EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
SJWTX WATER, INC.
A TEXAS CORPORATION,
AS PURCHASER,
AND
CANYON LAKE WATER SUPPLY CORPORATION,
A TEXAS NONPROFIT WATER SUPPLY CORPORATION,
AS SELLER
OCTOBER 4, 2005
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.............................................................................................1
1.1 Defined Terms...................................................................................1
1.2 References and Titles...........................................................................9
ARTICLE II SALE OF ASSETS AND ASSUMPTION OF LIABILITIES...................................................10
2.1 Sale of Assets.................................................................................10
2.2 Excluded Assets................................................................................11
2.3 Assumption of Liabilities......................................................................11
2.4 Retained Liabilities...........................................................................13
2.5 Casualty Loss..................................................................................13
ARTICLE III PURCHASE PRICE.................................................................................14
3.1 Purchase Price.................................................................................14
3.2 The Closing....................................................................................14
ARTICLE IV SELLER'S REPRESENTATIONS AND WARRANTIES........................................................14
4.1 Organization of Seller.........................................................................14
4.2 Authorization of Transaction...................................................................14
4.3 Required Regulatory Approvals and Filings; Consents............................................14
4.4 Non-contravention..............................................................................15
4.5 Brokers' Fees..................................................................................15
4.6 Title to Assets................................................................................15
4.7 Subsidiaries...................................................................................15
4.8 Financial Statements...........................................................................15
4.9 Events Subsequent to Most Recent Fiscal Year End...............................................16
4.10 Undisclosed Liabilities........................................................................17
4.11 Legal Compliance...............................................................................17
4.12 Tax Matters....................................................................................17
4.13 Real Property..................................................................................18
4.14 Intellectual Property..........................................................................20
4.15 Tangible Assets................................................................................20
4.16 Inventory......................................................................................21
4.17 Material Contracts.............................................................................21
4.18 Notes and Accounts Receivable..................................................................22
4.19 Powers of Attorney; Authorized Signatories; Bank Accounts......................................22
4.20 Insurance......................................................................................22
4.21 Litigation.....................................................................................23
4.22 Product & Service Warranty.....................................................................23
4.23 Product Liability..............................................................................23
4.24 Employees......................................................................................23
4.25 Employee Benefits..............................................................................24
4.26 Guaranties.....................................................................................26
4.27 Environmental, Health, and Safety Matters......................................................26
4.28 Intentionally Omitted..........................................................................27
4.29 Customers and Suppliers........................................................................27
4.30 Solvency.......................................................................................27
4.31 Disclosure.....................................................................................27
i
ARTICLE V PURCHASER'S REPRESENTATIONS AND WARRANTIES.............................................................28
5.1 Organization of Purchaser......................................................................28
5.2 Authorization of Transaction...................................................................28
5.3 Required Regulatory Approvals and Filings; Consents............................................28
5.4 Non-contravention..............................................................................28
5.5 Brokers' Fees..................................................................................28
5.6 Disclosure.....................................................................................28
ARTICLE VI PRE-CLOSING COVENANTS..........................................................................28
6.1 General........................................................................................28
6.2 Regulatory Matters and Approvals...............................................................29
6.3 Requisite Member Consent.......................................................................29
6.4 Operation of Business..........................................................................29
6.5 Preservation of Business.......................................................................29
6.6 Full Access....................................................................................30
6.7 Notice of Developments.........................................................................30
6.8 Exclusivity....................................................................................30
6.9 Maintenance of Real Property...................................................................30
6.10 Leases.........................................................................................30
6.11 Title Insurance and Surveys....................................................................31
6.12 Lease Consents.................................................................................31
6.13 Debt Pay-Off Letters...........................................................................31
6.14 Expense Pay-off Letters........................................................................31
6.15 Seller's Bank Accounts.........................................................................31
6.16 Purchaser Employment Offers....................................................................31
6.17 Employee Benefit Matters.......................................................................31
6.18 Change of Name.................................................................................32
6.19 Delivery of Updated Financial Statements.......................................................32
6.20 Transaction Materials..........................................................................32
6.21 Notice of Additional Indebtedness; Alternative Interim Financing...............................32
ARTICLE VII CONDITIONS TO OBLIGATION TO CLOSE..............................................................33
7.1 Conditions to Purchaser's Obligation...........................................................33
7.2 Conditions to Seller's Obligation..............................................................35
ARTICLE VIII CLOSING DELIVERIES.............................................................................36
8.1 Items to be Delivered by the Seller............................................................36
8.2 Items to be Delivered by Purchaser.............................................................37
ARTICLE IX TERMINATION....................................................................................37
9.1 Termination of Agreement.......................................................................37
9.2 Effect of Termination..........................................................................38
ARTICLE X POST-CLOSING COVENANTS & OTHER AGREEMENTS......................................................38
10.1 Survival of Representations and Warranties.....................................................38
10.2 Press Releases and Public Announcements........................................................39
10.3 Liquidation and Dissolution of Seller..........................................................39
10.4 Rate Moratorium................................................................................39
10.5 Reimbursable Seller Income Tax; Tax Refunds....................................................39
10.6 Tax Returns....................................................................................40
10.7 Litigation and other Proceedings...............................................................41
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10.8 Certain Payroll Reporting Obligations..........................................................41
10.9 Further Assurances.............................................................................41
ARTICLE XI MISCELLANEOUS..................................................................................42
11.1 Notices........................................................................................42
11.2 No Third-Party Beneficiaries...................................................................42
11.3 Succession and Assignment......................................................................43
11.4 Amendments and Waivers.........................................................................43
11.5 Severability...................................................................................43
11.6 Expenses.......................................................................................43
11.7 Construction...................................................................................43
11.8 Remedies.......................................................................................43
11.9 Governing Law; Choice of Forum.................................................................44
11.10 Consent to Jurisdiction; Venue.................................................................44
11.11 Consultation with Independent Counsel..........................................................44
11.12 Incorporation of Exhibits and Schedules........................................................44
11.13 Entire Agreement...............................................................................44
11.14 Effective Date of Agreement....................................................................45
11.15 Counterparts...................................................................................45
iii
EXHIBITS
- --------
Exhibit "A" - Form of Opinions of Counsel of Seller
DISCLOSURE SCHEDULES
- --------------------
Purchaser's Disclosure Schedules
Schedule 5.3 - Purchaser's Required Consents
Schedule 5.4 - Purchaser's Noncontravention
Seller's Disclosure Schedules
Schedule 2.1(a) - Contracts
Schedule 2.1(g) - Permits, Licenses, Other Certificates
Schedule 2.2(c) - Excluded Contracts
Schedule 2.2(e) - Excluded Property and Assets
Schedule 2.3(d) - Third Party Debt
Schedule 3.1 - Excluded Bank Account
Schedule 4.3 - Seller's Required Consents
Schedule 4.4 - Seller's Noncontravention
Schedule 4.8 - Financial Statements
Schedule 4.9 - Events Subsequent to Most Recent Fiscal Year End
Schedule 4.12(b) - Tax Returns
Schedule 4.13(a) - Owned Real Property
Schedule 4.13(b) - Leased Real Property
Schedule 4.14(b) - Intellectual Property
Schedule 4.14(c) - Intellectual Property Subject to License/Sublicense Agreement
Schedule 4.15 - Tangible Personal Property
Schedule 4.16 - Inventory
Schedule 4.17 - Material Contracts
Schedule 4.18 - Accounts Receivable
Schedule 4.19 - Powers of Attorney; Authorized Signatories; Bank Accounts
Schedule 4.20 - Insurance
Schedule 4.21 - Litigation
Schedule 4.22 - Product & Service Warranty
Schedule 4.24(a) - Employment Matters
Schedule 4.24(b) - Employment Contracts
Schedule 4.24(c) - Employees
Schedule 4.25 - Employee Benefit Plans
Schedule 4.27(a) - Exceptions to Environmental, Health and Safety Requirements
Schedule 4.27(b) - Water System Permits
Schedule 4.27(d) - Hazardous Materials
Schedule 4.27(e) - Disposal Matters
Schedule 4.27(f) - Transaction Triggered/Responsible Property Transfers
Schedule 4.27(h) - Environmental Audits and Reports
Schedule 4.28 - Affiliated Transactions
Schedule 4.29 - Customers
Schedule 7.1(k) - Lawful Rates and Fees
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") executed as of this
4th day of October, 2005, but shall be effective only upon satisfaction of the
condition specified in Section 11.14, is by and between SJWTX Water, Inc., a
Texas corporation ("Purchaser"), and Canyon Lake Water Supply Corporation, a
Texas nonprofit water supply corporation ("Seller"). The Purchaser and Seller
are referred to individually as a "Party" and collectively as the "Parties."
RECITALS
--------
WHEREAS, Seller operates a local water supply company in the Canyon
Lake, Texas area (the "Water System"); and
WHEREAS, Purchaser desires to purchase from Seller and Seller desires
to sell to Purchaser substantially all of Seller's assets which it utilizes in
the Water System on the terms and conditions set forth herein; and
WHEREAS, the Parties acknowledge and agree that Seller gave notice to
Purchaser of the requirements of Section 13.301(k) of the Water Code before
either Party executed this Agreement.
NOW, THEREFORE, in consideration of the above premises and the
respective representations, warranties, agreements and conditions herein set
forth, and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, each of the following
terms has the meaning given in this Section 1.1 or in the Section referred to
below:
"Accounts Receivable" has the meaning set forth in Section 4.18.
"Acquired Assets" has the meaning set forth in Section 2.1.
"Acquired Bank Accounts" has the meaning set forth in Section 4.19.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504(a) of the Code or any similar group defined under a similar
provision of state, local, or foreign law.
"Alternative Interim Financing Agreement" means any written agreement
between Purchaser, as lender, and Seller, as borrower, wherein Purchaser agrees
to lend Seller funds to perform or complete any system renovation, upgrade,
expansion or acquisition necessary to comply with any existing Contracts or
Legal Requirements.
"Asbestos Liabilities" shall mean any Liabilities arising from,
relating to, or based on the presence or alleged presence of asbestos or
asbestos-containing materials in any product or item designed, manufactured,
sold, marketed, installed, stored, transported, handled, or distributed at any
time, or otherwise based on the presence or alleged presence of asbestos or
asbestos-containing materials at any property or facility or in any structure,
including, any Liabilities arising from, relating to or based on any personal or
bodily injury or illness.
"Assumed Liabilities" Has the meaning set forth in Section 2.3.
"Bexarmet" Means the Bexar Metropolitan Water District.
"Cash" means cash and cash equivalents (including marketable
securities and short-term investments) calculated in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Cash Consideration" has the meaning set forth in Section 3.1.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and any analogous state statutes, and any
regulations promulgated thereunder.
"Closing" has the meaning set forth in Section 3.2.
"Closing Date" has the meaning set forth in Section 3.2.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Section 4980B of the Code and of any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contemplated Transactions" means all of the transactions contemplated
by this Agreement.
"Controlled Group" has the meaning set forth in Section 1563 of the
Code.
"Contract" means all agreements, contracts or other binding
commitments, understandings, arrangements, written or oral (including any
amendments and other modifications thereto).
"Construction Fund" means the construction fund established pursuant
to the terms and conditions of that certain "Resolution of the Texas Water
Development Board Approving Application for Financial Assistance Through the
Purchase of $7,500,000 Canyon Lake Water Supply Corporation, Water System
Revenue Bonds, Proposed Taxable Series 2005".
2
"Debt Pay-off Letters" means the pay-off letters, in substance
reasonably satisfactory to Purchaser, from each lender of Third Party Debt
requiring that Seller's indebtedness be fully paid and discharged at Closing,
setting forth (i) the aggregate amount, including interest, breakage costs,
prepayment penalties, and other fees, required to be paid to fully satisfy all
of the Seller's obligations to such lender of Third Party Debt and (ii) wire
transfer instructions for such lender. Each Debt Pay-Off Letter will provide for
the release and termination of all Liens, recourse and other obligations
associated with the Third Party Debt that is the subject of such Debt Pay-Off
Letter upon receipt of the amount specified in such Debt Pay-Off Letter to be
paid on the Closing Date.
"Employee Benefit Plan" means any "employee benefit plan" (as such
term is defined in ERISA Section 3(3)) and any other material employee benefit
plan, program or arrangement of any kind.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean, as
amended and as now and hereafter in effect, all Legal Requirements (including
CERCLA and SWDA) concerning public health and safety, worker health and safety,
pollution, or protection of the environment, including all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of water (whether treated,
untreated, affluent or otherwise), hazardous materials, substances, or wastes,
chemical substances, or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise, or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Bank Account" has the meaning set forth in Section 3.1.
"Expense Pay-off Letters" means the pay-off letters, in substance
reasonably satisfactory to Purchaser, from each Person to whom Seller
Transaction Fees are owed, (i) setting forth (A) the identity of each Person to
whom such obligations are owed, (B) the amount owed or to be owed to each such
Person, and (C) the bank account and wire transfer information for each such
Person and (ii) providing for the release and termination of all Liens, recourse
and other obligations associated with the Seller Transaction Fees that is or are
the subject of such Expense Pay-Off Letter upon receipt of the amount specified
in such Expense Pay-Off Letter to be paid on the Closing Date.
"Financial Statements" has the meaning set forth in Section 4.8(a).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.
3
"GBRA" means the Guadalupe-Blanco River Authority.
"Governmental Authority" means any federal, state, county or municipal
government, any agency or commission with statewide jurisdiction, or any court
or any arbitrator in any case that has jurisdiction over such Person or any of
its respective properties or assets.
"Improvements" has the meaning set forth in Section 4.13(d).
"Income Tax" means any federal, state, local, or foreign income Tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Intellectual Property" means all of the following: (a) all inventions
(whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, slogans, trade names,
corporate names, Internet domain names, and rights in telephone numbers,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all material advertising and
promotional materials, (h) all other proprietary rights, and (i) all copies and
tangible embodiments thereof (in whatever form or medium).
"Inventory" has the meaning set forth in Section 4.16.
"Knowledge" means with respect to a specified individual, that such
individual is actually or in the exercise of reasonable diligence should be
aware of that fact or matter after reasonable investigation.
"Lease Consents" has the meaning set forth in Section 6.12.
"Leased Real Property" means all leasehold or subleasehold estates and
other similar rights to use or occupy any land, buildings, structures,
improvements, fixtures or other interest in real property held by Seller.
"Leases" means all leases, subleases, licenses, concessions and other
Contracts, including all amendments, extensions, renewals, guaranties and other
agreements with respect thereto, pursuant to which Seller holds any Leased Real
Property.
4
"Legal Requirement" means any Order or federal, state, local,
municipal, foreign, international, multinational constitution, law, ordinance,
principle of common law, code, regulation, statute, or treaty (including under
the Code regulations thereunder and applicable judicial and administrative
pronouncements).
"Liability" means any liability or obligation of whatever kind or
nature (whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due).
"Lien" means any lien, mortgage, security interest, charge, pledge,
retention of title agreement, easement, encroachment or other encumbrance of any
sort whatsoever affecting title.
"Material Adverse Effect" or "Material Adverse Change" means any
effect or change (individually or in the aggregate) that would be materially
adverse to the Water System, or any of the assets, condition (financial or
otherwise), operating results, operations, or business prospects of Seller or to
the ability of any Party to consummate timely the Contemplated Transactions.
"Material Contracts" has the meaning set forth in Section 4.17.
"Material Contract Consents" means the consent or authorization of any
other party to a Material Contract other than Seller that is required in
connection with the consummation of the Contemplated Transactions.
"Member" means any Person having membership rights in Seller under the
TNPCA, Water Code or Seller's Organizational Documents.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 4.8(a).
"Most Recent Fiscal Month End" has the meaning set forth in Section
4.8(a).
"Most Recent Fiscal Year End" has the meaning set forth in Section
4.8(a).
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award of any Governmental Authority or arbitrator.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Organizational Documents" means as applicable, the certificate of
incorporation, articles of incorporation, bylaws, certificate of limited
partnership, partnership or limited partnership agreement, articles of
organization, certificate of organization, certificate of formation,
regulations, operating agreement, joint venture agreement and each other
Contract or instrument (i) pursuant to which a Person is established and
organized, or (ii) which establishes the governance of such Person.
5
"Owned Real Property" means (i) the Seller's Easement Rights and (ii)
all land, together with all buildings, structures, improvements, and fixtures
located thereon, and other rights and interests appurtenant thereto, owned by
Seller.
"Party" has the meaning set forth in the preamble of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" means with respect to each parcel of Real
Property: (a) real estate Taxes, assessments and other governmental levies,
fees, or charges imposed with respect to such Real Property that are (i) not due
and payable as of the Closing Date or (ii) being contested in good faith, for
which adequate reserves have been established in accordance with GAAP and which
reserves are included in the Acquired Assets; (b) mechanics' liens and similar
liens for labor, materials, or supplies provided with respect to such Real
Property incurred in the Ordinary Course of Business for amounts that are (i)
not due and payable as of the Closing Date or (ii) being contested in good faith
that would not, individually or in the aggregate, materially impair the use or
occupancy of the Real Property or the operation of the Water System as currently
conducted on such Real Property; (c) zoning, building codes, and other land use
laws regulating the use or occupancy of such Real Property or the activities
conducted thereon that are imposed by any Governmental Authority having
jurisdiction over such Real Property that are not violated by the current use or
occupancy of such Real Property or the operation of the Water System as
currently conducted thereon; (d) Liens securing Third Party Debt; and (e)
easements, covenants, conditions, restrictions, and other similar matters of
record affecting title to such Real Property that do not or would not materially
impair the use or occupancy of such Real Property in the operation of the Water
System as currently conducted thereon.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity or a
Governmental Authority.
"Prohibited Transaction" has the meaning set forth in ERISA Section
406 and Section 4975 of the Code.
"Post-signing Fiscal Year End" has the meaning set forth in Section
6.19.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
judicial or investigative, whether formal or informal, whether public of
private) commenced, brought, conducted or heard by or before, or otherwise
involving any Governmental Authority or other third party.
"Purchase Price" has the meaning set forth in Section 3.1.
"Purchaser" has the meaning set forth in the preamble of this
Agreement.
"Purchaser's Required Consents" has the meaning set forth in Section
5.3.
6
"Purchaser Transaction Fees" means all reasonable fees, costs and
expenses incurred by Purchaser prior to Closing or that Purchaser is otherwise
obligated to discharge regardless if the Contemplated Transaction is consummated
in connection with or arising out of the planning, structuring, negotiation or
consummation of this Agreement and the Contemplated Transactions, including
without limitation all fees and expenses of legal counsel, accountants,
consultants, brokers, financial advisors and other professionals.
"Real Property" has the meaning set forth in Section 4.13(c).
"Real Property Laws" has the meaning set forth in Section 4.13(f).
"Reimbursable Seller Income Tax" means any United States federal
income tax obligation of Seller for its taxable year that includes the Closing
Date, but only to the extent that the obligation (i) results from Seller's
failure to be an organization described in Section 501(c)(12) for such year
because of Seller's sale of the Acquired Assets pursuant to this Agreement, and
(ii) is reflected on the applicable federal Income Tax Return of Seller for such
year.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Requisite Member Consent" means the consent of at least at least
two-thirds (2/3) of the Members present in person or by proxy at any meeting or
special meeting of the Seller authorizing and approving this Agreement and all
of the Contemplated Transactions.
"Restricted Period" has the meaning set forth in Section 10.8(a).
"Retained Liabilities" has the meaning set forth in Section 2.4.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Seller" has the meaning set forth in the preamble of this Agreement.
"Seller Transaction Fees" means all reasonable fees, costs and
expenses incurred by the Seller prior to Closing in connection with or arising
out of the planning, structuring, negotiation or consummation of this Agreement
and the Contemplated Transactions, including all fees and expenses of legal
counsel (John O. Houchins, Esq.), accountants (Holtman, Wagner & Company, LLP),
consultants (GDS Associates, Inc.), brokers, financial advisors (First Southwest
Company) and other professionals.
"Seller Transaction Fees Limit" means a maximum of $250,000 in total
Seller Transaction Fees regardless if such Seller Transaction Fees are
discharged by Purchaser or Seller on or before the Closing Date.
"Seller Transaction Materials" has the meaning set forth in Section
6.20.
"Seller's Easement Rights" means any and all easements or similar
rights of Seller to use the property of any Person in connection with the
operation of the Water System.
7
"Seller's Required Consents" has the meaning set forth in Section 4.3.
"Service Agreement" has the meaning set forth in Section 8.1(j).
"STMP" means an "Application for Sale, Transfer or Merger of a Retail
Public Utility" and all addendums, schedules and annexes thereto, or any other
similar form or application required by the TCEQ in connection with the sale and
transfer of the Water System from Purchaser to Seller as contemplated by this
Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association, or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity's gains or losses or shall
be or control any managing director or general partner of such business entity
(other than a corporation). The term "Subsidiary" shall include all Subsidiaries
of such Subsidiary.
"SWDA" means the Solid Waste Disposal Act, as amended, any analogous
state statutes, and any regulations promulgated thereunder, and regulations
modeled thereon.
"Tangible Assets" has the meaning set forth in Section 4.15.
"Tax Returns" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Tax" or "Taxes" means taxes of any kind, levies or other assessments
related to taxes, and customs, duties, imposts, charges or fees, including
income, profits, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, federal royalty, license, payroll,
transaction, capital, net worth, franchise and gross receipts taxes, estimated
taxes, withholding, employment, social security, workers' compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, net proceeds, alternative, turnover, environmental, stamp, leasing,
lease, user, capital stock, registration, fuel, excess profits, alternative or
add on minimum, transfer and gains taxes and other governmental taxes imposed or
payable to any Taxing Authority, and in each instance such term shall include
any interest, penalties or additions to tax attributable to any such tax,
including penalties for the failure to file any Tax Return or report.
"Taxing Authority" means, with respect to any Tax, the Governmental
Authority that imposes such Tax, and the agency (if any) charged with the
collection of such Tax for such entity or subdivision, including any
governmental or quasi governmental entity or agency that imposes, or is charged
with collecting, social security or similar charges or premiums.
8
"TCEQ" means the Texas Commission on Environmental Quality.
"TCEQ Approval" means the written approval of the TCEQ for all of the
following: (i) Purchaser's acquisition of the assets which Seller utilizes in
connection with its operation of the Water System, (ii) Seller's transfer of the
"Certificate of Convenience and Necessity" for the Water System to Purchaser
pursuant to the STMP submitted by Purchaser, and (iii) all other matters
presented by Purchaser or Seller to the TCEQ for approval in connection with the
Contemplated Transactions.
"Third Party Debt" means all outstanding indebtedness for borrowed
money of Seller, including any indebtedness relating to the TWDB Bond Debt.
"TNPCA" means Texas Non-Profit Corporation Act, as amended.
"Transaction Documents" means this Agreement and all other agreements
and documents entered into by one or more of the Parties in connection with the
Contemplated Transactions.
"TWDB" means the Texas Water Development Board.
"TWDB Bond Debt" has the meaning set forth in Section 2.3(b).
"Water Code" means the Texas Water Code, as amended.
"Water System" has the meaning set forth in the first recital of this
Agreement.
1.2 References and Titles. All references in this Agreement to
Schedules, Articles, Sections, subsections, and other subdivisions refer to the
corresponding Schedules, Articles, Sections, subsections, and other subdivisions
of this Agreement unless expressly provided otherwise. All references to cash or
monetary amounts refer to U.S. Dollars only unless specifically stated to be in
the currency of another government. Titles appearing at the beginning of any
Articles, Sections, subsections, or other subdivisions of this Agreement are for
convenience only, do not constitute any part of such Articles, Sections,
subsections or other subdivisions, and shall be disregarded in construing the
language contained therein. The words "this Agreement," "herein," "hereby,"
"hereunder," and "hereof," and words of similar import, refer to this Agreement
as a whole and not to any particular subdivision unless expressly so limited.
The words "this Section," "this subsection," and words of similar import, refer
only to the Sections or subsections, respectively, hereof in which such words
occur. The word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine, or neuter genders shall be
construed to state and include any other gender and words, terms, and titles
(including terms defined herein) in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise expressly
requires. Unless the context otherwise requires, all defined terms contained
herein shall include the singular and plural and the conjunctive and disjunctive
forms of such defined terms.
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ARTICLE II
SALE OF ASSETS AND ASSUMPTION OF LIABILITIES
2.1 Sale of Assets. On the Closing Date, Seller shall sell, assign,
transfer and convey to Purchaser, and Purchaser shall accept from Seller, free
and clear of all Liens and adverse claims of any kind except for Permitted
Encumbrances, all of the assets used by or for the benefit of the Seller in any
way, directly or indirectly, related to the Water System, including the assets
set forth in this Section 2.1 as they exist on the Closing Date and no others
(collectively, the "Acquired Assets"):
(a) all rights, titles and interests of Seller in, to and under
the Seller's Contracts, including those listed on Schedule 2.1(a); provided,
that Purchaser is not acquiring the Contracts listed on Schedule 2.2(c).
(b) all of the Owned Real Property set forth on Schedule 4.13(a)
and all of Seller's interest in the Leased Real Property set forth on Schedule
4.13(b);
(c) all of Seller's Intellectual Property, including the
Intellectual Property set forth on Schedule 4.14(b), and the right to sue and
collect for any and all infringements, and the right to receive royalties, with
respect to the foregoing;
(d) all of Seller's tangible personal property, including the
Tangible Assets set forth on Schedule 4.15;
(e) all of Seller's inventory and other raw goods, including the
Inventory set forth on Schedule 4.16;
(f) all of the Seller's accounts, notes, and other receivables,
including the Accounts Receivables set forth on Schedule 4.18;
(g) all of Seller's permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from any Governmental
Authority which are transferable to Purchaser under applicable Legal
Requirements, including the permits, licenses, orders, registrations,
certificates, variances, and similar rights set forth on Schedule 2.1(g);
(h) all of Seller's books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
studies, reports, and other printed or written materials;
(i) the Acquired Bank Accounts;
(j) all of Seller's Cash, including all Member deposits and
Member fees held by Seller to the extent an assignment thereof is permitted by
applicable Legal Requirements or deposits of Seller held by third parties, debt
reserves and restricted cash;
(k) all of Seller's rights in and with respect to the assets
associated with its Employee Benefit Plans to the extent assumed by Purchaser
pursuant to Section 6.17;
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(l) all of Seller's intangible assets and goodwill directly
related to the Seller's Water System; and
(m) all of Seller's claims, deposits, prepayments, refunds
(including Tax refunds described in Section 10.5(b)), causes of action, choses
in action, rights of recovery, rights of set-off, and rights of recoupment of
Seller, including claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery under any insurance policies or otherwise
existing at law or equity, rights of set-off, and rights of recoupment arising
from or related to any asset described in Section 2.1(a) through (l).
2.2 Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, Seller shall not sell, and Purchaser shall not acquire, the following
assets, properties, interests and rights of Seller (the "Excluded Assets"):
(a) the Seller's charter, taxpayer and other identification
numbers, and other books, records, documents and seals relating to the corporate
or company organization, maintenance and existence of Seller, that Seller is
required by applicable Legal Requirements to retain in its possession;
(b) subject to Section 2.1(m) and Section 2.5, all insurance
policies;
(c) all of Contracts listed on Schedule 2.2(c);
(d) all personnel records and other records that Seller is
required by applicable Legal Requirements to retain in its possession;
(e) the property and assets expressly designated on Schedule
2.2(e);
(f) the Excluded Bank Account;
(g) any of Seller's rights in and with respect to the assets
associated with its Employee Benefit Plans not assumed by Purchaser pursuant to
Section 6.17; and
(h) all rights of the Seller under this Agreement or any of the
other Transaction Documents.
2.3 Assumption of Liabilities. As part of the consideration for the
purchase and sale of the Acquired Assets, on the Closing Date, the Purchaser
shall assume each of the following except as otherwise set forth in this Section
2.3 and Section 2.4 (collectively, the "Assumed Liabilities"):
(a) all Liabilities arising from or relating to the Acquired
Assets accruing on or after the Closing Date;
(b) all Liabilities of Seller set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) (other than, except as
provided in Section 10.5(a), any Liability resulting from, arising out of,
relating to, in the nature of, or caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, Asbestos Liability, or
11
environmental matter, including those arising under Environmental, Health, and
Safety Requirements or any of Seller's Employee Benefit Plans not assumed by
Purchaser pursuant to Section 6.17). It is expressly agreed and understood that
all notes and/or bonds issued to the TWDB as listed on the Balance Sheet shall
include not only the principle and interest due thereunder but shall also
include any and all prepayment penalties, defeasance cost or like or similar
penalty or cost of whatsoever kind or nature and howsoever described that Seller
may potentially be responsible to discharge under the terms and conditions of
its sale to the TWDB of the following bond issues (the "TWDB Bond Debt"):
(i) Canyon Lake Water System Revenue Bonds (Taxable), Series 1995,
$7,105,000;
(ii) Canyon Lake Water System Revenue Bonds (Taxable), Series 1998,
$3,040,000;
(iii)Canyon Lake Water System Revenue Bonds (Taxable), Series 2000,
$2,960,000; and
(iv) Canyon Lake Water System Revenue Bonds (Taxable), Series 2005,
$7,500,000.
Purchaser hereby expressly acknowledges the above and fully and
completely assumes any and all liabilities of Seller of whatsoever kind or
nature as same relates to and/or is associated in any manner to debts and
obligations to the TWDB arising from or relating to the TWDB Bond Debt.
(c) all Liabilities of Seller that have arisen before the Closing
and after the Most Recent Fiscal Month End in the Ordinary Course of Business
(other than, except as provided in Section 10.5(a), any Liability resulting
from, arising out of, relating to, in the nature of, or caused by any breach of
contract, breach of warranty, tort, infringement, violation of law, Asbestos
Liability, or environmental matter, including those arising under Environmental,
Health, and Safety Requirements or any of Seller's Employee Benefit Plans not
assumed by Purchaser pursuant to Section 6.17);
(d) all Third Party Debt set forth on Schedule 2.3(d);
(e) all obligations of Seller under the Contracts and other
arrangements arising from the Acquired Assets either (i) to furnish goods,
services, and other non-Cash benefits to another party after the Closing or (ii)
to pay for goods, services, and other non-Cash benefits that another party will
furnish to it after the Closing;
(f) the accrued vacation and sick leave for those employees of
Seller who accept employment with Purchaser as of the Closing Date; and
(g) all unpaid Seller Transaction Fees up to the Seller
Transaction Fees Limit.
Purchaser will not assume or have any responsibility whatsoever with
respect to any other Liability of Seller not expressly included within the
definition of Assumed Liabilities, including (i) except as provided in Section
10.5(a), any Liabilities or obligations of or relating to any violations by
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Seller under any Legal Requirements, including any Environmental, Health and
Safety Requirements, on or before the Closing Date regardless if such matter is
disclosed on a Schedule hereto; (ii) any Liability of Seller for transfer,
sales, use or other Taxes arising in connection with the consummation of the
Contemplated Transactions; or (iii) any Taxes of the Members arising from or
related to the Contemplated Transactions.
2.4 Retained Liabilities. Except for the Assumed Liabilities expressly
set forth in Section 2.3, Seller shall retain and be solely responsible for, and
Seller acknowledges that Purchaser has not agreed to pay, is not assuming and
shall not have any Liability or obligation for any other Liability or obligation
of the Seller or the Water System (the "Retained Liabilities"). Without limiting
the generality of the foregoing, the following Liabilities or obligations will
remain the sole responsibility of Seller:
(a) any Liability arising out of or relating to the Excluded
Assets;
(b) any Liability arising out of or resulting from Seller's
compliance or non-compliance with any Legal Requirement of any Governmental
Authority related directly or indirectly to any Environmental, Health and Safety
Requirements, on or before the Closing Date regardless if such matter is
referenced on a Schedule hereto;
(c) any Liability of Seller under this Agreement or any other
document executed in connection with the Contemplated Transactions;
(d) any Liability of Seller based upon Seller's acts or omissions
occurring after the Closing Date;
(e) any Liability arising out of or relating to any of Seller's
Employee Benefit Plans not assumed by Purchaser pursuant to Section 6.17;
(f) notwithstanding an assumption by Purchaser of an Employee
Benefit Plan pursuant to Section 6.17, any Liability not set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto); and
(g) any Seller Transaction Fees in excess of the Seller
Transaction Fees Limit.
2.5 Casualty Loss. Prior to Closing, the risk of loss to the Acquired
Assets shall remain with Seller. After Closing, the risk of such loss shall be
transferred to Purchaser. In the event that any of the Acquired Assets of the
Seller are materially damaged or destroyed by fire or other casualty prior to
the Closing, Seller shall (i) immediately notify the Purchaser promptly after
Seller learns of such event, (ii) preserve all insurance proceeds for the
benefit of the Purchaser, and (iii) upon Closing assign to Purchaser (or at the
direction of Purchaser) all insurance claims or proceeds to which Seller may be
entitled as a result of such fire or other casualty.
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ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. In consideration for Seller's sale and transfer of
the Acquired Assets to Purchaser, Purchaser agrees to (i) pay to Seller at the
Closing the sum of Three Million Two Hundred Thousand and No/100 Dollars
($3,200,000) (the "Cash Consideration") payable by wire transfer or delivery of
other immediately available funds to the account set forth on Schedule 3.1 (the
"Excluded Bank Account") and (ii) assume or discharge the (A) Assumed
Liabilities, (B) Seller Transaction Fees up to the Seller Transaction Fees Limit
and (C) Reimbursable Seller Income Tax (collectively, the "Purchase Price").
3.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Jackson Walker
L.L.P. at 112 E. Pecan Street, Suite 2100, San Antonio, Texas 78205 commencing
at 9:00 a.m. local time on the fifth (5th) business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the Contemplated Transactions (other than conditions with respect to
actions the respective Parties will take at the Closing itself) or such other
date as the Parties may mutually determine (the "Closing Date"); provided,
however, that the Closing Date shall not be later than October 1, 2007 unless
agreed to in writing by the Parties.
ARTICLE IV
SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller represents and warrants to Purchaser as follows (such
representations and warranties being deemed to be made as of the date hereof and
on a continuous basis until the Closing Date). Seller acknowledges and agrees
that each of the representations and warranties set forth in this Article IV has
been materially relied upon by Purchaser and that each of the representations
and warranties set forth in this Article IV have served as a material inducement
for the Purchaser to enter into this Agreement.
4.1 Organization of Seller. Seller is duly organized, validly
existing, and in good standing under the Legal Requirements of the jurisdiction
of its incorporation.
4.2 Authorization of Transaction. Upon Seller's obtaining Seller's
Required Consents, Material Contract Consents, and Lease Consents, Seller will
have full power and authority to execute and deliver the Transaction Documents
to which it is a party and to perform all of the obligations thereunder. The
Transaction Documents constitute the valid and legally binding obligation of
Seller, enforceable in accordance with their terms and conditions except as
limited by applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance and similar laws affecting creditors' rights generally and
except to the extent that general equitable principles may affect the
availability of certain remedies. The execution, delivery and performance of
this Agreement and all other Transaction Documents to which it is a party
contemplated hereby have been duly authorized by Seller.
4.3 Required Regulatory Approvals and Filings; Consents. Except as set
forth on Schedule 4.3 (the "Seller's Required Consents"), no Material Contract
Consent, Lease Consent, or any other approval of or filing with any Governmental
14
Authority or any other Person on the part of Seller is required in connection
with the execution, delivery and performance of this Agreement and the other
Transaction Documents or the consummation of the Contemplated Transactions.
4.4 Non-contravention. Except as set forth on Schedule 4.4, neither
the execution and delivery of this Agreement by Seller, the other Transaction
Documents to which it is a party, nor the Contemplated Transactions, will (i)
violate any Legal Requirement to which Seller is subject or any provision of its
Organizational Documents, (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
Contract to which Seller is a party or by which it is bound or to which any of
its assets are subject, or (iii) result in the imposition or creation of a Lien
upon or with respect to the Acquired Assets.
4.5 Brokers' Fees. Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or similar agent with respect to the
Contemplated Transactions for which Purchaser could become liable or obligated
to pay or discharge.
4.6 Title to Assets. Seller has good and indefeasible title to, or a
valid leasehold interest in, the properties and assets used by or for the
benefit of Seller, located on its premises, or shown on the Most Recent Balance
Sheet or acquired after the date thereof, free and clear of all Liens except for
Permitted Encumbrances, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
Without limiting the generality of the foregoing, Seller has good and
indefeasible title to all of the Acquired Assets, free and clear of any Liens or
restriction on transfer except for Permitted Encumbrances.
4.7 Subsidiaries. Seller does not own or has ever owned of record or
beneficially, any Subsidiary or otherwise maintain or hold any equity interest
in any other Person.
4.8 Financial Statements.
(a) Attached hereto as Schedule 4.8 are the following financial
statements (collectively the "Financial Statements"): (i) audited balance sheets
and statements of income, and cash flow as of and for the fiscal years ended
December 31, 2002, December 31, 2003 and December 31, 2004 for Seller (the "Most
Recent Fiscal Year End") and the audited balance sheets and statements of
income, and cash flow delivered to Purchaser pursuant to Section 6.19; and (ii)
unaudited balance sheet and statement of income, and cash flow (the "Most Recent
Financial Statements") as of and for the seventh-months ended July 31, 2005 or
covering the period set forth in the unaudited balance sheet and statement of
income, and cash flow delivered to Purchaser pursuant to Section 6.19 (the "Most
Recent Fiscal Month End") for the Seller. The Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, present accurately the financial
condition of Seller as of such dates and the results of operations of Seller for
such periods, are correct and complete in all respects, and are consistent with
the books and records of Seller (which books and records are correct and
complete in all respects).
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(b) Each transaction by Seller is properly recorded on the books
and records of such Seller, and each document upon which entries in Seller's
Financial Statements and all of its other books and records are based is
complete and accurate in all respects. Seller maintains a system of internal
accounting controls which are adequate to insure that its Financial Statements
and all of its other books and records are complete and accurate in all
respects. Seller maintains a system of internal accounting controls adequate to
insure that it maintains no off-the-books accounts.
4.9 Events Subsequent to Most Recent Fiscal Year End. Except as set
forth on Schedule 4.9, since the Most Recent Fiscal Year End and Post-Signing
Fiscal Year End, if any, there has not been any Material Adverse Change. Without
limiting the generality of the foregoing, except as set forth on Schedule 4.9,
since that date:
(a) Seller has not sold, leased, transferred, or assigned any
material assets, tangible or intangible, outside the Ordinary Course of
Business;
(b) Seller has not entered into any material Contract outside the
Ordinary Course of Business;
(c) no party (including Seller) has accelerated, terminated, made
material modifications to, or cancelled any material Contract to which Seller is
a party or by which any of them is bound;
(d) Seller has not imposed any Lien upon any of its assets,
tangible or intangible;
(e) Seller has not made any material capital expenditures outside
the Ordinary Course of Business and in no event in excess of $12,000 on an
individual or aggregate basis;
(f) Seller has not made any material capital investment in, or
any material loan to, any other Person outside the Ordinary Course of Business
and in no event in excess of $12,000 on an individual or aggregate basis;
(g) Seller has not created, incurred, assumed, or guaranteed more
than $12,000 in indebtedness for borrowed money and capitalized lease
obligations on an individual or aggregate basis;
(h) Seller has not transferred, assigned, or granted any license
or sublicense of any material rights under or with respect to any Intellectual
Property;
(i) there has been no change made or authorized in the
Organizational Documents of Seller;
(j) Seller has not experienced any material damage, destruction,
or loss (whether or not covered by insurance) to its property;
(k) Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
16
(l) Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such Contract;
(m) Seller has not granted any increase in the base compensation
of any of its directors, officers, and employees outside the Ordinary Course of
Business and in no event in excess of $5,000 per annum;
(n) Seller has not adopted, amended, modified, or terminated any
bonus, profit sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
(o) Seller has not made any other material change in employment
terms for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(p) Seller has not changed its normal business practices,
instituted any rate increases, changed any of its methods of accounting, or
taken any other action outside the Ordinary Course of Business;
(q) Seller has not made any loans or advances of money; and
(r) Seller has not committed to any of the foregoing.
4.10 Undisclosed Liabilities. Seller does not have any material
Liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including any Liability for
Taxes or Liabilities arising from or relating to Employee Benefit Plans or
Environmental, Health, and Safety Requirements), except for (i) Liabilities set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) and (ii) Liabilities that have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business.
4.11 Legal Compliance. Seller has complied with all applicable Legal
Requirements of all Governmental Authorities, save and except those proceedings
initiated by the Texas Commission on Environmental Quality for violations of
their rules as more particularly described in Section 4.27, and no other
Proceeding, demand, or notice has been filed or commenced against Seller
alleging any failure so to comply. To the Knowledge of each of the directors and
officers of Seller (i) no other Proceeding alleging the Seller's violation of
any applicable Legal Requirements is or has been threatened and (ii) there is no
other basis for any such Proceeding against or otherwise involving the Seller or
any of its directors, officers or employees in any way relating to Seller's
Water System.
4.12 Tax Matters.
(a) (i) Seller has filed all Income Tax Returns and all other Tax
Returns that it is required to file, (ii) all such Tax Returns were correct and
complete in all respects, (iii) all Taxes due and owing by Seller (whether or
17
not shown on any Tax Return) have been paid, (iv) Seller is not currently the
beneficiary of any extension of time within which to file any Tax Return, and
(v) there are no Liens for Taxes (other than Taxes not yet due and payable) upon
any of the assets of Seller.
(b) Schedule 4.12(b) lists all federal, state, local, and foreign
Tax Returns filed with respect to the Seller or for taxable periods ended on or
after December 31, 2000, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. Seller has
made available to Purchaser correct and complete copies of all Income Tax
Returns, examination reports, and statements of deficiencies assessed against,
or agreed to by Seller since December 31, 2000. Seller has not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(c) The Seller is not a party to any Income Tax allocation or
sharing agreement.
(d) The Seller has not been a member of an Affiliated Group
filing a consolidated Income Tax Return.
(e) Seller has never filed or been required to file any Tax
Return on Internal Revenue Service Form 990-T (or any predecessor form) related
to Tax on unrelated business taxable income.
(f) Seller is and has been continuously since its inception an
organization exempt from federal income Taxes pursuant to Section 501(a) of the
Code by reason of being an organization of 501(c)(12) of the Code.
4.13 Real Property.
(a) Schedule 4.13(a) sets forth the address and description of
each parcel of Owned Real Property. With respect to each parcel of Owned Real
Property:
(i) except as set forth in Schedule 4.13(a), Seller has not
leased or otherwise granted to any Person the right to use or occupy such Owned
Real Property or any portion thereof; and
(ii) there are no outstanding options, rights of first offer
or rights of first refusal to purchase such Owned Real Property or any portion
thereof or interest therein.
(b) Schedule 4.13(b) sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such
Leased Real Property (including the date and name of the parties to such Lease
document). Seller has delivered to Purchaser a true and complete copy of each
such Lease document, and in the case of any oral Lease, a written summary of the
material terms of such Lease. Except as set forth in Schedule 4.13(b), with
respect to each of the Leases:
(i) to the Knowledge of each of the directors and officers of
Seller, except for those Leases for which Lease Consents are obtained, the
18
consummation of the Contemplated Transactions will not require the consent of
any other party to such Lease, will not result in a breach of or default under
such Lease, and will not otherwise cause such Lease to cease to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing; and
(ii) to the Knowledge of each of the directors and officers of
Seller, neither Seller nor any other party to the Lease is in breach of or
default under such Lease, and, to the Knowledge of each of the directors and
officers, no event has occurred or circumstance exists that, with the delivery
of notice, the passage of time or both, would constitute such a breach or
default, or permit the termination, modification or acceleration of rent under
such Lease.
(c) The Owned Real Property identified in Schedule 4.13(a) and
the Leased Real Property identified in Schedule 4.13(b) (collectively, the "Real
Property") includes all of the real property used or intended to be used in the
Water System; and Seller is not a party to any agreement or option to purchase
any real property or interest therein.
(d) All buildings, structures, fixtures, building systems and
equipment, and all components thereof, included in the Real Property (the
"Improvements") are in reasonably good condition and repair and sufficient for
the operation of the Water System. There are no facts or conditions affecting
any of the Improvements that would, individually or in the aggregate, interfere
in any material respect with the use or occupancy of the Improvements or any
portion thereof in the operation of the Water System as currently conducted
thereon.
(e) Seller has not received written notice of any condemnation,
expropriation or other Proceeding in eminent domain affecting any parcel of Real
Property or any portion thereof or interest therein. To the Knowledge of and the
directors and officers of Seller, there is no injunction, decree, order, writ,
or judgment outstanding, or any claim, litigation, administrative action or
similar Proceeding, pending or threatened, relating to the ownership, lease, use
or occupancy of the Real Property or any portion thereof, or the operation of
the Water System as currently conducted thereon.
(f) To the Knowledge of each of the directors and officers of
Seller, the Real Property is in material compliance with all Legal Requirements,
and all insurance requirements affecting the Real Property (collectively, the
"Real Property Laws"). Seller has not received any notice of violation of any
Real Property Laws and, to the Knowledge of each of the directors and officers
of Seller, there is no basis for the issuance of any such notice or the taking
of any action for such violation.
(g) Each parcel of Real Property has direct access to a public
street adjoining the Real Property or has access to a public street via
insurable easements benefiting such parcel of Real Property, and such access is
not dependent on any land or other real property interest that is not included
in the Real Property. None of the Improvements or any portion thereof is
dependent for its access, use or operation on any land, building, improvement or
other real property interest that is not included in the Real Property.
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(h) All water, oil, gas, electrical, steam, compressed air,
telecommunications, sewer, storm and waste water systems and other utility
services or systems for the Real Property have been installed and are
operational and sufficient for the operation of the Water System as currently
conducted thereon.
(i) Seller's use or occupancy of the Real Property or any portion
thereof and the operation of the Water System as currently conducted are not to
the Knowledge of each of the directors and officers of Seller dependent on a
"permitted non-conforming use" or "permitted non-conforming structure" or
similar variance, exemption or approval from any Governmental Authority.
(j) To the Knowledge of each of the directors and officers of
Seller, the current use and occupancy of the Owned Real Property and the
operation of the Water System as currently conducted thereon does not violate in
any material respect any easement, covenant, condition, restriction or similar
provision in any instrument of record or other unrecorded agreement affecting
such Owned Real Property.
4.14 Intellectual Property.
(a) To the Knowledge of each of the directors and officers of
Seller, Seller has not interfered with, infringed upon, misappropriated, or
violated any material Intellectual Property rights of third parties in any
material respect, and Seller has not ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Seller must license or
refrain from using any Intellectual Property rights of any third party). To the
Knowledge of each of the directors and officers of Seller, no third party has
interfered with, infringed upon, misappropriated, or violated any material
Intellectual Property rights of Seller in any material respect.
(b) Schedule 4.14(b) identifies each patent or registration that
has been issued to Seller with respect to any of its Intellectual Property,
identifies each pending patent application or application for registration that
Seller has made with respect to any of its Intellectual Property, and identifies
each material license, agreement, or other permission that Seller has granted to
any third party with respect to any of its Intellectual Property (together with
any exceptions).
(c) Schedule 4.14(c) identifies each material item of
Intellectual Property that any third party owns and that Seller uses pursuant to
license, sublicense, agreement, or permission. Seller has delivered to Purchaser
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions, as amended to date.
4.15 Tangible Assets. Except for (i) the Owned Real Property that is
set forth on Schedule 4.13(a), (ii) the Leased Real Property that is set forth
on Schedule 4.13(b), and (iii) the Inventory set forth on Schedule 4.16,
Schedule 4.15 sets forth all of Seller's machinery, equipment, and other
tangible assets (the "Tangible Assets"). The Tangible Assets that Seller owns or
20
leases are free from material defects (patent and latent), have been maintained
in accordance with normal industry practice, and are in good operating condition
and repair (subject to normal wear and tear).
4.16 Inventory. Schedule 4.16 sets forth all of Seller's inventory
(the "Inventory"). The Inventory of Seller consists of untreated water, raw
materials, supplies, treated water, manufactured parts, work in process, and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured.
4.17 Material Contracts. Schedule 4.17 lists the following executory
Contracts to which Seller is a party (collectively, the "Material Contracts"):
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of $12,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than 1 year or involve consideration
in excess of $12,000;
(c) any agreement concerning any joint operating agreement,
collaboration, partnership or joint venture;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $12,000 or under which
it has imposed a Lien on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
non-competition;
(f) any collective bargaining agreement;
(g) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $12,000 or providing material severance benefits;
(h) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(i) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect;
(j) any settlement, conciliation or similar agreement, the
performance of which will involve payment after the Closing Date of
consideration in excess of $12,000;
(k) any agreement under which Seller has advanced or loaned any
other Person amounts; or
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(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $12,000.
Seller has delivered to Purchaser a correct and complete copy of each
written Contract listed on Schedule 4.17 and a written summary setting forth the
material terms and conditions of each oral Contract referred to in Schedule
4.17. With respect to each such Contract: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
no party is in material breach or default, and no event has occurred that with
notice or lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) no
party has repudiated any material provision of the Contract.
4.18 Notes and Accounts Receivable. Schedule 4.18 sets forth all of
the notes and accounts receivable of Seller (the "Accounts Receivable"). All
Accounts Receivable of Seller are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for operations and transactions through the Closing Date in accordance
with the past custom and practice of Seller.
4.19 Powers of Attorney; Authorized Signatories; Bank Accounts.
Schedule 4.19 lists: (i) the names and addresses of all Persons holding powers
of attorney on behalf of Seller; and (ii) except for the Excluded Bank Account,
the names of all banks and other financial institutions in which Seller
currently has one or more bank accounts or safe deposit boxes, along with the
account numbers and the names of all persons authorized to draw on such accounts
or to have access to such safe deposit boxes (the "Acquired Bank Accounts").
Except as set forth on Schedule 4.19, to the Knowledge of each of the directors
and officers of Seller, there are no material outstanding powers of attorney
executed on behalf of Seller.
4.20 Insurance. Schedule 4.20 sets forth the following information
with respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) with respect to which Seller is a party, a named insured, or
otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage is
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
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With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect in all material
respects; (B) neither Seller nor any other party thereto is in material breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred that, with notice or the lapse of time,
would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy; and (C) no party to the policy
has repudiated any material provision thereof. Schedule 4.20 describes any
material self-insurance arrangements affecting Seller.
4.21 Litigation. Schedule 4.21 sets forth each instance in which
Seller (i) is subject to any outstanding Order or (ii) is a party or, to the
Knowledge of any of the directors and officers of Seller, is threatened to be
made a party to any Proceeding.
4.22 Product & Service Warranty. Substantially all of the products
processed, treated, manufactured, sold, leased, and delivered by Seller and all
services rendered by Seller have conformed in all material respects with all
applicable contractual commitments and all express and implied warranties, and
Seller does not have any material Liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product or service warranty claims set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for operations and transactions through the Closing Date in accordance
with the past custom and practice of Seller. Substantially all of the products
manufactured, sold, leased, and delivered by Seller, and all services rendered
by Seller are subject to standard terms and conditions of sale or lease.
Schedule 4.22 includes copies of the standard terms and conditions of sale or
lease for Seller (containing applicable guaranty, warranty, and indemnity
provisions).
4.23 Product Liability. Seller does not have any material Liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, processed, treated, leased, or delivered by Seller.
4.24 Employees.
(a) Except as set forth on Schedule 4.24(a), with respect to the
Seller's Water System:
(i) there is no collective bargaining agreement or
relationship with any labor organization;
(ii) no labor organization or group of employees has filed any
representation petition or made any written demand for recognition, and no union
organizing or decertification efforts are underway or have been threatened in
writing, and no labor strike, work stoppage, slowdown, or other labor dispute
has occurred or has been threatened in writing;
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(iii) there are no pending worker's compensation claims that
could reasonably be expected to have a Material Adverse Effect on the Seller;
(iv) there is no employment-related charge, complaint,
grievance, investigation, inquiry or obligation of any kind, pending or to the
Knowledge of any director or officer of the Seller, threatened in any forum,
relating to an alleged violation or breach by the Seller (or its directors,
officers or employees) of any employment related Legal Requirement.
(v) Except as set forth on Schedule 4.24(b), there are no
written employment Contracts or severance Contracts with any employees of the
Seller. Seller has provided Purchaser with a copy of each Contract set forth on
Schedule 4.24(b).
(b) Schedule 4.24(c) contains a true and complete list of the
names and titles of the Seller's current directors, officers and employees and,
as applicable, each of such director's, officer's and employee's date of
retention/employment, the total annual salary, wages, bonus, other compensation
and accrued vacation time and other earned time off as of the Closing Date.
Except as set forth on Schedule 4.24(c), the Seller is not a party to any
written or oral employment Contact with any of such individuals which precludes
their termination at will. Except as set forth on Schedule 4.24(c), no director,
officer or employee of the Seller is now, or will by the passage of time
hereafter become, entitled to receive any vacation time, vacation pay or
severance pay attributable to services rendered prior to the Closing Date.
Except as set forth on Schedule 4.24(c), no director, officer or employee of the
Seller has informed the Seller in writing of his or her intention to terminate
his or her employment as a result of or in connection with the consummation of
Contemplated Transactions.
(c) Within the past three (3) years, Seller has not implemented
any plant closing or layoff of employees that could implicate the Worker
Adjustment and Retraining Notification Act of 1988, as amended, or any similar
foreign, state, or local law, regulation, or ordinance, and no such action will
be implemented without advance notification to Purchaser.
4.25 Employee Benefits.
(a) Schedule 4.25 lists each Employee Benefit Plan that Seller
maintains or to which Seller contributes or has any obligation to contribute.
With respect to each Employee Benefit Plan set forth on Schedule 4.25:
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) has been maintained, funded and administered in
accordance with the terms of such Employee Benefit Plan and complies in form and
in operation in all material respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(ii) The requirements of COBRA have been met in all material
respects with respect to each such Employee Benefit Plan that is an Employee
Welfare Benefit Plan subject to COBRA.
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(iii) All contributions (including all employer contributions
and employee salary reduction contributions) that are due have been made within
the time periods prescribed by ERISA and the Code to each such Employee Benefit
Plan that is an Employee Pension Benefit Plan and all contributions for any
period ending on or before the Closing Date that are not yet due have been made
to each such Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of Seller. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan that is intended to meet
the requirements of a "qualified plan" under Section 401(a) of the Code has
received a determination from the Internal Revenue Service that such Employee
Benefit Plan is so qualified, and the officers and directors of the Seller are
not aware of any facts or circumstances that could adversely affect the
qualified status of any such Employee Benefit Plan.
(v) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No fiduciary has any Liability for material
breach of fiduciary duty or any other material failure to act or comply in
connection with the administration or investment of the assets of any such
Employee Benefit Plan. No Proceeding with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of each of the directors
and officers of Seller, threatened.
(vi) Seller has delivered to Purchaser correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, and all related
trust agreements, insurance contracts, and other funding arrangements that
implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that Seller
maintains, to which any of them contributes or has any obligation to contribute,
or with respect to which any of them has any material Liability or potential
Liability:
(i) No such Employee Benefit Plan that is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No Proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or, to the Knowledge of each of the
directors and officers of Seller, threatened. The market value of assets under
each such Employee Benefit Plan that is an Employee Pension Benefit Plan (other
than any Multiemployer Plan) equals or exceeds the present value of all vested
and non-vested Liabilities thereunder (determined in accordance with then
current funding assumptions).
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(ii) Seller has not incurred any material Liability to the
PBGC (other than with respect to PBGC premium payments not yet due) or under the
Code with respect to any such Employee Benefit Plan that is an Employee Pension
Benefit Plan.
(c) Seller does not contribute to, has any obligation to
contribute to, or has any Liability under or with respect to any Multiemployer
Plan.
(d) Seller does not maintain, contribute to or have an obligation
to contribute to, or have any Liability or potential Liability with respect to,
any Employee Welfare Benefit Plan providing health or life insurance or other
welfare-type benefits for current or future retired or terminated employees (or
any spouse or other dependent thereof) of Seller other than in accordance with
COBRA.
4.26 Guaranties. Seller is not a surety, guarantor or otherwise is
responsible for any Liability or obligation (including indebtedness) of any
other Person.
4.27 Environmental, Health, and Safety Matters.
(a) Except as set forth on Schedule 4.27(a), Seller has complied
and is in compliance with all Environmental, Health, and Safety Requirements.
(b) Except as set forth on Schedule 4.27(b), Seller has obtained,
has complied, and is in compliance with, in each case in all respects, all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of its
facilities and the operation of the Water System; and a list of all such
material permits, licenses and other authorizations is set forth on Schedule
4.27(b).
(c) Seller has not received any written or oral notice, report or
other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any Liabilities or potential Liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise), including
any investigatory, remedial or corrective obligations, relating to any of them
or their facilities arising under Environmental, Health, and Safety
Requirements.
(d) Except as set forth on Schedule 4.27(d), none of the
following exists at any property or facility owned or operated by Seller: (i)
underground storage tanks, (ii) asbestos-containing material in any friable and
damaged form or condition, (iii) materials or equipment containing
polychlorinated biphenyls, or (iv) landfills, surface impoundments, or disposal
areas.
(e) Except as set forth on Schedule 4.27(e), Seller has not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, manufactured, distributed, or released any substance,
including any hazardous substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any such substance) so as
to give rise to any current or future material Liabilities, including any
material Liability for fines, penalties, response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorneys'
fees, pursuant to any Environmental, Health, and Safety Requirements.
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(f) Except as set forth on Schedule 4.27(f), neither this
Agreement nor the consummation of the Contemplated Transactions will result in
any obligations for site investigation or cleanup, or notification to or consent
of government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(g) Seller has not designed, manufactured, sold, marketed,
installed, or distributed products or other items containing asbestos, and none
of such entities are or will become subject to any Asbestos Liabilities.
(h) Seller has furnished to Purchaser all environmental audits,
reports, and other material environmental documents and correspondence from any
Governmental Authority relating to Seller's or any of Seller's predecessor's
past or current properties, facilities, or operations which are in their
possession or under their reasonable control and any such environmental audits,
reports, and other material environmental documents and correspondence that it
has conducted, prepared or received during the last two (2) years. Schedule
4.27(h) lists each of the environmental audits, reports, and other material
environmental documents that have been delivered to Purchaser.
4.28 Intentionally Omitted.
4.29 Customers and Suppliers.
(a) Schedule 4.29 lists the twenty-five (25) largest customers of
Seller (on a consolidated basis) for each of the two (2) most recent fiscal
years and sets forth opposite the name of each such customer the percentage of
consolidated net sales attributable to such customer.
(b) Since the Most Recent Fiscal Year End and the date of the
Most Recent Balance Sheet, no supplier of Seller has indicated that it shall
stop, or decrease the rate of, supplying materials, products or services to
Seller, and no customer listed on Schedule 4.29 has indicated that it shall
stop, or decrease the rate of, buying materials, products or services from
Seller.
4.30 Solvency. Seller is not now insolvent and is able to pay all of
its Liabilities in the Ordinary Course of Business. Immediately after giving
effect to the consummation of the Contemplated Transactions, Seller will be able
to pay all of its Liabilities as they become due in the Ordinary Course of
Business.
4.31 Disclosure. The representations and warranties contained in this
Article IV do not contain any untrue or materially misleading statement of a
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Article IV not materially
misleading.
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ARTICLE V
PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Purchaser represents and warrants to the Seller as follows (such
representations and warranties being deemed to be made as of the date hereof and
on a continuous basis until the Closing Date).
5.1 Organization of Purchaser. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its formation.
5.2 Authorization of Transaction. Purchaser has full power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform all of the obligations thereunder. The Transaction
Documents constitute the valid and legally binding obligation of Purchaser,
enforceable in accordance with their terms and conditions except as limited by
applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance and similar laws affecting creditors' rights generally and except to
the extent that general equitable principles may affect the availability of
certain remedies. The execution, delivery and performance of this Agreement and
all other Transaction Documents to which it is a party contemplated hereby have
been duly authorized by Party.
5.3 Required Regulatory Approvals and Filings; Consents. Except as set
forth on Schedule 5.3 (the "Purchaser's Required Consents"), no approval of or
filing with any Governmental Authority or any other Person on the part of
Purchaser is required in connection with the execution, delivery and performance
of this Agreement and the other Transaction Documents or the consummation of the
Contemplated Transactions.
5.4 Non-contravention. Except as set forth on Schedule 5.4, neither
the execution and delivery of this Agreement by Purchaser, the other Transaction
Documents to which it is a party, nor the Contemplated Transactions, will
violate any Legal Requirement to which Purchaser is subject or any provision of
its Organizational Documents.
5.5 Brokers' Fees. Purchaser has no Liability or obligation to pay any
fees or commissions to any broker, finder, or similar agent with respect to the
Contemplated Transactions for which Seller could become liable or obligated to
pay or discharge.
5.6 Disclosure. The representations and warranties contained in this
Article V do not contain any untrue or materially misleading statement of a fact
or omit to state any material fact necessary in order to make the statements and
information contained in this Article V not materially misleading.
ARTICLE VI
PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
6.1 General. Each of the Parties will use its commercially reasonable
efforts to take all actions and to do all things necessary, proper, or advisable
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in order to consummate and make effective the Contemplated Transactions
(including satisfaction, but not waiver, of the Closing conditions set forth in
Article VI below).
6.2 Regulatory Matters and Approvals.
(a) As promptly as practicable after the date of this Agreement,
each of the Parties will give any notices to, make any filings with, and use
commercially reasonable efforts to obtain the Material Contract Consents, Lease
Consents, Seller's Required Consents, Purchaser's Required Consents, and any
other authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Article IV and Article V.
(b) Promptly after Seller obtains the Requisite Member Consent,
Purchaser shall file the STMP with the TCEQ. Seller covenants and agrees to
fully cooperate and assist Purchaser in connection with the submission of the
STMP and any other filing requirements or Proceedings related thereto. Subject
to the Seller Transaction Fees Limit, Purchaser covenants and agrees to
reimburse Seller for all professional legal services required by Seller to
assist Purchaser with its STMP application with the TCEQ in accordance with
Section 8.1(j) and Section 11.6. Purchaser acknowledges that said Seller
Transactions Fees will include fees professional services to include but not be
limited to accounting, legal, financial and engineering services.
6.3 Requisite Member Consent. Seller will use its commercially
reasonable efforts to obtain the Requisite Member Consent of this Agreement and
the Contemplated Transactions in accordance with the TNPCA, Water Code and any
other Legal Requirements. Seller will call a special meeting of its Members as
soon as reasonably practicable in order that the Members may consider and vote
upon this Agreement and the Contemplated Transactions in accordance with the
TNPCA, Water Code and any other Legal Requirements. Seller will prepare and
distribute to each Member a disclosure statement and proxy solicitation as soon
as reasonably practicable.
6.4 Operation of Business. Except as necessary to comply with the
terms of this Agreement, Seller will not engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, Seller will not: (i) engage in
any practice or take any action that would cause or result in, or permit by
inaction, any of the representations and warranties contained in Article IV to
become untrue, (ii) engage in any practice, take any action or otherwise act in
any manner that may result in a Material Adverse Effect on Seller, Purchaser,
the Acquired Assets, the Assumed Liabilities or the Contemplated Transactions,
or (iii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4.9 or that would require
disclosure on Schedule 4.9.
6.5 Preservation of Business.
(a) Seller shall carry on its business in the Ordinary Course of
Business and shall use its commercially reasonable efforts to preserve intact
the Water System, the Acquired Assets, its present operations, physical
29
facilities, working conditions, insurance policies, business organization, keep
and endeavor to preserve its relationships with customers, lessors, landlords,
partners, suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall not be impaired in any material respect
at the Closing.
(b) Seller shall use its commercially reasonable efforts to keep
available the services of its current employees; provided, however, that Seller
shall not hire any additional employees other than employees who are deemed
reasonably necessary or who are hired to replace existing employees whose
employment ceases on terms not greater than those applicable to those employees
being replaced.
6.6 Full Access. Seller will permit representatives of Purchaser
(including legal counsel and accountants) to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of Seller, to all premises, properties, personnel, books, records
(including Tax records), Contracts, and documents of or pertaining to Seller.
6.7 Notice of Developments.
(a) In the spirit of cooperation, and in order to facilitate full
disclosure of matters, actions or omissions related to or involving the Water
System, each Party hereto agrees to promptly notify the other Party of any
potential or proposed action, transaction or Contract (and the terms and
conditions thereof) prior to the execution or consummation thereof involving
such Party that may, in the exercise of reasonable judgment, affect the rights
or obligations of the other Party after consummation of the Contemplated
Transactions.
(b) Each Party will give prompt written notice to the other Party
of any adverse development causing a breach of any of its own representations
and warranties in Article IV and Article V. No disclosure by any Party pursuant
to this Section 6.7, however, shall be deemed to amend or supplement such
Party's disclosure Schedules or to prevent or cure any misrepresentation, breach
of warranty, or breach of covenant.
6.8 Exclusivity. Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to the
acquisition of all or substantial portion of the assets of Seller or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Seller will also promptly communicate to Purchaser the terms of any
such inquiry or proposal concerning the acquisition of the assets or the Water
System that Seller may receive and, if such inquiry or proposal is in writing,
Seller will promptly deliver a copy of such inquiry or proposal to Purchaser.
6.9 Maintenance of Real Property. Seller shall maintain the Real
Property, including all of the Improvements, in substantially the same condition
as existed on the date of this Agreement, ordinary wear and tear excepted, and
shall not demolish or remove any of the existing Improvements, or erect new
improvements on the Real Property or any portion thereof, without the prior
written consent of Purchaser.
6.10 Leases. Seller shall not amend, modify, extend, renew or
terminate any Lease, nor shall Seller enter into any new lease, sublease,
30
license or other agreement for the use or occupancy of any Real Property
requiring payments in excess of $10,000 annually as averaged over the term
thereof, without the prior written consent of Purchaser.
6.11 Title Insurance and Surveys. Seller shall assist Purchaser in
obtaining at Purchaser's cost all real property surveys, title commitments and
title policies in such form and substance reasonably acceptable to Purchaser in
its sole and absolute discretion. Purchaser acknowledging and accepting full and
total responsibility for all financial costs associated with said surveys and
title policies and further agrees to be directly liable to the provider or
providers of said surveys and title policies. Seller agrees to deliver any
existing survey for Owned Real Property and Material Leased Real Property within
its possession.
6.12 Lease Consents. Seller shall use its commercially reasonable
efforts to obtain a written consent for the assignment of each of the Leases in
form and substance reasonably satisfactory to Purchaser (the "Lease Consents").
6.13 Debt Pay-off Letters. No later than five (5) business days prior
to the Closing Date, Seller shall cause the lenders of Third Party Debt
requiring that Seller's indebtedness be fully paid and discharged at Closing to
prepare and deliver to Purchaser the Debt Pay-Off Letters.
6.14 Expense Pay-off Letters. No later than five (5) business days
prior to the Closing Date, Seller shall cause each Person to whom Seller is, or
will be, obligated to pay any Seller Transaction Fees, to prepare and deliver to
Purchaser an Expense Pay-Off Letter.
6.15 Seller's Bank Accounts. Except with respect to the Excluded
Account, Seller shall take all actions necessary to remove existing signatories
of the Seller on each of the Acquired Bank Accounts as of the Closing Date and
to replace such signatories, effective as of the Closing Date, with individuals
to be designated by Purchaser at least five (5) days prior to the Closing Date.
6.16 Purchaser Employment Offers. No later than five (5) business days
prior to the Closing Date, Purchaser covenants and agrees that it shall offer
employment to then current employees of the Seller on such terms and conditions,
seniority, and with such benefits (including accrued vacation and sick leave)
that are no less favorable than in effect immediately prior to the Closing as
determined in the sole and absolute discretion of the Purchaser.
6.17 Employee Benefit Matters. Purchaser will use commercially
reasonable efforts to adopt and assume or at Purchaser's election establish at
and as of the Closing each of the Employee Benefit Plans that Seller maintains
and each trust, insurance contract, annuity contract, or other funding
arrangement that Seller has established with respect thereto to the extent
reasonably practicable. In the event Purchaser elects to establish an Employee
Benefit Plan in lieu of adopting or assuming any of Seller's existing Employee
Benefit Plans, Purchaser will use commercially reasonable efforts to adopt or
otherwise establish Employee Benefit Plans that treat employment with Seller
31
prior to the Closing Date reasonably the same as employment with Purchaser from
and after the Closing Date to the extent reasonably practicable for purposes of
eligibility and vesting, but not benefit accrual. Seller will transfer (or cause
the plan administrators to transfer, if necessary) at and as of the Closing all
of the corresponding assets associated with the Employee Benefit Plans that
Purchaser is adopting and assuming. With respect to each Multiemployer Plan, the
Parties shall take all actions necessary to comply with the requirements of
ERISA ss.4204.
6.18 Change of Name. On or before the Closing Date, Seller shall amend
its Organizational Documents and take all such other actions necessary to change
its name to one sufficiently dissimilar to Seller's present name, in Purchaser's
reasonable judgment, to avoid confusion.
6.19 Delivery of Updated Financial Statements. Prior to the Closing,
Seller covenants and agrees to promptly deliver the following financial
statements: (i) audited balance sheets and statements of income, and cash flow
as of and for each of the fiscal years ended after the date hereof for Seller
within ninety (90) days of such year end (the "Post-Signing Fiscal Year End");
and (ii) unaudited balance sheets and statements of income, and cash flow as of
and for each monthly period (on an aggregate basis) after the Most Recent Fiscal
Year End or Post-Signing Fiscal Year End, as the case may be, within fifteen
(15) days of the end of such monthly period for the Seller. The financial
statements to be delivered pursuant to this Section 6.19 (including the notes
thereto) shall (i) be prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, (ii) present accurately the financial
condition of Seller as of such dates and the results of operations of Seller for
such periods, (iii) be correct and complete in all respects, and (iv) be
prepared consistent with the books and records of Seller (which books and
records are correct and complete in all respects).
6.20 Transaction Materials. Seller covenants and agrees that any
disclosure statement, proxy solicitation submitted to its Members pursuant to
Section 6.3 or other documents submitted by Purchaser to any other Person in
connection with the Contemplated Transactions (collectively, the "Seller
Transaction Materials") will not contain any untrue statement of material fact
or omit to state a material fact necessary in order to make the statements made
therein, in light of the statements made therein, not misleading. Purchaser and
Seller each acknowledge agree that Purchaser has not assumed and shall have
absolutely no Liability of any kind whatsoever, including any Liability to
Seller or any other Person, arising from or relating to the Seller Transaction
Materials.
6.21 Notice of Additional Indebtedness; Alternative Interim Financing.
Seller agrees that it will provide Purchaser with notice of any draw by the
Seller of any of the proceeds derived from the TWDB Bond Debt or any increase in
its indebtedness after the date hereof, prior to each such occurrence. Purchaser
acknowledging and agreeing that Seller's right to draw down additional funds at
any time, from the Construction Fund of its Series 2005 Taxable Revenue Bonds
may be exercised by Seller in its sole and absolute discretion. In the spirit of
cooperation Purchaser and Seller each agree to negotiate in good faith to
establish an Alternative Interim Financing Agreement to permit Seller to perform
or complete any system renovation, upgrade, expansion or acquisition necessary
to comply with any existing Contracts or applicable Legal Requirements without
utilizing proceeds from the TWDB Bond Debt, including any monies deposited in
the Construction Fund.
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ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE.
7.1 Conditions to Purchaser's Obligation. The obligation of Purchaser
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) in compliance with Section 13.301 of the Water Code,
Purchaser shall have obtained the TCEQ Approval without the imposition of any
restrictions, conditions, or obligations which are deemed to be unacceptable to
Purchaser in its sole and absolute discretion, and Purchaser shall have received
all other necessary authorizations, consents, and approvals of any Governmental
Authorities in order to consummate the Contemplated Transactions;
(b) the representations and warranties set forth in Article IV
shall be true and correct in all material respects at and as of the Closing
Date, except to the extent that such representations and warranties are
qualified by the term "material," or contain terms such as "Material Adverse
Effect" or "Material Adverse Change," in which case such representations and
warranties (as so written, including the term "material" or "Material") shall be
true and correct in all respects at and as of the Closing Date;
(c) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing, except to the
extent that such covenants are qualified by the term "material," or contain
terms such as "Material Adverse Effect" or "Material Adverse Change," in which
case Seller shall have performed and complied with all of such covenants (as so
written, including the term "material" or "Material") in all respects through
the Closing;
(d) no Proceeding shall be pending before any Governmental
Authority wherein an unfavorable Order would (i) prevent consummation of any of
the Contemplated Transactions, (ii) cause any of the Contemplated Transactions
to be rescinded following consummation, (iii) adversely affect the right of
Purchaser to own the Acquired Assets, to operate the Water System, or (iv)
materially and adversely affect the right of any Purchaser to own its assets and
to operate its business (and no such Order shall be in effect);
(e) the water rate changes for Seller's customers resulting from
the TWDB Bond Debt shall have been implemented;
(f) there shall have been no Material Adverse Change with respect
to the Seller or the Water System as determined in the sole and absolute
discretion of the Purchaser and no damage or destruction or other change shall
have occurred with respect to any of the Acquired Assets or any portion thereof
that, individually or in the aggregate, would materially impair the use or the
operation of any of this Acquired Assets by Purchaser;
(g) Purchaser shall be satisfied with the results of its due
diligence investigation of each of the Acquired Assets, Seller and the Water
System in all respects in its sole and absolute discretion;
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(h) all actions to be taken by Seller in connection with
consummation of the Contemplated Transactions and all certificates, opinions,
instruments, and other documents required to effect the Contemplated
Transactions will be reasonably satisfactory in form and substance to Purchaser;
(i) Purchaser shall have obtained Purchaser's Required Consents
(all of which shall be in full force and effect as of the Closing);
(j) Seller shall have obtained Seller's Required Consents (all of
which shall be in full force and effect as of the Closing), including (i) the
Requisite Member Consent, (ii) the Material Contract Consents, (iii) Lease
Consents, (iv) the GBRA's consent and assignment of the right to purchase raw
water and other rights of Seller under Seller's Contract with the GBRA, and (v)
BexarMet's consent to the sale or assignment of Contracts between Seller and
BexarMet to Purchaser;
(k) Seller shall have provided Purchaser with evidence that the
lawful rates and fees defined by the Water Code which may be charged to each
customer of the Water System as of the Closing Date are at least the amounts
shown on Schedule 7.1(k);
(l) Seller and the Purchaser shall each be in compliance with all
material regulatory requirements of all applicable Governmental Authorities
necessary to consummate the Contemplated Transactions (all of which shall be in
full force and effect as of the Closing);
(m) all waiting periods in respect of approvals or consents from
Governmental Authorities shall have expired or been terminated;
(n) Seller shall have amended its Organizational Documents,
including its articles of incorporation and bylaws, to the extent required to be
in compliance with all applicable Legal Requirements (including requirements and
conditions for qualification as an organization described in Section 501(c)(12)
of the Code and operation thereof on a cooperative basis under the Code) and to
comply and fully perform all of the terms and conditions of this Agreement;
(o) Purchaser shall have received on the Closing Date title
policies (from a title company reasonably acceptable to Purchaser) covering the
Real Property in such form and substance reasonably acceptable to Purchaser in
sole and absolute discretion;
(p) Purchaser shall have received Lease Consents for the
assignment of each of the Leases to Purchaser;
(q) Purchaser shall have received executed copies of a
non-competition, non-solicitation and non-disparagement agreement from the
directors, officers or key employees of Seller requested by Purchaser in such
form satisfactory to Purchaser;
(r) Seller shall have amended its vacation and sick leave
policies (and any other Contracts or other agreements containing any similar
obligation of Seller to provide similar benefits) to provide that all of
Seller's obligations thereunder may be assumable by Purchaser at Closing and
will not otherwise dischargeable by Seller;
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(s) Purchaser shall have received all of the certificates,
instruments and documents set forth in Section 8.1; and
(t) Seller shall have delivered to Purchaser a certificate to the
effect that each of the conditions specified in Section 7.1(a) - (t) is
satisfied in all respects.
Purchaser may waive any condition specified in this Section 7.1 if it
executes a writing so stating at or prior to the Closing.
7.2 Conditions to Seller's Obligation. The obligation of Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Article IV
shall be true and correct in all material respects at and as of the Closing
Date, except to the extent that such representations and warranties are
qualified by the term "material," or contain terms such as "Material Adverse
Effect" or "Material Adverse Change," in which case such representations and
warranties (as so written, including the term "material" or "Material") shall be
true and correct in all respects at and as of the Closing Date;
(b) Purchaser shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing, except to the
extent that such covenants are qualified by the term "material," or contain
terms such as "Material Adverse Effect" or "Material Adverse Change," in which
case Purchaser shall have performed and complied with all of such covenants (as
so written, including the term "material" or "Material") in all respects through
the Closing;
(c) no Proceeding shall be pending before any Governmental
Authority wherein an unfavorable Order would (i) prevent consummation of any of
the Contemplated Transactions or (ii) cause any of the Contemplated Transactions
to be rescinded following consummation (and no such Order shall be in effect);
(d) Purchaser shall have obtained Purchaser's Required Consents
(all of which shall be in full force and effect as of the Closing);
(e) Seller shall have obtained Seller's Required Consents (all of
which shall be in full force and effect as of the Closing);
(f) Seller shall have received all necessary authorizations,
consents, and approvals of any Governmental Authorities in order to consummate
the Contemplated Transactions (all of which shall be in full force and effect as
of the Closing);
(g) Seller and the Purchaser shall each be in compliance with all
material regulatory requirements of all applicable Governmental Authorities
necessary to consummate the Contemplated Transactions;
(h) all waiting periods in respect of approvals or consents from
Governmental Authorities shall have expired or been terminated;
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(i) Purchaser shall have fully paid and discharged the Third
Party Debt that is being required to be fully paid and discharged at Closing by
the lenders thereunder in accordance with Debt Pay-Off Letters.
(j) Purchaser shall have fully paid and discharged all Seller
Transaction Fees as said fees are defined in Article I to the extent such Seller
Transaction Fees have not already been discharged by Seller pursuant to Section
6.4(v) up to the Seller Transaction Fees Limit in accordance with Expense
Pay-Off Letters where applicable.
(k) Seller shall have received all of the certificates,
instruments and documents set forth in Section 8.2; and
(l) Purchaser shall have delivered to Seller a certificate to the
effect that each of the conditions specified in Section 7.2(a) - (l) is
satisfied in all respects;
Seller may waive any condition specified in this Section 7.2 if it
executes a writing so stating at or prior to the Closing.
ARTICLE VIII
CLOSING DELIVERIES.
8.1 Items to be Delivered by the Seller. At the Closing, the Seller
shall deliver or cause to be delivered to Purchaser the following:
(a) a certificate duly executed by the Secretary of the Seller
certifying (i) the resolutions of the Board of Directors and Members of the
Seller approving this Agreement and authorizing the Contemplated Transactions,
(ii) the incumbency of the executive officers of Seller; (iii) the articles of
incorporation of the Seller, as amended; and (iv) the bylaws of the Seller, as
amended;
(b) Seller's Required Consents, if any;
(c) the Material Contract Consents, if any;
(d) the Lease Consents, if any;
(e) duly executed bills of sale, certificates of title, and such
other certificates and assignments executed by Seller for the Acquired Assets as
appropriate depending the particular Purchased Asset involved in such form and
substance reasonably satisfactory to Purchaser;
(f) a general warranty deed executed by the Seller for the
benefit of the Purchaser for each of the Owned Real Property;
(g) a non-foreign affidavit executed by Seller in form and
substance satisfactory to Purchaser and the title company issuing the title
policies to Purchaser;
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(h) an opinion of counsel to the Seller in form and substance
satisfactory to Purchaser covering the opinions described on Exhibit "A",
addressed to Purchaser, and dated as of the Closing Date; and
(i) such other documents, instruments and certificates as
Purchaser may reasonably request to consummate the Contemplated Transactions.
8.2 Items to be Delivered by Purchaser. At the Closing, Purchaser
shall deliver:
(a) the Cash Consideration;
(b) certificate duly executed by the Secretary of the Purchaser
certifying (i) the resolutions of the Board of Directors of the Purchaser
approving this Agreement and authorizing the Contemplated Transactions, (ii) the
incumbency of the executive officers of Purchaser; (iii) the articles of
incorporation of the Purchaser, as amended; and (iv) the bylaws of the
Purchaser, as amended;
(c) Purchaser's Required Consents, if any;
(d) such other documents, instruments and certificates the Seller
may reasonably request to consummate the Contemplated Transactions.
ARTICLE IX
TERMINATION.
9.1 Termination of Agreement. The Parties may terminate this Agreement
as provided below or as specifically set forth elsewhere in this Agreement:
(a) Purchaser and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) Purchaser may terminate this Agreement by giving written
notice to the Seller and discharging (or reimbursing Seller for) all of the
Seller Transaction Fees up to the Seller Transaction Fees Limit at any time
prior to the Closing (i) in the event the Seller has breached any
representation, warranty, or covenant contained in this Agreement, Purchaser has
notified the Seller of the breach, and the breach has continued without cure for
a period of ten (10) days after the notice of breach, (ii) if there has been any
Material Adverse Change in the Assumed Liabilities (including the total
indebtedness of Seller), Acquired Assets, Seller or the cost to discharge the
indebtedness of Seller, (iii) upon the initiation of any Proceeding (not
contemplated herein) the outcome of which could have an Material Adverse Effect
on Purchaser, Seller or the Contemplated Transactions, or the rendering of any
Orders, damages, dues, penalties, fines on Seller, Purchaser or any of their
Affiliates in connection with or arising from the Contemplated Transactions,
(iv) if Purchaser shall not be satisfied with its due diligence investigation of
the Acquired Assets or Seller, (v) if any consent or approval of any
Governmental Authority or Person providing a Seller Required Consent has imposed
any restrictions, conditions, or obligations which are deemed to be unacceptable
to Purchaser, (vi) Seller breaches, defaults or suffers an event of default
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under any Alternative Interim Financing Agreement, if any, (vii) if the Closing
shall not have occurred on or before October 1, 2007, by reason of the failure
of any condition precedent under Section 7.1 (unless the failure results
primarily from Purchaser breaching any representation, warranty, or covenant
contained in this Agreement);
(c) Seller may terminate this Agreement by giving written notice
to the Purchaser at any time prior to the Closing (i) in the event the Purchaser
has breached any representation, warranty, or covenant contained in this
Agreement, Seller has notified the Purchaser of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice of breach,
(ii) if there has been a Material Adverse Change in the Purchaser, (iii) upon
the initiation of any Proceeding (not contemplated herein) the outcome of which
could have a Material Adverse Effect on Purchaser, Seller or the Contemplated
Transactions, or the rendering of any Orders, damages, dues, penalties, fines on
Seller, Purchaser or any of their Affiliates in connection with or arising from
the Contemplated Transactions, (iv) if any consent or approval of any
Governmental Authority or any other Person necessary to consummate the
Contemplated Transactions is withheld or delayed or such Governmental Authority
or Person granting a Purchaser Required Consent has imposed any restrictions,
conditions, or obligations which are deemed to be unacceptable to Seller, (v)
Purchaser breaches any Alternative Interim Financing Agreement, if any, and (vi)
if the Closing shall not have occurred on or before October 1, 2007, by reason
of the failure of any condition precedent under Section 7.2 (unless the failure
results primarily from Seller breaching any representation, warranty, or
covenant contained in this Agreement).
9.2 Effect of Termination. In the event of a termination of this
Agreement by a Party hereto in accordance with Section 9.1, there shall be no
Liability on the part of any Party hereto, except for Liability of such Party
arising out of an intentional breach of this Agreement by such Party.
Notwithstanding the termination of this Agreement in accordance with Section
9.1, the provisions set forth in Article XI and this Section 9.2 shall survive
the termination of this Agreement.
ARTICLE X
POST-CLOSING COVENANTS & OTHER AGREEMENTS
10.1 Survival of Representations and Warranties. None of the
representations and warranties and covenants of the Parties contained in this
Agreement shall survive the Closing except for representations set forth in
Section 4.12(a), Section 4.30 and the covenants set forth in Section 6.20, this
Article X and Article XI.
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10.2 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement or statement relating to the
subject matter of this Agreement prior to the Closing without the prior written
approval of the other Party; provided, however, that any Party may make any
public disclosure it believes in good faith after consultation with counsel that
it or its Affiliates is required to make under any Legal Requirement or any
listing or trading agreement concerning its publicly traded securities (in which
case the disclosing Party will use its best efforts to advise the other Party
prior to making the disclosure). The Parties shall instruct each of their
directors, officers, or employees to comply with the provisions set forth in
this Section 10.2. Each Party hereto acknowledges and agrees that they shall be
responsible for any violation of this Section 10.2 by any of its directors,
officers, or employees.
10.3 Liquidation and Dissolution of Seller.
(a) If after the Closing Date, Seller shall dissolve and wind up
its affairs, such dissolution and winding-up shall be conducted in accordance
with and subject to the Organizational Documents of Seller, the TNPCA, Water
Code and all other applicable Legal Requirements.
(b) Notwithstanding anything in this Agreement to the contrary,
Purchaser and Seller each acknowledge agree that Purchaser shall have absolutely
no Liability of any kind whatsoever, including any Liability to Seller, any of
Seller's Members or any other Person, arising from or relating any dissolution
and winding up of Seller and distribution of assets by Seller to any Member or
other Person after the Closing. Seller hereby holds Purchaser harmless from any
Liability whatsoever arising directly or indirectly from any of the foregoing
acts.
10.4 Rate Moratorium. Subject to water rate adjustments which shall be
permitted to directly offset increases in the cost of raw water acquired by
Purchaser, or other rate adjustments permitted or required by applicable
Governmental Authorities or Legal Requirements, Purchaser covenants and agrees
that it shall not increase the water rates set forth on Schedule 7.1(k) for a
period of two (2) years from the date that the Requisite Member Consent is
obtained. Thereafter, Purchaser may increase the water rates only in accordance
with applicable Legal Requirements.
10.5 Reimbursable Seller Income Tax; Tax Refunds.
(a) Following the Closing and as part of the Purchase Price,
Purchaser agrees to make an additional cash payment to Seller in an amount equal
to Seller's Reimbursable Seller Income Tax, if any. Except with respect to the
Reimbursable Seller Income Tax, Seller acknowledges and agrees that Purchaser
shall have absolutely no Liability with respect to any other Taxes of Seller or
its Members arising from or relating to the Contemplated Transactions or
otherwise, including the performance by Seller of any of its covenants and
agreements contained herein. Because of Purchaser's potential obligation to
Seller with respect to any Reimbursable Seller Income Tax, Purchaser shall have
the right to prepare on Seller's behalf any Income Tax Return of Seller that
reflects or could reflect the amount of any Reimbursable Seller Income Tax, and
it shall be an express and material condition to Purchaser's obligation to make
a payment to Seller under this Section 10.5(a) that Seller permit the
39
preparation of any such Tax Return by Purchaser and assist and fully cooperate
with Purchaser in the preparation thereof and the obtaining of any extension of
the due date therefor. Purchaser shall deliver a draft of such Tax Return to
Seller for Seller's review at least thirty (30) days prior to the due date (with
regard to extensions) of such Tax Return, together with appropriate supporting
information used in preparing the return that is not already in Seller's
possession. Notwithstanding anything in this Agreement to the contrary,
Purchaser may make, adopt or change any Tax election or Tax accounting method in
connection with the preparation of any such Tax Return and Seller will cooperate
and timely file any recommended filings with any Governmental Authority in
connection therewith. Seller shall timely file (with regard to extensions) such
Tax Return as prepared by Seller, unless at least seven (7) days prior to the
due date (with regard to extensions) of such return, Seller shall have obtained
the written opinion of competent tax counsel acceptable to Purchaser to the
effect that there is no "substantial authority," within the meaning of Section
1.6662-4(d) of the Treasury Regulations promulgated under the Code, for any
position taken by Purchaser on the return and delivered such opinion and such
counsel's written recommendation for altering such position to the minimum
extent necessary for counsel to opine that the position is supported by
substantial authority. Purchaser shall then have the option exercisable by
written notice to Seller given before such due date to either (i) instruct
Seller to file such return with the modifications recommended by such counsel,
or (ii) to instruct Seller to file the return as prepared by Purchaser, and
Seller shall timely file the return as so instructed. If Purchaser chooses the
latter option, Purchaser's obligation to Seller with respect to any Reimbursable
Seller Income Tax shall be increased to include all additional Income Taxes
incurred by Seller as a result of any subsequent administrative or judicial
Proceedings related to the return that have become final, together with all
reasonable costs and expenses incurred by Seller in connection with such
Proceedings.
(b) Any Tax refunds that are received by Seller after the Closing
shall be immediately delivered to Purchaser to the extent that Purchaser has
paid, discharged or assumed any Tax obligations of Seller pursuant to this
Section 10.5 or otherwise. Upon the request of Purchaser, Seller shall cooperate
in the filing of any request for a refund of any Tax obligations of Seller that
Purchaser has paid, discharged or assumed pursuant to this Section 10.5 or
otherwise.
10.6 Tax Returns.
(a) Subject to Section 10.5(a), Seller shall correctly and timely
(with regard to extensions) file all Tax Returns required to be filed, and pay
all Taxes required to be paid, by it on or before and after the Closing Date. On
or before and after the Closing Date, except with the prior written consent of
Purchaser, Seller shall not (i) make, adopt or change any Tax election or Tax
accounting method that could have an adverse effect on Purchaser, the Purchase
Price or the Contemplated Transactions, or (ii) consent to, or enter into any
closing or settlement agreement with respect to, Taxes or any asserted Tax
deficiency, claim or assessment that could have an adverse effect on Purchaser,
the Purchase Price or the Contemplated Transactions. All such Tax Returns shall
be prepared and filed in a manner consistent with prior practice, except as
required by any change in applicable Legal Requirements relating to Taxes.
(b) Purchaser and Seller shall cooperate with each other in
connection with any Proceeding related to Taxes, the preparation and filing of
any Tax Return, or any other matter relating to Taxes requested by Purchaser or
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Seller. Such cooperation shall include the retention and the provision of
records and information that are reasonably relevant to any such Proceeding or
Tax Return filing and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder. Seller agrees (i) to abide by all record retention agreements entered
into with any Tax Authority, and (ii) to give Purchaser reasonable written
notice prior to transferring, destroying or discarding any books and records
relating to Taxes and the opportunity to copy and take possession of same.
10.7 Litigation and Other Proceedings.
(a) Seller acknowledges and agrees that prior to the Closing,
Purchaser shall have the right to participate in any Proceeding or other
presentation or meeting (related to Taxes or otherwise) with any Governmental
Authority or third party the outcome of which could have an adverse effect on
the Seller, Purchaser, the Purchase Price, the Acquired Assets, the Assumed
Liabilities or the Contemplated Transactions.
(b) Seller acknowledges and agrees that after Closing, Purchaser
shall have the right to participate and at its election assume control of and
appoint lead counsel at its sole cost and expense, in any Proceeding or other
presentation or meeting (related to Taxes or otherwise) with any Governmental
Authority or third party the outcome of which could have an adverse effect on
the Purchaser, the Purchase Price, the Acquired Assets, the Assumed Liabilities
or any of Purchaser's obligations arising (or which may arise) from the
Contemplated Transactions.
(c) Seller covenants and agrees to immediately notify Purchaser
of any Proceeding, presentation or meeting which Purchaser would have the right
to participate or control under this Section 10.7.
10.8 Certain Payroll Reporting Obligations. With respect to employees
of Seller who after the Closing become employees of Purchaser, Seller and
Purchaser agree to adopt and apply the rules and procedures set forth in Section
5 of Rev. Proc. 2004-53, 2004-34 I.R.B. 320 (August 18, 2004) relating to
alternate procedures to be applied by predecessors and successors in business
acquisitions in determining their employment tax reporting obligations with
respect to such employees for the calendar year in which the acquisition occurs.
Seller and Purchaser will fully cooperate with each other in connection with
providing and making available relevant records and other information that is
necessary or appropriate for each party to comply with such procedures.
10.9 Further Assurances. In case at any time after the Closing Date
any further actions are necessary to carry out the purposes of any of the
Contemplated Transactions, each of the Parties will take such further actions
(including the execution and delivery of such further instruments and documents)
as any other Party may reasonably request, all at the sole cost and expense of
the requesting Party.
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ARTICLE XI
MISCELLANEOUS.
11.1 Notices. All notices given with respect to this Agreement shall
be in writing and shall be deemed to have been properly given or served for all
purposes (i) if sent by a nationally recognized overnight carrier for next
business day delivery, on the first business day following deposit of such
notice with such carrier, or (ii) if personally delivered, on the actual date of
delivery, or (iii) if sent by certified U.S. Mail, return receipt requested
postage prepaid, on the fifth business day following the date of mailing, or
(iv) if sent by facsimile, then on the actual date of delivery (as evidenced by
a facsimile confirmation) provided that a copy of the facsimile and confirmation
is also sent by regular U.S. Mail, addressed as follows:
If to Seller: Canyon Lake Water Supply Corporation
1399 Sattler Road
Canyon Lake, Texas 78133
Facsimile: (830) 964-2779
Attention: Larry L. Ratliff
President
with a mandatory copy to: John O. Houchins, Esq.
13738 Kingsride Lane
Houston, Texas 77079
Facsimile: (713) 461-8711
If to Purchaser: SJWTX Water, Inc.
374 W. Santa Clara Street
San Jose, CA 95113
Facsimile: (408) 279-7934
Attention: W. Richard Roth
President and Chief Executive Officer
with a mandatory copy to: SJWTX Water, Inc.
374 W. Santa Clara Street
San Jose, CA 95113
Facsimile: (408) 279-7934
Attention: Suzy Papazian
Corporate Secretary
and Jackson Walker L.L.P.
112 E. Pecan Street, Suite 2100
San Antonio, Texas 78205
Facsimile: (210) 978-7790
Attention: Marshall B. Miller, Jr.
11.2 No Third-party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
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11.3 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties hereto provided that Purchaser may assign its
rights, duties and obligations hereunder to an Affiliate.
11.4 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties hereto. No waiver by any Party of any provision of this Agreement
or any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the same shall be in writing
and signed by the Party making such waiver nor shall such waiver be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such default, misrepresentation, or breach of
warranty or covenant.
11.5 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there shall be added automatically as part
of this Agreement a provision as similar in its terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid and
enforceable.
11.6 Expenses. Except as otherwise expressly set forth in this
Agreement, Purchaser, Seller and each Affiliate thereof shall bear its own costs
and expenses (including outside legal fees and expenses) incurred in connection
with this Agreement and the Contemplated Transactions. The Parties hereto
acknowledge and agree that Purchaser shall have no duty or obligation to pay or
otherwise discharge any Seller Transaction Fees in excess of the Seller
Transaction Fees Limit.
11.7 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance.
11.8 Remedies. In the event of any Party breaches any of terms or
provisions of this Agreement, the non-breaching Party shall be entitled, if it
so elects, to institute and prosecute Proceedings in any court of competent
jurisdiction in accordance with Section 11.9 and Section 11.10, either in law or
in equity, to obtain a preliminary or permanent injunction (without posting any
bond) in order to prevent activities in violation of this Agreement and to
obtain specific performance and/or money damages for any breach of this
Agreement, but nothing herein contained shall be construed to prevent such
remedy or combination of remedies as the non-breaching Party may elect to
invoke.
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11.9 Governing Law; Choice of Forum. This Agreement shall be construed
in accordance with and governed by the internal law of the State of Texas
(without reference to its rules and to conflict of laws). Each Party hereby
irrevocably waives any right that such Party otherwise might have to transfer
such Proceeding (or any claims within such Proceeding) to any court other than
the court selected by the Parties in accordance with Section 11.10. The Parties
hereby consent to and grant to any such court jurisdiction over the persons of
such Parties and over the subject matter of any such dispute and agree that
delivery or mailing of any process or other papers in the manner provided
herein, or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
11.10 Consent to Jurisdiction; Venue.
(a) The Parties hereto submit to the exclusive personal
jurisdiction of the courts of the State of Texas and the Federal courts of the
United States sitting in Bexar County, Texas, and any appellate court from any
such state or Federal court, and hereby irrevocably and unconditionally agree
that all claims and Proceedings arising out of or relating to this Agreement may
be heard and determined in such Texas court or, to the extent permitted by law,
in such Federal court. The Parties hereto agree that a final nonappealable
judgment in any such claim or Proceeding shall be conclusive and may be enforced
in any other jurisdiction by suit on the judgment or in any other manner
provided by law.
(b) Each of the Parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
Proceeding arising out of or relating to this Agreement or any related matter in
any Texas state or Federal court located therein and the defense of an
inconvenient forum to the maintenance of such claim in any such court.
11.11 Consultation With Independent Counsel. Purchaser and Seller each
acknowledges that this Agreement contains legally binding provisions and that
the other Party hereto has not provided any legal advice to it or engaged any
counsel to provide legal services for its benefit in connection with the
negotiation and execution of this Agreement or the Contemplated Transactions.
Purchaser and Seller each represents to the other Party that it has consulted,
or has had an opportunity to consult, with its own counsel in negotiating and
executing this Agreement and that it has either consulted with its own counsel
or consciously decided not to consult with its own counsel.
11.12 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules referred to or identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.13 Entire Agreement. This Agreement (including the Schedules of
even date herewith and the other documents referred to herein) constitutes the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they relate in any way to the subject matter hereof.
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11.14 Effective Date of Agreement. It is expressly agreed and
understood by the Parties hereto that the effective date as opposed to the
execution date of this agreement shall be and same is made expressly subject to
the date on which the Seller has received both: (a) written approval from the
Texas Water Development Board, setting forth the terms and conditions under
which the Seller may discharge the TWDB bond debt by a (i) defeasance or (ii)
the acquisition of the Texas Water Development Board bond debt by the Purchaser,
and (b) approval from the TWDB to amend Seller's organizational documents
(including but not limited to Articles of Incorporation and By-Laws) that are
required to consummate the transactions contemplated in this agreement.
11.15 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. Facsimile signatures
shall be given the same effect as original signatures.
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IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date first written above.
PURCHASER:
SJWTX WATER, INC.
By: /s/ W. Richard Roth
------------------------------------------
Printed Name: W. Richard Roth
-------------------------------
Title: President and Chief Executive Officer
---------------------------------------
ATTEST:
Secretary
By: /s/ Suzy Papazian
-----------------------------------------
Printed Name: Suzy Papazian
-------------------------------
SELLER:
CANYON LAKE WATER SUPPLY COMPANY
By: /s/ Larry L. Ratliff
------------------------------------------
Printed Name: Larry L. Ratliff
-------------------------------
Title: President
---------------------------------------
ATTEST:
Secretary
By: /s/ W.K. Holmes
-----------------------------------------
Printed Name: W.K. Holmes
-------------------------------
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