mean any claim,
demand, suit, loss, liability, damage (including, but not limited to, diminution
in value, if proven, and, in respect of liabilities of obligations relating to
certain Contracts contemplated by Section 9.2(c)(ii), proven damages resulting
from performance of the subject Contract), obligation, payment, fine, penalty,
cost or expense (including, without limitation, the cost and expense of any
action, suit, proceeding, assessment, judgment, settlement or compromise
relating thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith);
(c) the term "Buyer Indemnified Liabilities" shall mean:
(i) all litigation or other legal proceedings (including any settlements or
judgments in respect thereof), existing or threatened, that are set forth in
Section 3.7 of the Seller Disclosure Schedule and all other litigation or other
legal proceedings (including any settlements or judgments in respect thereof)
that involve the Company and are based on facts or circumstances arising,
existing or occurring prior to the Closing, (ii) any liabilities or obligations
that relate to the Excluded Assets, (iii) any liabilities or obligations that
relate to the Integrated Assets, and, in any case of this (iii), that relate to,
result from, arose during, or are attributable to events, facts, circumstances
or conditions in existence prior to the Closing or which occurred prior to the
Closing, (iv) any liabilities or obligations relating to any Contracts with
annualized revenues or liabilities in excess of $25,000 individually that are
not disclosed on Section 9.2 of the Seller Disclosure Schedule or otherwise
reflected in the Company Financial Statements, (v) any other liabilities,
obligations or other Indemnifiable Losses of Services I, Services II, Services,
LP or the Company Subsidiaries except for Excepted Liabilities (as defined in
Section 9.2(d)), in any case of this (v) that relate to, result from, arose
during, or are attributable to events, facts, circumstances or conditions in
existence prior to the Closing or which occurred prior to the Closing, and in
any case for each (i), (ii), (iii), (iv) and (v) above whether direct or
indirect, known or unknown, absolute or contingent, and regardless of whether or
not such liability, obligation or other Indemnifiable Loss is asserted against
or suffered by a Buyer Indemnitee before or after the Closing, regardless of
whether such liability, obligation or other Indemnifiable Loss results from a
breach of any of Seller's representations or warranties and without regard to
any materiality, knowledge or other qualifier contained in any such
representatives or warranties; provided, however, that Buyer Indemnified
Liabilities shall exclude any liability or obligation or other Indemnifiable
Loss that is an Excepted Liability, including Excepted Liabilities that are
disclosed in any Section of the Seller Disclosure Schedule that are expressly
designated, by agreement of the parties, as Excepted Liabilities on such Seller
Disclosure Schedule, but, subject to the provisions of Section 9.2(d), Buyer
Indemnified Liabilities shall
50
expressly include any liability or obligation or other Indemnifiable Loss
disclosed on the Seller Disclosure Schedule that is not designated an Excepted
Liability; and the term "Seller Indemnified Liabilities" shall mean: (x) any
liabilities or obligations of Services I, Services II, Services, LP or the
Company Subsidiaries that are neither Buyer Indemnified Liabilities nor
otherwise covered by DQE's and the Seller's indemnity obligations in Section
9.1(a), and any liabilities that relate to or arise by virtue of the Buyer's
ownership of the Company that are not Buyer Indemnified Liabilities, in either
case whether direct or indirect, known or unknown, absolute or contingent, that
relate to, result from, arise during, or are attributable to, events, facts,
circumstances or conditions in existence after (but not before) the Closing or
which occur after the Closing, and (y) any liabilities or obligations or other
Indemnifiable Losses that relate to the Excepted Liabilities and any liabilities
or obligations that arise after the Closing and relate to the Integrated Assets,
the Retention Agreements and those agreements set forth in Section 3.10(c) of
the Seller Disclosure Schedule;
(d) the term "Excepted Liabilities" shall mean (i) any
liabilities or obligations of Services I, Services II, Services, LP or the
Company Subsidiaries that arise out of any of the following liabilities or
obligations incurred by Services I, Services II, Services, LP or the Company
Subsidiaries, as the case may be: (1) any liability or obligation of Services I,
Services II, Services, LP or the Company Subsidiaries, that is allocable to the
right of Services I, Services II, Services, LP or the Company Subsidiaries, as
the case may be, to receive property, services or other benefits on or after the
Closing Date under a contract or agreement entered into on or after the Closing
Date, and (2) any liability or obligation of Services I, Services II, Services,
LP or the Company Subsidiaries to make any expenditure or to perform any
obligation that is due after (but not before) the Closing under any Contract
disclosed on Schedule 9.2 of the Seller Disclosure Schedule, any Contracts not
disclosed on Schedule 9.2 of the Seller Disclosure Schedule but having
annualized revenues or liabilities that are equal to or less than $25,000
individually, or any Contract otherwise reflected in the Company Financial
Statements or to make any expenditure to perform any obligation that is due
after (but not before) the Closing pursuant to any order, rule or regulation of
any Governmental Authority by which Services I, Services II, Services, LP or the
Company Subsidiaries, or any of their assets, is bound, as listed in the Seller
Disclosure Schedule, (ii) those liabilities or obligations which arise after the
Closing and that are disclosed on any Section of the Seller Disclosure Schedule
and expressly designated on such Section of the Seller Disclosure Schedule, by
agreement of the parties, as Excepted Liabilities, and (iii) the liabilities of
the Company reflected on the June 30, 2002 Balance Sheet (but excluding any
liability for Pre-Closing APs), the liabilities of the Company for vacation
accruals for employees who accept Qualifying Offers, and the liabilities of the
Company with respect to the Keystone, South Dakota industrial revenue bond.
Section 9.3 Limitations on Indemnification.
(a) Notwithstanding any other provision of this Agreement
to the contrary, the parties' obligations pursuant to this Article IX are, and
at all times shall be, subject to the limitations set forth in this Section 9.3.
The parties shall not be required to indemnify, defend or hold harmless any
Buyer Indemnitee or Seller Indemnitee, as the
51
case may be, until the aggregate dollar amount of the Buyer Indemnifiable Losses
or Seller Indemnifiable Losses, as the case may be determined taking into
account all Indemnifiable Losses (except for Indemnified Losses to which the
Indemnity Cap does not apply) asserted against or suffered by the Buyer
Indemnitees or the Seller Indemnitees, as the case may be, exceeds the Indemnity
Basket (as defined in Section 9.3(b)), following which the indemnifying party
shall indemnify, defend and hold harmless the Buyer Indemnitees or the Seller
Indemnitees, as the case may be, only to the extent that the aggregate amount of
Buyer Indemnifiable Losses or the Seller Indemnifiable Losses, as the case may
be, exceeds the Indemnity Basket. In addition, the Seller's and DQE's liability,
taken together, for Buyer Indemnifiable Losses and the Buyer's liability for
Seller Indemnifiable Losses, in either case, as contemplated by this Article IX
shall in no event exceed an aggregate amount of dollars equal to the Indemnity
Cap (as defined in Section 9.3(b)).
(b) As used in this Agreement, (i) the term "Indemnity
Basket" shall mean Two Hundred Thousand Dollars ($200,000), and (ii) the term
"Indemnity Cap shall mean Four Million, Two Hundred, Twenty-Five Thousand
Dollars ($4,250,000). Notwithstanding any other provision of this Agreement to
the contrary, the Seller's and DQE's liability for the following Buyer
Indemnifiable Losses shall not be limited by, nor taken into account in
determining whether Buyer Indemnifiable Losses exceed the Indemnity Cap, shall
not be limited by the requirement to make a claim during the Indemnity Period
and shall not be limited by any requirement to meet or exceed the Indemnity
Basket: Buyer Indemnifiable Losses relating to (i) Excluded Assets, (ii) any and
all liabilities and obligations of the Seller or the Subsidiaries of the Seller
(other than any liabilities or obligations of the Seller (in respect of the
Company), Services I, Services II, Services, LP or any Company Subsidiary),
(iii) indemnity obligations of the Seller in respect of Taxes, as set forth in
Section 6.9, (iv) litigation or other legal proceedings (including any
settlements or judgments in respect thereof), existing or threatened, that are
set forth in Section 3.7 of the Seller Disclosure Schedule and all other
litigation or other legal proceedings (including any settlements or judgments in
respect thereof), that involve the Company and are based on facts or
circumstances arising, existing or occurring prior to the Closing, including any
claims that were brought or could have been brought in the litigation captioned
Edward Wallace, et al v. AquaSource, Inc., et al (Case No. 2001-05987), filed in
the 270th Judicial District Court of Harris County, Texas, (v) any indemnity
given pursuant to the first sentence of Section 8.1(d) and (vi) any fraud
committed by DQE, the Seller, Services I, Services II, Services, LP or any
Company Subsidiary (provided that the foregoing reference to Services I,
Services II, Services, LP or any Company Subsidiary refers to fraud committed
prior to the Closing Date); in addition, the Buyer's liability for the following
Seller Indemnifiable Losses shall not be limited by, nor taken into account in
determining whether Seller Indemnifiable Losses exceed the Indemnity Cap, shall
not be limited by the requirement to make a claim during the Indemnity Period,
and shall not be limited by any requirement to meet or exceed the Indemnity
Basket: Seller Indemnifiable Losses relating to (x) indemnity obligations of the
Buyer in respect of Taxes, as set forth in Section 6.9, (y) any indemnity given
pursuant to the first sentence of Section 8.1(e), and (z) any fraud committed by
the Buyer, any Buyer Subsidiary, Services I, Services II, Services, LP or any
Company Subsidiary (provided that the foregoing reference to Services I,
Services II,
52
Services, LP or any Company Subsidiary refers to fraud committed on
or after the Closing Date).
(c) For the avoidance of doubt, if at any time during the
Indemnity Period, the amount of the Seller's and DQE's aggregate dollar amount
of liability for Buyer Indemnifiable Losses, taking into account all liability
for Buyer Indemnifiable Losses incurred by the Seller and DQE since the Closing
Date (other than those Buyer Indemnifiable Losses that are not limited by the
Indemnity Cap as contemplated by Section 9.3(b)), equals the Indemnity Cap, then
the Seller shall have no further obligation whatsoever to indemnify, defend or
hold harmless any Buyer Indemnitee in respect of any Buyer Indemnifiable Losses
that are subject to the Indemnity Cap; similarly, if at any time during the
Indemnity Period, the amount of the Buyer's aggregate liability for Seller
Indemnifiable Losses, taking into account all liability for Seller Indemnifiable
Losses incurred by the Buyer since the Closing Date (other than those Seller
Indemnifiable Losses that are not limited by the Indemnity Cap as contemplated
by Section 9.3(b)), equals the Indemnity Cap, then the Buyer shall have no
further obligation whatsoever to indemnify, defend or hold harmless any Seller
Indemnitee in respect of any Seller Indemnifiable Losses that are subject to the
Indemnity Cap.
(d) Notwithstanding any other provision of this Agreement
to the contrary, any Buyer Indemnitee or Seller Indemnitee shall use
commercially reasonable efforts to mitigate all losses, damages and the like
relating to a claim under these indemnification provisions, including availing
itself of any defenses, limitations, rights of contribution, claims against
third Persons and other rights at law or equity. The Buyer Indemnitee's or
Seller Indemnitee's, as the case may be, commercially reasonable efforts shall
include the reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expenses for which indemnification would otherwise be due,
and the indemnifying party shall, to the extent that Buyer Indemnifiable Losses
or Seller Indemnifiable Losses, as the case may be, exceed the Indemnity Basket,
reimburse the Buyer Indemnitee or Seller Indemnitee, as the case may be, for its
reasonable expenditures (except for any portion of the wages, salary, benefits,
overhead or other costs attributable to Buyer Indemnitee or Seller Indemnitee,
as the case may be, and its officers, directors, employees and agents) in
undertaking the mitigation and, subject to Section 9.3(b) shall, to such extent,
take such expenses into account in calculating the aggregate amount of the
Seller's and DQE's liability for the Buyer Indemnifiable Losses or the Buyer's
liability for the Seller Indemnifiable Losses, as the case may be.
Notwithstanding any other provision of this Agreement to the contrary, any Buyer
Indemnifiable Loss or Seller Indemnifiable Loss shall be net of (i) the dollar
amount of any insurance or other proceeds actually received by the Buyer
Indemnitee or any of its affiliates with respect to the Buyer Indemnifiable Loss
or by the Seller or DQE or any of their affiliates with respect to the Seller
Indemnifiable Loss, and (ii) income tax benefits to the Buyer Indemnitee, to the
extent realized by the Buyer Indemnitee, or to the Seller Indemnitee, to the
extent recognized by the Seller Indemnitee. Any Person seeking indemnity
hereunder shall, to the extent they have the right to do so under an insurance
policy, use commercially reasonable efforts to seek coverage (including both
costs of
53
defense and indemnity) under applicable insurance policies with respect
to any such Buyer Indemnifiable Loss or Seller Indemnifiable Loss, as the case
may be.
(e) Notwithstanding any other provision of this Agreement
to the contrary, (i) except to the extent otherwise provided in Article VIII,
the rights and remedies of the parties under this Article IX are exclusive and
in lieu of any and all other rights and remedies which the parties may have
under this Agreement for monetary relief with respect to (A) any breach by the
parties of their respective representations and warranties and (B) the
Indemnified Liabilities, and (ii) except in the case of fraud, no party (nor any
Buyer Indemnitee or Seller Indemnitee) shall be entitled to recover from any
other party for any liabilities, damages, obligations, payments, losses, costs,
or expenses under this Agreement any amount in excess of the actual compensatory
damages, court costs and reasonable attorneys' and other advisor fees suffered
by such party (or Buyer Indemnitee or Seller Indemnitee, as the case may be).
Each party waives any right to recover incidental, special, exemplary and
consequential damages arising in connection with or with respect to this
Agreement (except in the case of fraud).
Section 9.4 Defense of Claims. The parties agree that the
provisions set forth below in (a), (b) and (c) shall not apply to claims made in
respect of Excluded Assets or in respect of any litigation or other legal
proceedings (including any settlements or judgments in request thereof)
contemplated by Section 9.2(c)(i), but that such provisions shall apply to all
other claims under this Article IX.
(a) (i) If any Buyer Indemnitee receives notice of the assertion
or commencement of any claim, action or proceeding made or brought by any
Person who is neither a party to this Agreement nor an affiliate of a party
to this Agreement (a "Third Party Claim") with respect to which
indemnification is to be sought from the Seller and DQE, the Buyer
Indemnitee shall give the Seller and DQE reasonably prompt written notice
thereof, but in any event such notice shall not be given later than
forty-five (45) calendar days after the Buyer Indemnitee's receipt of
written notice of such Third Party Claim, provided, that the failure to
give such notice within such time period shall not relieve the Seller or
DQE of any liability except to the extent the Seller or DQE is prejudiced
by such failure. To the extent known, such written notice shall describe
the nature of the Third Party Claim in reasonable detail and shall indicate
the estimated amount, if practicable, of the Buyer Indemnifiable Loss that
has been or may be sustained by the Buyer Indemnitee. The Seller and DQE
will have the right to participate in or, by giving written notice to the
Buyer Indemnitee, to elect to assume the defense of any Third Party Claim
by the Seller's own counsel, the cost for which shall be borne by the
Seller and DQE to the extent that Buyer Indemnifiable Losses exceed the
Indemnity Basket and shall, to such extent, be taken into account in
calculating the aggregate amount of the Seller's and DQE's liability for
Buyer Indemnifiable Losses under the Indemnity Cap. The Buyer Indemnitee
shall cooperate in good faith in such defense at such Buyer Indemnitee's
own expense. If the Seller and DQE elect not to assume the defense of any
Third Party Claim, the Buyer Indemnitee may compromise or settle such Third
Party Claim over the objection of the Seller and DQE, which settlement or
compromise shall
54
conclusively establish the Seller's and DQE's liability pursuant to this
Agreement.
(ii) If any Seller Indemnitee receives notice of the
assertion or commencement of a Third Party Claim with respect to which
indemnification is to be sought from the Buyer, the Seller Indemnitee shall
give the Buyer reasonably prompt written notice thereof, but in any event
such notice shall not be given later than forty-five (45) calendar days
after the Seller Indemnitee's receipt of written notice of such Third Party
Claim, provided, that the failure to give such notice within such time
period shall not relieve the Buyer of any liability except to the extent
the buyer is prejudiced by such failure. To the extent known, such written
notice shall describe the nature of the Third Party Claim in reasonable
detail and shall indicate the estimated amount, if practicable, of the
Seller Indemnifiable Loss that has been or may be sustained by the Seller
Indemnitee. The Buyer will have the right to participate in or, by giving
written notice to the Seller Indemnitee, to elect to assume the defense of
any Third Party Claim by the Buyer's own counsel, the cost for which shall
be borne by the Buyer to the extent that Seller Indemnifiable Losses exceed
the Indemnity Basket and shall, to such extent, be taken into account in
calculating the aggregate amount of the Buyer's liability for Seller
Indemnifiable Losses under the Indemnity Cap. The Seller Indemnitee shall
cooperate in good faith in such defense at such Seller Indemnitee's own
expense. If the Buyer elects not to assume the defense of any Third Party
Claim, the Seller Indemnitee may compromise or settle such Third Party
Claim over the objection of the Buyer, which settlement or compromise shall
conclusively establish the Buyer's liability pursuant to this Agreement.
(b) (i) If, after a Buyer Indemnitee provides written notice to
the Seller and DQE of any Third Party Claims, the Buyer Indemnitee receives
written notice from the Seller or DQE that the Seller or DQE has elected to
assume the defense of such Third Party Claim, the Seller and DQE will not
be liable for any legal expenses subsequently incurred by the Buyer
Indemnitee in connection with the defense thereof. Without the prior
written consent of the Buyer Indemnitee, the Seller and DQE shall not enter
into any settlement of any Third Party Claim that would lead to liability
or create any financial or other obligation on the part of the Buyer
Indemnitee for which the Buyer Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other
obligation on the part of the Buyer Indemnitee for which the Buyer
Indemnitee is not entitled to indemnification hereunder and the Seller and
DQE desire to accept and agree to such offer, the Seller and DQE shall give
written notice to the Buyer Indemnitee to that effect. If the Buyer
Indemnitee fails to consent to such firm offer within thirty (30) calendar
days after its receipt of such notice, the Seller and DQE shall be relieved
of their obligations to defend such Third Party Claim and the Buyer
Indemnitee may contest or defend such Third Party Claim. In such
55
event, the maximum liability of the Seller and DQE as to such Third Party
Claim will be the amount of such settlement offer plus reasonable costs and
expenses paid or incurred by the Buyer Indemnitee up to the date of said
notice, at all time subject to the additional limitations on the Seller's
and DQE's liability contained in this Article IX.
(ii) If, after a Seller Indemnitee provides written notice
to the Buyer of any Third Party Claims, the Seller Indemnitee receives
written notice from the Buyer that the Buyer has elected to assume the
defense of such Third Party Claim, the Buyer will not be liable for any
legal expenses subsequently incurred by the Seller Indemnitee in connection
with the defense thereof. Without the prior written consent of the Seller
Indemnitee, the Buyer shall not enter into any settlement of any Third
Party Claim that would lead to liability or create any financial or other
obligation on the part of the Seller Indemnitee for which the Seller
Indemnitee is not entitled to indemnification hereunder. If a firm offer is
made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the Seller
Indemnitee for which the Seller Indemnitee is not entitled to
indemnification hereunder and the Buyer desires to accept and agree to such
offer, the Buyer shall give written notice to the Seller Indemnitee to that
effect. If the Seller Indemnitee fails to consent to such firm offer within
thirty (30) calendar days after its receipt of such notice, the Buyer shall
be relieved of its obligation to defend such Third Party Claim and the
Seller Indemnitee may contest or defend such Third Party Claim. In such
event, the maximum liability of the Buyer as to such Third Party Claim will
be the amount of such settlement offer plus reasonable costs and expenses
paid or incurred by the Seller Indemnitee up to the date of said notice, at
all time subject to the additional limitations on the Buyer's liability
contained in this Article IX.
(c) (i) Any claim that does not result from a Third Party
Claim (a "Direct Claim") by a Buyer Indemnitee on account of a Buyer
Indemnifiable Loss shall be asserted by giving the Seller and DQE
reasonably prompt written notice thereof after the Buyer Indemnitee becomes
aware of such Direct Claim, stating, to the extent known, the nature of
such claim in reasonable detail and indicating the estimated amount, if
practicable, but in any event such notice shall not be given later than
forty-five (45) calendar days after the Buyer Indemnitee becomes aware of
such Direct Claim, provided, that the failure to give such notice within
such time period shall not relieve the Seller or DQE of any liability
except to the extent the Seller or DQE is prejudiced by such failure, and
the Seller and DQE shall have a period of thirty (30) calendar days from
receipt of such notice within which to respond to such Direct Claim. If the
Seller or DQE does not respond within such thirty (30) calendar day period,
the Seller and DQE shall be deemed to have accepted, and shall be liable
for, such claim. If the Seller and DQE reject such claim, the Buyer
Indemnitee will be free to seek enforcement of its right to indemnification
under this Agreement.
(ii) Any Direct Claim by a Seller Indemnitee on account of
a Seller Indemnifiable Loss shall be asserted by giving the Buyer
reasonably
56
prompt written notice thereof after the Seller Indemnitee becomes aware of
such Direct Claim, stating, to the extent known, the nature of such claim
in reasonable detail and indicating the estimated amount, if practicable,
but in any event such notice shall not be given later than forty-five (45)
calendar days after the Seller Indemnitee becomes aware of such Direct
Claim, provided, that the failure to give such notice within such time
period shall not relieve the Seller or DQE of any liability except to the
extent the Seller or the Buyer is prejudiced by such failure, and the Buyer
shall have a period of thirty (30) calendar days from receipt of such
notice within which to respond to such Direct Claim. If the Buyer does not
respond within such thirty (30) calendar day period, the Buyer shall be
deemed to have accepted, and shall be liable for, such claim. If the Buyer
rejects such claim, the Seller Indemnitee will be free to seek enforcement
of its right to indemnification under this Agreement.
(d) If the amount of any Buyer Indemnifiable Loss or
Seller Indemnifiable Loss, as the case may be, at any time subsequent to the
making of an indemnity payment in respect thereof, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by, from or against any other
entity, the amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith (together with interest thereon from the date
of payment thereof at the publicly announced prime rate then in effect of The
Chase Manhattan Bank) shall promptly be repaid by the Buyer Indemnitee to the
Seller and DQE or by the Seller Indemnitee to the Buyer, as the case may be.
(e) With respect to those pending litigation matters set
forth in Schedule 3.7 of the Seller Disclosure Schedule (each a "Pending
Litigation Matter"), the parties agree as follows: DQE and/or the Seller will
defend, continue to defend or assume the defense of each Pending Litigation
Matter on and after the Closing Date (each such defense, an "Assumed Defense").
The Buyer agrees to cooperate, and to cause its Subsidiaries, officers,
directors and employees to cooperate, fully in connection with such Pending
Litigation Matters, including, but not limited to, providing access to personnel
and records. The Seller or DQE shall reimburse the Buyer, and its Subsidiaries
for any out of pocket expenses (e.g. travel, lodging, meals and related
expenses) incurred by them in cooperation with the Seller or DQE as contemplated
by this Section 9.4(e); provided, however, that the Seller and DQE shall not
reimburse the Buyer or its Subsidiaries, and the Buyer and its Subsidiaries
shall not be entitled to reimbursement, for any portion of the wages, salary,
benefits, overhead or other costs, attributable to the officers, directors and
employees of the Buyer or its Subsidiaries whose cooperation may be required by
this Section 9.4(e). Notwithstanding any other provision of this Agreement to
the contrary and for the avoidance of doubt, (i) the defense of any Pending
Litigation Matter, shall not be the responsibility of the Buyer on and after the
Closing Date, except for the obligations in respect thereof set forth in this
Section 9.4(e) and (ii) the obligations set forth in this Section 9.4(e) in no
way limit or reduce the Seller's and DQE's indemnity obligation, in respect of
any Pending Litigation Matter or otherwise.
57
Section 9.5 Certain Covenants in Respect of Excluded Assets.
The parties agree that the Seller may deliver such notices to such persons as it
deems advisable in respect of the assignment and transfer of the Excluded Assets
(such persons to whom such notice is delivered, "Notified Persons" and such
Excluded Assets in respect of which such notices are delivered, "Covered
Excluded Assets"); provided, however, that any such notices must (i) include the
name and contact information of the transferee or assignee and (ii) be sent to
Notified Persons by Certified U.S. mail. The Seller shall provide the Buyer with
a list of Notified Persons and Covered Excluded Assets, which list may be
updated from time to time to reflect additional notices delivered. For a period
of five years from the Closing Date, the Buyer shall, and shall cause the
Company to, deliver to the Seller and DQE, in such a manner so as not to
prejudice the Seller or DQE, notices of any claims received by the Buyer or the
Company and brought by the Notified Persons in respect of the Covered Excluded
Assets; provided, however, that the Seller or DQE shall bear the burden of proof
in respect of any such prejudice.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Obligations. The representations and
warranties of the parties contained in this Agreement shall survive the Closing
until the second (2nd) anniversary of the Closing Date. None of the covenants,
obligations or agreements of the parties contained in this Agreement or in any
instrument, certificate, opinion or other writing provided for herein, shall
survive the Closing of this transaction; provided, however, that,
notwithstanding the foregoing, the covenants of DQE, the Seller and the Buyer,
as applicable, contained in Sections 1.1, 1.2, 1.3, 1.4, 1.5, 6.4, 6.5, 6.6,
6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.14, 6.15, 6.16, 6.17, 6.18 and 6.19, the last
sentence of Section 6.1 and all of Articles II, V, IX and X shall survive the
Closing of this transaction.
Section 10.2 Amendment and Modification. This Agreement may be
amended, modified and supplemented in any and all respects, but only by a
written instrument signed by all of the parties to this Agreement expressly
stating that such instrument is intended to amend, modify or supplement this
Agreement.
Section 10.3 Extension; Waiver. Any failure of any of the
parties to comply with any obligation, covenant, agreement or condition herein,
and any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto, and any time for the performance of
any of the obligations or other acts of a party hereto, may be waived or
extended, as the case may be, but only pursuant to a written instrument signed
by all parties entitled to the benefits thereof; provided, however, that any
such waiver or extension of such obligation, covenant, agreement or condition,
or inaccuracy, shall not operate as a waiver of, or estoppel with respect to,
any subsequent failure to comply therewith. 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.
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Section 10.4 Expenses. Unless otherwise provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
Section 10.5 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 (1) 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
AquaSource, Inc.
c/o DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Telecopier No.: 412-393-1071
Telephone No.: 412-393-1143
Attention: David R. High, Esq.
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 393-5760
Telephone No.: (202) 371-7000
Attention: Erica Ward, Esq.
(ii) if to DQE, to
DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Telecopier No.: 412-393-1071
Telephone No.: 412-393-1143
Attention: David R. High, Esq.
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with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 393-5760
Telephone No.: (202) 371-7000
Attention: Erica Ward, Esq.
and
(iii) if to the Buyer, to
Southwest Water Company
225 North Barranca Ave., Suite 200
West Covina, California 91791-1605
Attention: Peter J. Moerbeek
with a copy to
Jenkens & Gilchrist, LLP
12100 Wilshire Blvd., 15th Floor
Los Angeles, CA 90025
Telecopier No.: (310) 820-8859
Telephone No.: (310) 422-8885
Attention: John F. Cermak, Jr., Esq.
Section 10.6 Entire Agreement; No Third Party Beneficiaries.
This Agreement, including the Schedules attached hereto, and the Confidentiality
Agreement (a) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among DQE, the Seller and the Buyer
with respect to the subject matter hereof and thereof, and (b) are not intended
to confer any rights or remedies hereunder upon any Person other than the
parties hereto and thereto, the Company Indemnified Parties to the extent set
forth in Section 6.4 and the Buyer Indemnitees and the Seller Indemnitees to the
extent set forth in Article IX.
Section 10.7 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
60
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
Section 10.8 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to the principles of conflicts of law thereof.
Section 10.9 Venue. EACH OF THE PARTIES HERETO (A) CONSENTS TO
SUBMIT ITSELF TO THE EXCLUSIVE PERSONAL JURISDICTION OF ANY FEDERAL OR STATE
COURT LOCATED IN OR FOR DENVER, CO 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, PROVIDED,
HOWEVER, THAT IN THE EVENT THAT ANY SUCH COURT REFUSES JURISDICTION IN RESPECT
OF SUCH ACTION, THEN EACH OF THE PARTIES (X) CONSENTS TO SUBMIT ITSELF TO THE
EXCLUSIVE PERSONAL JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED IN OR FOR
PITTSBURGH, PA OR WEST COVINA, CA, (Y) 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 OR
FOR DENVER, CO, PITTSBURGH, PA OR WEST COVINA, CA AS CONTEMPLATED BY THIS
SECTION 10.9.
Section 10.10 Waiver of Jury Trial and Certain Damages. EACH
PARTY TO THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, (A) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (B) ANY RIGHT IT
MAY HAVE TO RECEIVE DAMAGES FROM THE OTHER PARTY BASED ON ANY THEORY OF
LIABILITY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR
PUNITIVE DAMAGES (EXCEPT IN THE CASE OF FRAUD). The parties agree that (i) the
aggregate liability of the Seller and DQE arising out of or relating to this
Agreement or the transactions contemplated herein shall in no event exceed the
Purchase Price (except in the case of Buyer Indemnifiable Losses specifically
listed in Section 9.3(b) of this Agreement) and (ii) the aggregate liability of
the Buyer arising out of or relating to this Agreement or the transactions
contemplated herein shall in no event exceed the Purchase Price (except in the
case of Seller Indemnifiable Losses specifically listed in Section 9.3(b) of
this Agreement).
Section 10.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
(whether by operation of law or otherwise) without the prior written consent of
the Buyer and the Seller; provided, however, that the Seller may assign this
Agreement, without the consent of the Buyer, to the Seller's successor as a
result of a change in control of the Seller, a
61
consolidation of the Seller with or into another entity, a sale of all or
substantially all of the assets of the Seller, or a merger of the Seller with or
into another entity, in any case whether or not the Seller is the surviving
entity.
Section 10.12 Interpretation. When a reference is made in this
Agreement to Articles or Sections, such reference shall be to an Article or
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."
Section 10.13 No Specific Enforcement. Except with respect to the
obligations set forth in the last sentence of Section 6.1 and all of Sections
1.2, 1.3, 1.4, 1.5, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.14, 6.15,
6.16, 6.17, 6.18, 6.19, 8.1, 8.2, 10.1, 10.4, 10.7, 10.8, 10.9, 10.10 and 10.11
and all of Article V and Article IX, the parties agree that in the event of a
breach of this Agreement, the parties shall not be entitled to specific
performance of the terms hereof.
Section 10.14 Counterparts; Effect. This Agreement may be
executed 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.
SIGNATURES FOLLOW ON NEXT PAGE
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IN WITNESS WHEREOF, each of the Seller, DQE and the Buyer have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
AQUASOURCE, INC.
By: /s/ FRANK A HOFFMAN
-------------------
Name: Frank A. Hoffman
Title: President
DQE, INC.
By: /s/ FRANK A. HOFFMAN
--------------------
Name: Frank A. Hoffman
Title: Executive Vice President
SOUTHWEST WATER COMPANY
By: /s/ PETER J. MOERBEEK
---------------------
Name: Peter J. Moerbeek
Title: Chief Financial Officer
63