Exhibit 10.1
PURCHASE AGREEMENT
by and among
AQUASOURCE, INC.
and
DQE, INC.,
on the one hand,
and
PHILADELPHIA SUBURBAN CORPORATION
and
AQUA ACQUISITION CORPORATION,
on the other hand
Dated as of July 29, 2002
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF SHARES AND INTEGRATED ASSETS....................2
Section 1.1 Sale and Transfer of Shares and Integrated Assets................2
Section 1.2 The Purchase Price...............................................2
Section 1.3 Excluded Operations..............................................3
Section 1.4 Purchase Price Adjustment........................................5
Section 1.5 Working Capital Adjustment.......................................6
ARTICLE II THE CLOSING.........................................................8
Section 2.1 Closing..........................................................8
Section 2.2 Closing Transactions.............................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................9
Section 3.1 Organization and Qualification...................................9
Section 3.2 Subsidiaries....................................................11
Section 3.3 Ownership and Possession of Shares; Capitalization; Ownership
and Possession of Integrated Assets.............................11
Section 3.4 Authority; Non-Contravention; Statutory Approvals; Compliance...12
Section 3.5 Financial Statements............................................14
Section 3.6 Absence of Certain Changes or Events............................15
Section 3.7 Litigation......................................................15
Section 3.8 Tax Matters.....................................................16
Section 3.9 Employee Benefits; ERISA........................................17
Section 3.10 Labor and Employee Relations....................................19
Section 3.11 Environmental Matters...........................................19
Section 3.12 No Breaches or Defaults.........................................23
Section 3.13 Insurance.......................................................23
Section 3.14 Brokers or Finders..............................................24
Section 3.15 Intellectual Property...........................................24
Section 3.16 Change in Business Relationships................................25
Section 3.17 Title to Property...............................................25
Section 3.18 Other Obligations...............................................25
Section 3.19 Water Quality...................................................26
Section 3.20 Limitation on Representations and Warranties....................26
ARTICLE IV INDEMNIFICATION....................................................26
Section 4.1 Indemnification Obligations.....................................26
Section 4.2 Certain Definitions.............................................27
Section 4.3 Limitations on Indemnification..................................29
Section 4.4 Defense of Claims...............................................31
Section 4.5 Tax Indemnity...................................................35
Section 4.6 Certain Litigation Indemnification and Related Matters..........37
Section 4.7 Certain Indemnification in Respect of Environmental Law.........38
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER.........................40
Section 5.1 Organization and Qualification..................................40
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Section 5.2 Authority; Non-Contravention; Statutory Approvals; Compliance...41
Section 5.3 Litigation......................................................43
Section 5.4 Investigation by the Buyer; the Seller's Liability..............44
Section 5.5 Acquisition of Shares; Ability to Evaluate and Bear Risk........45
Section 5.6 Financing.......................................................45
Section 5.7 Brokers or Finders..............................................45
ARTICLE VI CONDUCT OF BUSINESS PENDING THE CLOSING............................45
Section 6.1 Covenants of the Seller.........................................45
Section 6.2 Covenants of the Buyer..........................................48
Section 6.3 Mutual Covenants of the Seller and the Buyer....................49
ARTICLE VII ADDITIONAL AGREEMENTS.............................................49
Section 7.1 Access to Company Information and Cooperation...................49
Section 7.2 Regulatory Matters..............................................51
Section 7.3 Consents........................................................51
Section 7.4 Directors' and Officers' Indemnification........................51
Section 7.5 Public Announcements............................................52
Section 7.6 Workforce Matters...............................................53
Section 7.7 Employee Benefit Plans..........................................54
Section 7.8 Tax Treatment...................................................55
Section 7.9 Allocation of Consideration.....................................55
Section 7.10 Tax Returns.....................................................56
Section 7.11 Transfer Taxes..................................................57
Section 7.12 Financial Information...........................................57
Section 7.13 Transition Services.............................................57
Section 7.14 Update of the Seller Disclosure Schedule........................58
Section 7.15 Surety Bonds....................................................58
Section 7.16 Governmental Taking.............................................59
Section 7.17 AquaSource Name.................................................60
Section 7.18 General and Automobile Liability Insurance......................60
Section 7.19 Further Assurances..............................................61
ARTICLE VIII CONDITIONS.......................................................61
Section 8.1 Conditions to Each Party's Obligation to Effect the Closing.....61
Section 8.2 Conditions to Obligation of the Buyer to Effect the Closing.....62
Section 8.3 Conditions to Obligation of the Seller to Effect the Closing....63
ARTICLE IX TERMINATION........................................................64
Section 9.1 Termination.....................................................64
Section 9.2 Effect of Termination...........................................65
ARTICLE X GENERAL PROVISIONS..................................................65
Section 10.1 Survival of Obligations.........................................65
Section 10.2 Amendment and Modification......................................66
Section 10.3 Extension; Waiver...............................................66
Section 10.4 Expenses........................................................66
Section 10.5 Notices.........................................................66
Section 10.6 Entire Agreement; No Third Party Beneficiaries..................68
Section 10.7 Severability....................................................69
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Section 10.8 Governing Law...................................................69
Section 10.9 Venue...........................................................69
Section 10.10 Waiver of Jury Trial and Certain Damages........................69
Section 10.11 Assignment......................................................69
Section 10.12 Interpretation..................................................70
Section 10.13 No Specific Enforcement.........................................70
Section 10.14 Counterparts; Effect............................................70
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INDEX OF PRINCIPAL TERMS
Term Page
Acquisition....................................................................1
Adjusted Purchase Price........................................................3
Adjustment Schedule...........................................................59
Affected Employees............................................................57
Agreement......................................................................1
Allocation Dispute Notice.....................................................60
Assignment and Assumption Agreement...........................................10
Assumed Defense...............................................................38
Audit.........................................................................40
Base Purchase Price............................................................3
Bill of Sale...................................................................9
Business Employees............................................................19
Business Plan.................................................................49
Buyer..........................................................................1
Buyer Disclosure Schedule.....................................................44
Buyer Indemnifiable Loss......................................................29
Buyer Indemnitee..............................................................29
Buyer Material Adverse Effect.................................................44
Buyer Required Consents.......................................................45
Buyer Required Statutory Approvals............................................45
Buyer SEC Reports.............................................................46
Buyer Subsidiary..............................................................44
CERCLA........................................................................23
CERCLIS.......................................................................24
Class B Stock Litigation......................................................40
Closing........................................................................9
Closing Date...................................................................9
COBRA.........................................................................57
Code..........................................................................18
Company.......................................................................11
Company Financial Statements..................................................16
Company Indemnified Parties...................................................55
Company Indemnified Party.....................................................55
Company Material Adverse Effect...............................................11
Company Plans.................................................................19
Company Subsidiaries..........................................................11
Condemnation Proceeding.......................................................64
Confidentiality Agreement.....................................................54
Contracts.....................................................................26
December 31, 2001 Balance Sheet...............................................16
Deficiency.....................................................................7
Development....................................................................1
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Term Page
Development Shares.............................................................1
Direct Claim..................................................................37
DQE............................................................................1
Encumbrances...................................................................9
Environmental Laws............................................................24
Environmental Whitepaper......................................................21
ERISA.........................................................................19
ERISA Affiliate...............................................................19
Estimated Adjusted Purchase Price..............................................6
Estimated Working Capital Adjustment...........................................8
Excepted Liabilities..........................................................30
Excess.........................................................................7
Exchange Act..................................................................15
Excludable Operations..........................................................4
Excluded Assets...............................................................53
Final Allocation Schedule.....................................................60
Final Closing Statement........................................................6
Final Order...................................................................66
Final Purchase Price...........................................................3
Final Working Capital Closing Statement........................................8
First Party Environmental Claim...............................................42
GAAP..........................................................................15
Governmental Authority........................................................14
Hawaii Operations..............................................................4
Hazardous Substances..........................................................24
HSR Act.......................................................................54
Indemnifiable Loss............................................................30
Indemnified Liabilities.......................................................30
Indemnity Basket..............................................................32
Indemnity Cap.................................................................32
Indemnity Period..............................................................29
Integrated Assets..............................................................2
Integrated Liabilities.........................................................2
Intellectual Property Rights..................................................27
JPT Litigation................................................................40
June 30, 2002 Balance Sheet...................................................16
Kentucky Operations............................................................4
knowledge.....................................................................11
Net Inside Tax Basis..........................................................19
New Jersey Operations..........................................................4
North System Condemnation.....................................................64
Northeast Operations...........................................................4
NPL...........................................................................23
Party..........................................................................1
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Term Page
Pending Litigation Matter.....................................................38
Permitted Encumbrances.........................................................9
Permitted Financial Impact....................................................11
Person........................................................................11
Post-Closing Rate Initiative...................................................6
Pre-Closing Environmental Liability...........................................42
Pre-Closing Violation or Contamination........................................42
Pre-Existing Actions..........................................................43
Pre-Existing Release..........................................................43
Pre-Existing Violation........................................................43
Properties....................................................................42
PSC............................................................................1
Purchase Price.................................................................3
Release.......................................................................25
Representatives...............................................................47
Reynolds.......................................................................1
Reynolds Shares................................................................1
SEC...........................................................................15
Section 7.7(b) Agreement......................................................59
Securities Act.................................................................9
Seller.........................................................................1
Seller Disclosure Schedule....................................................10
Seller Indemnifiable Loss.....................................................29
Seller Indemnitee.............................................................29
Seller Required Consents......................................................14
Seller Required Statutory Approvals...........................................14
Seller SEC Reports............................................................15
Shares.........................................................................1
Straddle Period...............................................................38
Subsidiary....................................................................12
Target Amounts.................................................................4
Tax...........................................................................19
Tax Claim.....................................................................39
Tax Return....................................................................19
Termination Date..............................................................69
Third Party Claim.............................................................34
Utility........................................................................1
Utility Preferred Shares.......................................................1
Utility Shares.................................................................1
Violation.....................................................................14
WARN Act......................................................................57
Working Capital Adjustment.....................................................7
Working Capital Deficiency.....................................................8
Working Capital Excess.........................................................8
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PURCHASE AGREEMENT
This Purchase Agreement, dated as of July 29, 2002 (this "Agreement"), is
entered into by and among AquaSource, Inc., a Delaware corporation (the
"Seller"), and DQE, Inc., a Pennsylvania corporation ("DQE"), on the one hand,
and Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC"), and
Aqua Acquisition Corporation, a Pennsylvania corporation ("Acquisition" and,
together with PSC, the "Buyer"), on the other hand (each of the Seller, DQE, PSC
and Acquisition, a "Party", and collectively, the "Parties").
WHEREAS, the Seller owns all of the issued and outstanding shares of
common stock (the "Utility Shares") of AquaSource Utility, Inc., a Texas
corporation ("Utility") and 90 of the 100 outstanding shares of preferred stock
of Utility (the "Utility Preferred Shares"); and
WHEREAS, the Seller owns all of the issued and outstanding shares of
common stock (the "Development Shares") of AquaSource Development Company, a
Texas corporation ("Development"); and
WHEREAS, the Seller owns all of the issued and outstanding shares of
common stock (the "Reynolds Shares") of The Reynolds Group, Inc., an Indiana
corporation ("Reynolds"); and
WHEREAS, the Seller owns, directly or indirectly, all of the
Integrated Assets (as defined in Section 1.1) which are not held by Utility,
Development or Reynolds but are integrated with the business and/or operations
of Utility, Development or Reynolds; and
WHEREAS, each of the Boards of Directors of PSC, Acquisition, DQE and
the Seller has approved, and deems it advisable and in the best interests of its
respective shareholders to consummate, the acquisition by PSC of Utility,
Development, Reynolds and by Acquisition of the Integrated Assets, which
acquisition is to be effected by the purchase of (i) the Utility Shares, the
Utility Preferred Shares, the Development Shares and the Reynolds Shares
(collectively, the "Shares") by PSC and (ii) all of the Integrated Assets by
Acquisition upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
Parties hereto, intending to be legally bound hereby, agree as follows:
1
ARTICLE I
PURCHASE AND SALE OF SHARES AND INTEGRATED ASSETS
Section 1.1 Sale and Transfer of Shares and Integrated Assets.
(a) Subject to the terms and conditions of this Agreement, on
the Closing Date (as defined in Section 2.1), (i) the Seller agrees to sell,
convey, assign, transfer and deliver to PSC (or to such Buyer Subsidiary (as
defined in Section 5.1) as PSC may designate in writing within forty-five (45)
calendar days of the date hereof), and PSC agrees to purchase and accept (or
cause such Buyer Subsidiary to purchase and accept) from the Seller, all of the
Seller's rights, title and interest in and to the Shares, (ii) the Seller agrees
to sell, convey, assign, transfer and deliver, or cause to be sold, conveyed,
assigned, transferred and delivered, to Acquisition (or to such other Buyer
Subsidiary as PSC may designate in writing within forty-five (45) calendar days
of the date hereof), and Acquisition agrees to purchase and accept (or PSC
agrees to cause such other Buyer Subsidiary to purchase and accept) from the
Seller, or one or more Subsidiaries (as defined in Section 3.2) of the Seller,
all of the Seller's, and any Subsidiary of the Seller's, rights, title and
interest in and to the Integrated Assets, and (iii) except as otherwise provided
in this Agreement, Acquisition agrees to assume and discharge (or PSC agrees to
cause any other Buyer Subsidiary that purchases the Integrated Assets to assume
and discharge) when due, without recourse to the Seller or any Subsidiary of the
Seller, in accordance with the respective terms and subject to the respective
conditions thereof, all of the Integrated Liabilities (as defined below).
(b) The "Integrated Assets" shall mean all of those assets set
forth in Section 1.1 of the Seller Disclosure Schedule (as defined in Section
3.1).
(c) The "Integrated Liabilities" shall mean (i) all of the
performance obligations of the Seller and any Subsidiary of the Seller which
relate to the Contracts included among the Integrated Assets, and (ii) all of
the liabilities of the Seller and any Subsidiary of the Seller, direct or
indirect, known or unknown, absolute or contingent, which relate to the
Contracts included among the Integrated Assets and which arise on or after the
Closing Date (as defined in Section 2.1).
Section 1.2 The Purchase Price.
(a) Subject to the terms and conditions of this Agreement, on
the Closing Date, in consideration of (i) the aforesaid sale, conveyance,
assignment, transfer and delivery to PSC (or such Buyer Subsidiary as PSC may
designate pursuant to Section 1.1) of the Shares, and (ii) the aforesaid sale,
conveyance, assignment, transfer and delivery to Acquisition (or such other
Buyer Subsidiary as PSC may designate pursuant to Section 1.1) of the Integrated
Assets and Integrated
2
Liabilities, PSC shall pay to the Seller an amount of cash equal to Two Hundred
Five Million Dollars ($205,000,000) (subject to any adjustments to the Purchase
Price contemplated by this Article I, the "Purchase Price").
(b) Subject to the terms and conditions of this Agreement, the
Purchase Price shall be determined as of Closing Date in accordance with the
following steps, subject to additional adjustment, post-Closing, pursuant to the
post-Closing procedures that are specifically contained in this Article I:
(i) start with the Base Purchase Price, derived as
follows: the "Base Purchase Price" shall mean the amount of $205,000,000,
subject to reduction to the extent that any of the Excludable Operations
(as defined in Section 1.3) are excluded from the transaction in accordance
with the provisions of Section 1.3;
(ii) adjust the Base Purchase Price in the manner
contemplated by Section 1.4 and Exhibit 1.4, subject to all limitations on
any such adjustments contained in Section 1.4 and Exhibit 1.4, and subject
to any adjustments to the Target Amounts (as defined in Section 1.3)
contemplated by Section 1.3, to determine the Adjusted Purchase Price (the
"Adjusted Purchase Price"); and
(iii) further adjust the resulting Adjusted Purchase Price
by the Working Capital Adjustment (as defined in Section 1.5), as
contemplated by Section 1.5, subject to all limitations on any such
adjustments contained in that Section 1.5 to determine the Final Purchase
Price (the "Final Purchase Price").
Section 1.3 Excludable Operations. In accordance with the following
procedure, the Base Purchase Price shall be reduced, as applicable.
(a) The parties agree that the Seller may elect, by delivering a
written notice to the Buyer, no later than forty-five (45) calendar days from
the date hereof, to treat any of the following assets of the Company as Excluded
Assets (as defined in Section 6.3): (i) those assets of the Seller, Utility,
Development, Reynolds or any Company Subsidiary associated with or related to
the Company's operations in Hawaii (the "Hawaii Operations"), (ii) those assets
of the Seller, Utility, Development, Reynolds or any Company Subsidiary
associated with or related to the Company's operations in Connecticut and New
York (the "Northeast Operations"), (iii) those assets of the Seller, Utility,
Development, Reynolds or any Company Subsidiary associated with or related to
the Company's operations in New Jersey (the "New Jersey Operations"), or (iv)
those assets of the Seller, Utility, Development, Reynolds or any Company
Subsidiary associated with or related to the
3
Company's operations in Kentucky (the "Kentucky Operations"). Following any such
election, the Hawaii Operations and/or the Northeast Operations and/or the New
Jersey Operations and/or the Kentucky Operations, as the case may be, shall be
listed on Section 6.3 of the Seller Disclosure Schedule and shall be treated,
for all purposes under this Agreement, as Excluded Assets.
(b) As used in this Agreement, the term "Excludable Operations"
means the Hawaii Operations, the Northeast Operations, the New Jersey Operations
and the Kentucky Operations. The Seller's election to treat any one or more of
the above referenced Excludable Operations as Excluded Assets will result in a
reduction to the Base Purchase Price equal to such amounts for such Excludable
Operations as PSC and the Seller may mutually agree.
(c) In the event that the Seller elects to treat one or more of
the above-referenced Excludable Operations as Excluded Assets, then each of the
target amounts that are taken into consideration in determining the Adjusted
Purchase Price as contemplated by Section 1.4 (collectively, the "Target
Amounts"), including those in respect of Customer Connections (as defined in
Exhibit 1.4), Rate Base (as defined in Exhibit 1.4), ConOps Revenue (as defined
in Exhibit 1.4), and Rate Initiatives (as defined in Exhibit 1.4), shall be
reduced to the extent of and so as to reflect the effects of any election made
by the Seller to treat any of the Excluded Operations as Excluded Assets
pursuant to Section 1.3, as contemplated by Schedules 1.4(a), (b), (c) and (d)
of Exhibit 1.4. For example, the total target Rate Base is $240,000,000 and the
target Customer Connection number at October 31, 2003 is 145,615, as shown on
Schedule 1.4(b) and 1.4(a) of Exhibit 1.4, respectively. In the event that the
Hawaii Operations are elected by Seller to be treated as an Excluded Asset, then
the targets would need to be adjusted accordingly. Specifically, based on this
example, the total Rate Base target would be reduced by $6,925,000 consistent
with the amount attributable to the Hawaii Operations resulting in a revised
target Rate Base of $233,075,000 instead of $240,000,000. Similarly, assuming a
Closing on October 31, 2003, the total Customer Connection target would be
reduced by the 513 connections projected to be attributable to the Hawaii
Operations as of that date resulting in a revised Customer Connection target of
145,102 instead of the total 145,615. The new target numbers (reflecting the
exclusion of the Hawaii Operations) would then be used to determine the Adjusted
Purchase Price as contemplated by Section 1.4.
(d) In the event that a Condemnation Proceeding results in a
governmental taking or settlement in lieu thereof of all or part of one or more
of the Company's Investor Owned Utility (IOU) systems, then the Target Amounts
shall be reduced to reflect the effects of any such governmental taking or
settlement in such manner as the parties may mutually agree or such amount as is
determined pursuant to this Section 1.3(d). No later than thirty (30) calendar
days following any such
4
governmental taking or settlement, the Seller shall deliver to PSC the Seller's
proposed adjustments to the Target Amounts as a result of such government taking
or settlement. Following the delivery of such notice, if the Seller and PSC are
unable to agree within thirty (30) calendar days following PSC's receipt of the
Seller's proposed adjustment in respect thereof, the Seller and the Buyer shall
appoint a nationally recognized accounting firm mutually acceptable to each of
the Seller and the Buyer, which shall, at the Seller's and the Buyer's joint
expense, review the governmental taking or settlement and all adjustments to the
Target Amounts proposed in respect thereof and make a final determination with
respect to such adjustment within thirty (30) calendar days of such appointment.
The Seller and the Buyer agree to cooperate with such accounting firm and
provide it with such information as it reasonably requests to enable it to make
such determination. The finding of such accounting firm shall be binding on the
parties hereto.
Section 1.4 Purchase Price Adjustment. The Base Purchase Price (as
adjusted by Section 1.3) shall be adjusted using the individual Target Amounts
as described in Exhibit 1.4 to establish the Adjusted Purchase Price, provided,
however, that in no event shall the sum of these Target Amounts in determining
the Adjusted Purchase Price pursuant to this Section 1.4 cause the Base Purchase
Price to be reduced by an amount greater than $25,000,000 or to be increased by
an amount greater than $10,000,000. For the avoidance of doubt, if the
cumulative adjustments resulting from this Section 1.4 would result in reducing
the Base Purchase Price by an amount that is greater than $25 million, the
Adjusted Purchase Price shall equal the Base Purchase Price less $25 million;
and if the cumulative adjustments contemplated by this Section 1.4 would result
in increasing the Base Purchase Price by an amount that is greater than $10
million, then the Adjusted Purchase Price shall equal the Base Purchase Price
plus $10 million. In addition, the Parties recognize and agree that the Working
Capital Adjustment contemplated by Section 1.5 is separate and apart from the
adjustments contemplated by this Section 1.4 and, as such, is neither increased
nor decreased or affected in any way by the limitations on adjustments contained
in this Section 1.4
(a) At least ten (10) calendar days prior to the Closing Date,
the Seller shall prepare and deliver to the Buyer in good faith its estimate of
the Adjusted Purchase Price, if any (the "Estimated Adjusted Purchase Price")
showing the individual and cumulative effect of all adjustments contemplated by
this Section 1.4 for Buyer's review and comment. At the Closing, the Purchase
Price shall be adjusted to reflect the Estimated Adjusted Purchase Price,
subject to further adjustment post-Closing as contemplated by Section 1.4(b).
(b) Within thirty (30) calendar days following the Closing Date
(or if on the Closing Date the Company shall not yet have received a Final Order
approving the Planned Rate Initiative (as defined in Exhibit 1.4) that is not
yet
5
filed on the date of this Agreement and that is budgeted to exceed 10% of the
Target Amount for Rate Initiatives, then within thirty (30) calendar days
following the date that such Final Order is received but in no event later than
April 10, 2004), the Seller shall prepare and deliver to the Buyer in good faith
a Final Closing Statement setting forth the Adjusted Purchase Price as finally
determined by the Seller in accordance with this Section 1.4 (the "Final Closing
Statement"). For purposes of the Final Closing Statement, the Planned Rate
Initiative that is not yet filed on the date of this Agreement and that is
budgeted to exceed 10% of the Target Amount for Rate Initiatives that has
received a Final Order after the Closing Date but prior to March 30, 2004 (a
"Post-Closing Rate Initiative") shall be treated for purposes of determining
"Adjustment #4 regarding Rate Initiatives" as contemplated on Exhibit 1.4 as if
such Planned Rate Initiative had occurred prior to Closing. Within fifteen (15)
calendar days following the Buyer's receipt of the Final Closing Statement, the
Buyer may object in good faith to the Adjusted Purchase Price in writing. In the
event of any such objection, the Buyer and the Seller shall attempt to resolve
their differences by negotiation. If such parties are unable to do so within
thirty (30) calendar days following Seller's receipt of the Buyer's objection,
the Seller and the Buyer shall appoint a nationally recognized accounting firm
mutually acceptable to each of the Seller and the Buyer, which shall, at the
Seller's and the Buyer's joint expense, review the Final Closing Statement and
determine the Adjusted Purchase Price within thirty (30) calendar days of such
appointment. The Seller and the Buyer agree to cooperate with such accounting
firm and provide it with such information as it reasonably requests to enable it
to make such determination. The finding of such accounting firm shall be binding
on the parties hereto. Upon determination by agreement of the Seller and the
Buyer or by binding determination of said accounting firm of the Adjusted
Purchase Price, (i) if the Adjusted Purchase Price exceeds the Estimated
Adjusted Purchase Price (such excess amount, the "Deficiency"), the Buyer shall
pay to the Seller the Deficiency, or (ii) if the Estimated Adjusted Purchase
Price exceeds the Adjusted Purchase Price (such excess amount, the "Excess"),
the Seller shall pay to the Buyer the Excess. Any portion of any Deficiency or
Excess owed hereunder shall be paid to the Party or Parties owed the same by the
Party or Parties owing the same by wire transfer in immediately available funds
to an account designated by the Party or Parties owed the same no later than
five (5) business days following the determination by agreement of the Seller
and the Buyer or by binding determination of said accounting firm of the
Adjusted Purchase Price, and such excess or deficiency payment shall be
accompanied by an additional payment of interest, calculated with a 4% annual
interest rate from the date of Closing to the date of payment under this
provision (except that any amount payable resulting from the Post-Closing Rate
Initiative shall be disregarded for purposes of calculating such interest
payment).
Section 1.5 Working Capital Adjustment. The Adjusted Purchase Price
shall be adjusted to determine the Final Purchase Price, as contemplated by this
6
Section 1.5, provided, however, that in no event, shall the increase in the
Adjusted Purchase Price resulting from any adjustment contemplated by this
Section 1.5 exceed the amount of $10,000,000, and provided, further, that for
the purposes of calculating current assets as contemplated by Section 1.5(a),
the Company's unbilled revenues entitled to be considered in any such
calculation shall not exceed the amount of $3,000,000. Notwithstanding the
foregoing, the Buyer shall waive the foregoing cap on unbilled revenues if, and
to the extent that, the Seller has been impacted by documented billing delays
that have prohibited certain unbilled revenues from being billed to customers in
a timely fashion consistent with past practice.
(a) The Adjusted Purchase Price shall be adjusted by an amount
of dollars, positive or negative, as the case may be, equal to the net amount of
(i) the aggregate amount of the current liabilities of the Company (incurred in
the ordinary course of business consistent with past practice), including, but
not limited to, accounts payable owed by the Company to any unaffiliated third
party as of the Closing Date, excluding any accrued Taxes that are to be paid by
the Seller pursuant to this Agreement, and (ii) the aggregate amount of current
assets of the Company (incurred in the ordinary course of business consistent
with past practice), including, but not limited to, accounts receivable owed by
any unaffiliated third party as of the Closing Date, but excluding any monies
held in escrow pursuant to Section 7.16 (such net amount, the "Working Capital
Adjustment"). At least ten (10) calendar days prior to the Closing Date, the
Seller shall prepare and deliver to the Buyer in good faith its estimate of the
Working Capital Adjustment, if any (the "Estimated Working Capital Adjustment")
showing the individual and cumulative effect of all adjustments contemplated by
this Section 1.5 for Buyer's review and comment. At the Closing, the Adjusted
Purchase Price shall be adjusted to reflect the Estimated Working Capital
Adjustment, subject to further adjustment post-Closing as contemplated by
Section 1.5(b).
(b) Within thirty (30) calendar days following the Closing Date,
the Seller shall prepare and deliver to the Buyer in good faith a final closing
statement setting forth the Working Capital Adjustment in accordance with this
Section (the "Final Working Capital Closing Statement"). Within thirty (30)
calendar days following the Buyer's receipt of the Final Working Capital Closing
Statement, the Buyer may object in good faith to the Working Capital Adjustment
in writing. In the event of any such objection, the Buyer and the Seller shall
attempt to resolve their differences by negotiation. If such parties are unable
to do so within thirty (30) calendar days following Seller's receipt of the
Buyer's objection, the Seller and the Buyer shall appoint a nationally
recognized accounting firm mutually acceptable to each of the Seller and the
Buyer, which shall, at the Seller's and the Buyer's joint expense, review the
Final Working Capital Closing Statement and determine the Working Capital
Adjustment, if any, within thirty (30) calendar days
7
of such appointment. The Seller and the Buyer agree to cooperate with such
accounting firm and provide it with such information as it reasonably requests
to enable it to make such determination. The finding of such accounting firm
shall be binding on the parties hereto. Upon determination by agreement of the
Seller and the Buyer or by binding determination of said accounting firm of the
Working Capital Adjustment, (i) if the Working Capital Adjustment exceeds the
Estimated Working Capital Adjustment (such excess amount, the "Working Capital
Deficiency"), the Buyer shall pay to the Seller the Working Capital Deficiency,
or (ii) if the Estimated Working Capital Adjustment exceeds the Working Capital
Adjustment (such excess amount, the "Working Capital Excess"), the Seller shall
pay to the Buyer the Working Capital Excess. Any portion of any Working Capital
Deficiency or Working Capital Excess owed hereunder shall be paid to the Party
or Parties owed the same by the Party or Parties owing the same by wire transfer
in immediately available funds to an account designated by the Party or Parties
owed the same no later than five (5) business days following the determination
by agreement of the Seller and the Buyer or by binding determination of said
accounting firm of the Working Capital Adjustment, and such payment shall be
accompanied by an additional payment of interest, calculated with a 4% annual
interest rate from the date of Closing to the date of payment under this
provision.
ARTICLE II
THE CLOSING
Section 2.1 Closing. The consummation of the sale and transfer of the
Shares and the Integrated Assets as contemplated by Section 1.1 (the "Closing")
shall take place at the Washington, D.C. office of Skadden, Arps, Slate, Meagher
& Flom LLP at 10:00 a.m., local time, on the fifth (5/th/) business day
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived, or at such other time, date and
place as the Seller and the Buyer shall mutually agree (the "Closing Date").
Section 2.2 Closing Transactions. At the Closing:
(a) (i) The Seller shall deliver to PSC (or such Buyer
Subsidiary as PSC may designate pursuant to Section 1.1) free and clear of
any liens, claims, security interests and other encumbrances of any nature
whatsoever (collectively, "Encumbrances"), except for those Encumbrances
arising under the Securities Act of 1933, as amended (the "Securities Act")
or any applicable state securities laws and those Encumbrances created by
this Agreement or PSC (or such Buyer Subsidiary as PSC may designate
pursuant to Section 1.1) (collectively, "Permitted Encumbrances"),
certificates representing the Shares, each such certificate to be duly and
validly endorsed in favor of PSC (or such Buyer Subsidiary as PSC may
designate pursuant to
8
Section 1.1) or accompanied by a separate stock power duly and validly
executed by the Seller and otherwise sufficient to vest in PSC (or such
Buyer Subsidiary as PSC may designate pursuant to Section 1.1) good title
to the Shares;
(ii) The Seller shall deliver to Acquisition (or such other
Buyer Subsidiary as PSC may designate pursuant to Section 1.1): (i) one or
more bills of sale duly executed by the Seller or a Subsidiary of the
Seller, in the form attached hereto as Exhibit 2.2(a)(ii)(i) (each, a "Bill
of Sale") selling, assigning, conveying, transferring and delivering to
Acquisition (or such other Buyer Subsidiary as PSC may designate pursuant
to Section 1.1), free and clear of any Encumbrances (except for Permitted
Encumbrances), the Integrated Assets, and (ii) an assignment and assumption
agreement, in the form attached hereto as Exhibit 2.2(a)(ii)(ii) (the
"Assignment and Assumption Agreement"), duly executed by the Seller; and
(iii) The Seller shall deliver to PSC (or such Buyer
Subsidiary as PSC may designate pursuant to Section 1.1) or to Acquisition
(or such other Buyer Subsidiary as PSC may designate pursuant to Section
1.1), as the case may be, such other documents as are required to be
delivered by the Seller to PSC, Acquisition or such other Buyer Subsidiary,
as the case may be, pursuant hereto.
(b) PSC shall deliver, or cause to be delivered, to the Seller
(i) the Purchase Price, by wire transfer in immediately available funds to an
account designated by the Seller prior to Closing, (ii) the Assignment and
Assumption Agreement, duly executed by Acquisition (or such other Buyer
Subsidiary as PSC may designate pursuant to Section 1.1), assuming and agreeing
to discharge when due, without recourse to the Seller, or any Subsidiary of the
Seller, in accordance with the respective terms and subject to the respective
conditions thereof, all of the Integrated Liabilities, and (iii) such other
documents as are required to be delivered by PSC, Acquisition or such other
Buyer Subsidiary, as the case may be, to the Seller pursuant hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
Section 3.1 Organization and Qualification.
(a) Except as set forth in Section 3.1(a) of the schedule
9
delivered by the Seller to the Buyer on the date hereof and attached to this
Agreement (the "Seller Disclosure Schedule"): (i) the Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, (ii) Utility, Development and Reynolds and each Company Subsidiary (as
defined in Section 3.1(c)) is a corporation or other entity duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own,
lease and operate its assets and properties to the extent owned, leased and
operated and to carry on its business as it is now being conducted and is duly
qualified to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
in good standing or be so qualified is not reasonably likely to have a Company
Material Adverse Effect (as defined below), and (iii) each Company Subsidiary
has received from its respective state or county regulatory authority the
requisite authorization to own utility assets or stock and to provide water or
wastewater utility service in the area in which such Company Subsidiary is
currently providing water or wastewater utility service, except for such
failures to have such authorizations as are not reasonably likely, individually
or in the aggregate, to have a Company Material Adverse Effect.
(b) As used in this Agreement, the term "Company Material
Adverse Effect" shall mean any material adverse effect on the business, assets,
financial condition or results of operations of the Company (as defined below),
taken as a whole, totaling in each instance $1,000,000 for all purposes
hereunder except for Sections 3.11 and 3.19, and $500,000 for purposes of
Sections 3.11 and 3.19; provided, however, that for all purposes hereunder the
term "Company Material Adverse Effect" shall not include (i) any such effect
resulting from any change in law, rule, or regulation of any Governmental
Authority (as defined in Section 3.4(c)) that applies generally to similarly
situated Persons (as defined below), (ii) effects relating to or resulting from
general changes in the industries in which the Company operates its assets or
conducts its businesses or (iii) the direct financial impact on the Company of
any change in the Rate Base, Customer Connections, Rate Initiatives or ConOps
Revenue, or the composition of the Excluded Assets, that is taken into account
under Article I, as applicable, as an adjustment to the Purchase Price to the
extent that any such change would result in a permissible adjustment to the
Purchase Price, given all applicable limitations on any such adjustments, under
Article I, as applicable (a "Permitted Financial Impact").
(c) As used in this Agreement, (i) the term "Company" shall
mean, collectively, Utility, Development and Reynolds, the Company Subsidiaries
(as defined below) and the Integrated Assets, but shall at all times exclude the
Excluded Assets, (ii) the term "knowledge" when referring to the knowledge of
the Seller shall mean the knowledge of an officer of the Seller, Utility,
Development,
10
Reynolds or a Company Subsidiary, (iii) the term "Person" shall mean any natural
person, corporation, general or limited partnership, limited liability company,
joint venture, trust, association or entity of any kind, (iv) the term "Company
Subsidiaries" shall mean, collectively, the Subsidiaries of Utility, Development
and Reynolds and (v) for the purposes of this Article III, the term "Seller"
shall include, with respect to the Integrated Assets and Integrated Liabilities,
the Seller and its Subsidiaries and all references to the Seller shall be read
as if qualified by the phrase "(in respect of the Company)."
Section 3.2 Subsidiaries. Section 3.2 of the Seller Disclosure
Schedule sets forth a complete list of all of the Company Subsidiaries and their
respective jurisdictions of incorporation or organization. Except as set forth
in Section 3.2 of the Seller Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each Company Subsidiary are validly
issued, fully paid and nonassessable, and are owned, directly or indirectly, by
Utility, Development or Reynolds, as the case may be, free and clear of any
Encumbrances, except for Permitted Encumbrances. As used in this Agreement, the
term "Subsidiary" of a Person shall mean any corporation or other entity
(including partnerships and other business associations) of which at least a
majority of the voting power represented by the outstanding capital stock or
other voting securities or interests having voting power under ordinary
circumstances to elect directors or similar members of the governing body of
such corporation or entity (or, if there are no such voting interests, 50% or
more of the equity interests in such corporation or entity) shall at the time be
held, directly or indirectly, by such Person.
Section 3.3 Ownership and Possession of Shares; Capitalization;
Ownership and Possession of Integrated Assets.
(a) As of the date hereof, (i) the authorized capital stock of
Utility consists of 100 shares of common stock and 100 shares of preferred
stock, (ii) 100 shares of such common stock are issued and outstanding and 100
shares of preferred stock are issued and outstanding, (iii) the Utility Shares
represent all such issued and outstanding shares of such common stock and the
Utility Preferred Shares represent 90% of all such issued and outstanding share
of such preferred stock, and (iv) all Utility Shares and all Utility Preferred
Shares are validly issued, fully paid and nonassessable.
(b) As of the date hereof, (i) the authorized capital stock of
Development consists of 1000 shares of common stock, (ii) 1000 shares of such
common stock are issued and outstanding, (iii) the Development Shares represent
all such issued and outstanding shares of such common stock, and (iv) all
Development Shares are validly issued, fully paid and nonassessable.
11
(c) As of the date hereof, (i) the authorized capital stock of
Reynolds consists of 1000 shares of common stock, (ii) 1000 shares of such
common stock are issued and outstanding, (iii) the Reynolds Shares represent all
such issued and outstanding shares of such common stock, and (iv) all Reynolds
Shares are validly issued, fully paid and nonassessable.
(d) All of the Shares are owned, directly or indirectly, by the
Seller free and clear of any Encumbrances, except for Permitted Encumbrances.
Except as set forth in Section 3.3(d) of the Seller Disclosure Schedule, there
are no options, warrants, calls, rights, commitments or agreements of any
character to which the Seller, Utility, Development or Reynolds, or any Company
Subsidiary, is a party or by which it is bound obligating the Seller, Utility,
Development or Reynolds, or any Company Subsidiary, to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock of
Utility, Development or Reynolds, or any Company Subsidiary, or obligating the
Seller, Utility, Development or Reynolds, or any Company Subsidiary, to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. All of the Integrated Assets are owned, directly or indirectly, by
the Seller free and clear of any Encumbrances, except for Permitted
Encumbrances.
(e) As of the date hereof, the authorized capital stock and the
number of issued and outstanding shares of capital stock for each Company
Subsidiary are listed on Section 3.3(e) of the Seller Disclosure Schedule.
Section 3.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. The Seller has all requisite corporate power and
authority to (i) enter into this Agreement and (ii) subject to the receipt of
the applicable Seller Required Statutory Approvals (as defined in Section
3.4(c)) and the applicable Seller Required Consents (as defined in Section
3.4(b)), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by the Seller of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Seller. No vote of, or consent by, the
holders of any class or series of stock issued by the Seller or any Subsidiary
of the Seller that has not already been obtained is necessary to authorize the
execution and delivery by the Seller of this Agreement or the consummation by it
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Seller and, assuming the due authorization, execution and
delivery hereof by the Buyer, constitutes the valid and binding obligation of
the Seller enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general
12
equity principles.
(b) Non-Contravention. Except as set forth in Section 3.4(b)(i)
of the Seller Disclosure Schedule, the execution and delivery of this Agreement
by the Seller does not, and the consummation of the transactions contemplated
hereby will not, violate or result in a material breach of any provision of,
constitute a material default (with or without notice or lapse of time or both)
under, result in the termination or modification of, accelerate the performance
required by, result in a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or result in the
creation of any material Encumbrance, except for Permitted Encumbrances, upon
any of the properties or assets of the Company or the Seller (in respect of the
Company) (any such violation, breach, default, right of termination,
modification, cancellation or acceleration, loss or creation, is referred to
herein as a "Violation" with respect to the Seller and the Company and such term
when used in Article V has a correlative meaning with respect to the Buyer)
pursuant to any provisions of (i) the articles of incorporation, by-laws or
similar governing documents of the Seller, Utility, Development or Reynolds, or
any Company Subsidiary, (ii) subject to obtaining the Seller Required Statutory
Approvals (as defined in Section 3.4(c)), any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to the Seller, the Company or any of their
respective properties or assets, or (iii) subject to obtaining the third-party
consents set forth in Section 3.4(b)(iii) of the Seller Disclosure Schedule (the
"Seller Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Seller, Utility, Development or
Reynolds, or any Company Subsidiary, is a party or by which they or any of their
respective properties or assets may be bound or affected, except in the case of
clause (ii) or (iii) for any such Violation which is not reasonably likely to
have a Company Material Adverse Effect.
(c) Statutory Approvals. Except as described in Section 3.4(c)
of the Seller Disclosure Schedule (the "Seller Required Statutory Approvals"),
no declaration, filing or registration with, or notice to or authorization,
consent or approval of, any court, federal, state, local or foreign governmental
or regulatory body (including a national securities exchange or other
self-regulatory body) or authority (each, a "Governmental Authority") is
necessary for the execution and delivery of this Agreement by the Seller or the
consummation by the Seller of the transactions contemplated hereby, except those
which the failure to obtain is not reasonably likely to result in a Company
Material Adverse Effect (it being understood that references in this Agreement
to "obtaining" such Seller Required Statutory Approvals shall mean (i) making
such declarations, filings or registrations; (ii) giving such notices; (iii)
obtaining such authorizations, consents or approvals;
13
(iv) having such waiting periods expire as are necessary to avoid a violation of
law); and (v) having any applicable appeals period expire without any appeal
being filed, or if such an appeal is filed, such appeal is fully and finally
dismissed without the opportunity for further appeal.
(d) Compliance. Except as set forth in Section 3.4(d)(i),
Section 3.7, Section 3.10 or Section 3.11 of the Seller Disclosure Schedule,
neither the Seller, Utility, Development nor Reynolds, nor any Company
Subsidiary, is in violation of, is currently being charged with any violation
of, or to the knowledge of Seller, is under investigation with respect to any
violation of, any law, statute, order, rule, regulation, ordinance, tariff, rate
or judgment of any Governmental Authority, except for possible violations which
are not reasonably likely to have a Company Material Adverse Effect or to
prevent, materially delay or materially impair the ability of the Seller to
consummate the transactions contemplated by this Agreement. Except as set forth
in Section 3.4(d)(ii) or Section 3.12 of the Seller Disclosure Schedule or as
disclosed in the Seller SEC Reports (as defined below) filed prior to the date
hereof, the Seller, Utility, Development and Reynolds, and each Company
Subsidiary, have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted except those that the absence of which are not reasonably
likely to have a Company Material Adverse Effect or to prevent, materially delay
or materially impair the ability of the Seller to consummate the transactions
contemplated by this Agreement. Except as set forth in Section 3.4(d)(iii) of
the Seller Disclosure Schedule, neither the Seller, Utility, Development nor
Reynolds, nor any Company Subsidiary, is in breach or violation of any term or
provision of their respective articles of incorporation or by-laws. As used in
this Agreement, the term "Seller SEC Reports" shall mean each report, schedule,
registration statement and definitive proxy statement filed with the Securities
and Exchange Commission (the "SEC") by DQE since December 31, 1999, pursuant to
the requirements of the Securities Act, or the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
Section 3.5 Financial Statements. True and complete copies of the
Company Financial Statements (as defined below) are set forth in Section 3.5 of
the Seller Disclosure Schedule. The Company Financial Statements have been
prepared from, are in accordance with, and accurately reflect the books and
records of the Company, comply in all material respects with applicable
accounting requirements, have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the period involved (except as may be stated in the notes thereto) and
are true and correct in all material respects and fairly present the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of the Company as of the
time and for the period referred to therein. As of the dates of the statements
14
of assets, liabilities and stockholders' equity included in the Company
Financial Statements, the Company has no liabilities or obligations of any
nature whatsoever (whether known, unknown, absolute, accrued, contingent or
otherwise) which are not fully reflected or reserved against in such Company
Financial Statements or which were not incurred in the ordinary course
consistent with past practice and this Agreement and are, therefore, not
required by GAAP to be so reflected or reserved against in such Company
Financial Statements. As used in this Agreement, the term "Company Financial
Statements" shall mean the consolidated balance sheet of the Company as at
December 31, 2001 (the "December 31, 2001 Balance Sheet") and as at June 30,
2002 (the "June 30, 2002 Balance Sheet"), in each case together with the
consolidated statements of income, shareholders' equity and cash flows for the
periods then ended. The Company Financial Statements are not audited and reflect
only the Company, including the related assets and liabilities, contemplated to
be transferred to the Buyer pursuant to this Agreement.
Section 3.6 Absence of Certain Changes or Events. Except as set forth
in Section 3.6 of the Seller Disclosure Schedule, since December 31, 2001, the
Seller, Utility, Development and Reynolds, and each Company Subsidiary, has
conducted its business only in the ordinary course of business consistent with
past practice and there has not been any development or combination of
developments affecting the Seller, Utility, Development or Reynolds, or any
Company Subsidiary, of which the Seller has knowledge, that is reasonably likely
to have a Company Material Adverse Effect.
Section 3.7 Litigation. Except as set forth in Section 3.7, Section
3.8(a), Section 3.8(b), Section 3.9(i), Section 3.10 or Section 3.11 of the
Seller Disclosure Schedule, (a) there are no claims, suits, actions or
proceedings before any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator pending or, to the knowledge of
the Seller, threatened, nor are there, to the knowledge of the Seller, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against, relating to or affecting the Seller, Utility, Development or Reynolds,
or any Company Subsidiary, and (b) there are no judgments, decrees, injunctions,
rules or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to the Seller,
Utility, Development or Reynolds, or any Company Subsidiary, except, in the case
of both clause (a) and clause (b), for such that are not reasonably likely to
have a Company Material Adverse Effect or reasonably likely to prevent,
materially delay or materially impair the Seller's ability to consummate the
transactions contemplated by this Agreement.
15
Section 3.8 Tax Matters.
(a) Except as set forth in Section 3.8(a) of the Seller
Disclosure Schedule: (i) Utility, Development and Reynolds, and each Company
Subsidiary, has timely filed (or has had filed on its behalf) with appropriate
taxing authorities all Tax Returns (as defined in Section 3.8(c)) required to be
filed by it on or prior to the date hereof, and such Tax Returns are correct,
complete and accurate in all material respects; (ii) all Taxes (as defined in
Section 3.8(c)) of Utility, Development and Reynolds, and each Company
Subsidiary, have been timely paid; (iii) all Tax withholding and deposit
requirements imposed on or with respect to Utility, Development and Reynolds,
and each Company Subsidiary (including any withholding with respect to wages or
other amounts paid to employees) have been satisfied in full in all material
respects; (iv) there are no liens for Taxes upon any property or assets of
Utility, Development or Reynolds, or any Company Subsidiary, except for liens
for Taxes not yet due and payable; and for which adequate reserves to pay such
Taxes have been set aside by Utility, Development or Reynolds, or any Company
Subsidiary, as the case may be; (v) there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of limitations
applicable to the assessment or collection of any Taxes or deficiencies against
Utility, Development or Reynolds, or any Company Subsidiary, (vi) neither
Utility, Development nor Reynolds, nor any Company Subsidiary, has made the
election under Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code"); and (vii) neither Utility, Development nor Reynolds, nor any
Company Subsidiary, is currently subject to an adjustment described in Section
481 of the Code.
(b) Except as set forth in Section 3.8(b) of the Seller
Disclosure Schedule: (i) the Seller has timely filed (or has had filed on its
behalf) with appropriate taxing authorities all Tax Returns with respect to the
Integrated Assets required to be filed by it on or prior to the date hereof, and
such Tax Returns are correct, complete and accurate in all material respects,
(ii) all Taxes on or in respect to the Integrated Assets have been timely paid;
(iii) all Tax withholding and deposit requirements imposed on or with respect to
the Integrated Assets (including any withholding with respect to wages or other
amounts paid to employees) have been satisfied in full in all material respects;
(iv) there are no liens for Taxes upon any of the Integrated Assets, except for
liens for Taxes not yet due and payable and for which adequate reserves to pay
such Taxes have been set aside by the Seller; and (v) there are no outstanding
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment or collection of any Taxes or
deficiencies attributable to the Integrated Assets.
(c) As used in this Agreement: (i) the term "Tax" includes all
federal, state, local and foreign income, profits, franchise, gross receipts,
16
environmental, customs duty, capital stock, severance, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect thereto; and (ii) the term "Tax Return" includes all returns and
reports (including elections, declarations, disclosures, schedules, estimates
and information returns) required to be supplied to a Tax authority relating to
Taxes.
(d) The Net Inside Tax Basis of the Company equals or exceeds
the Rate Base of the Company. For purposes of this Agreement, the term "Net
Inside Tax Basis" means the difference between (i) the adjusted tax basis (as
defined under Section 1011 of the Code) of all assets of the Company for federal
income tax purposes, less (ii) the adjusted tax basis (as defined under Section
1011 of the Code) of all liabilities of the Company for federal income tax
purposes.
Section 3.9 Employee Benefits; ERISA.
(a) Company Plans. Section 3.9(a) of the Seller Disclosure
Schedule contains a list of each employee benefit plan, program, agreement or
arrangement (including without limitation any employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), in each case, that is sponsored, maintained or
contributed to or required to be contributed to by the Company, the Seller, DQE
or by any trade or business, whether or not incorporated (an "ERISA Affiliate"),
that together with the Company, the Seller or DQE would be deemed a "single
employer" within the meaning of Section 4001(a)(14) or Section 4001(b) of ERISA
or Section 414 of the Code or to which the Company, the Seller, DQE or an ERISA
Affiliate is a party, for the benefit of any employee or former employee of the
Seller or any affiliate of the Seller whose employment is (in the case of
current employees) or was (in the case of former employees) principally
attributable to the businesses carried on by or in respect of the Company (such
individuals, the "Business Employees," and such plans, programs, agreements or
arrangements, collectively, the "Company Plans").
(b) Deliveries. With respect to each Company Plan, the Seller
has heretofore delivered or made available to the Buyer true and complete copies
of (i) such Company Plan and any amendments thereto; (ii) if such Company Plan
is funded through a trust or any third party funding vehicle, a copy of the
trust or other funding agreement; and (iii) the most recent determination letter
received from the Internal Revenue Service with respect to each such Company
Plan intended to qualify under Section 401 of the Code.
(c) Absence of Liability. Except as set forth in Section 3.9(c)
of the Seller Disclosure Schedule, no liability under Title IV of ERISA has
17
been incurred by the Seller, DQE, the Company or any ERISA Affiliate with
respect to a Company Plan or with respect to any defined benefit plan currently
or previously maintained or contributed to or required to be contributed to by
DQE, the Seller, the Company or any ERISA Affiliate that has not been satisfied
in full, and, to the knowledge of the Seller, no condition exists that presents
a material risk to the Company of incurring any such liability, other than
liability for premiums due the Pension Benefit Guaranty Corporation (which
premiums have been paid when due) and no Company Plan or plan of the Seller, DQE
or any ERISA Affiliate which is subject to the minimum funding requirements of
Part III of Subtitle B of Title I of ERISA or of Section 412 of the Code, has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code.
(d) Multiemployer Plan. No Company Plan is a "multiemployer
plan," as defined in Section 4001(a)(3) of ERISA or is a plan described in
Section 4063(a) of ERISA. The Seller, DQE, the Company and the ERISA Affiliates
have never withdrawn from any plan which is a multiemployer plan or which is a
plan described in Section 4063(a) of ERISA with respect to which there is any
outstanding withdrawal liability.
(e) No Violations. Except as set forth in Section 3.9(e) of the
Seller Disclosure Schedule, each Company Plan has been operated and administered
in all material respects in accordance with its terms and applicable law,
including without limitation ERISA and the Code.
(f) Section 401(a) Qualification. Each Company Plan intended to
be "qualified" within the meaning of Section 401(a) of the Code has received or
timely applied for a determination letter from the Internal Revenue Service to
the effect that it is so qualified.
(g) Post-Employment Benefits. Except as set forth in Section
3.9(g) of the Seller Disclosure Schedule, no Company Plan provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
for Business Employees for periods extending beyond their respective dates of
retirement or other termination of service, other than (i) coverage mandated by
applicable law, (ii) death benefits under any "pension plan," or (iii) benefits
the full cost of which is borne by the Business Employee (or his beneficiary).
(h) Effect of Change of Control. Except as set forth in Section
3.9(h) of the Seller Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not, alone or together with any other event,
(i) entitle any Business Employee to severance pay, unemployment compensation or
any other payment, except as expressly provided in this Agreement,
18
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such Business Employee.
(i) Claims. Except as set forth in Section 3.9(i) of the Seller
Disclosure Schedule, there are no pending, or to the knowledge of the Seller
threatened, material claims by or on behalf of any Company Plan, by any
employee, former employee or beneficiary covered under any such Company Plan, or
otherwise involving any such Company Plan (other than routine claims for
benefits).
Section 3.10 Labor and Employee Relations. As of the date hereof,
except as disclosed in Section 3.10 of the Seller Disclosure Schedule, neither
Utility, Development nor Reynolds, nor any Company Subsidiary, is a party to any
collective bargaining agreement or other labor agreement with any union or labor
organization. Except as disclosed in Section 3.10 of the Seller Disclosure
Schedule or except to the extent not reasonably likely to have a Company
Material Adverse Effect, (i) there is no strike, lockout, slowdown or work
stoppage pending or, to the knowledge of the Seller, threatened against or
involving the Company, and (ii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of the Seller,
threatened in respect of which any director, officer, employee or agent of the
Company is or may be entitled to claim indemnification from Utility, Development
or Reynolds pursuant to their respective articles of incorporation, by-laws or
any indemnification agreement.
Section 3.11 Environmental Matters.
(a) Except as set forth in Section 3.11 of the Seller Disclosure
Schedule and except for those matters disclosed in that certain environmental
disclosure documentation which was delivered by the Seller to the Buyer under
cover of the Seller's letter dated July 29, 2002 (such documentation,
collectively, the "Environmental Whitepaper"):
(i) The Seller (in respect of the Company), Utility,
Development and Reynolds, and each Company Subsidiary, are and have been in
compliance with all applicable Environmental Laws (as defined in Section
3.11(b)(i)), including, but not limited to, possessing all permits and
other governmental authorizations required for their operations under
applicable Environmental Laws, except for such noncompliance that is not
having as of the date hereof, and would not be reasonably likely to have, a
Company Material Adverse Effect. To the extent that the Seller, Utility,
Development and Reynolds, and any Company Subsidiary, had or has any
outstanding violations of any applicable Environmental Law that is having
as of the date hereof, or is reasonably likely to have a Company Material
19
Adverse Effect, each such violation has been set forth either in the
Environmental Whitepaper or in Section 3.11 of the Seller Disclosure
Schedule, and the Seller (in respect of the Company), Utility, Development
and Reynolds, and each Company Subsidiary, as the case may be, having such
violation has completed or is, as of the date hereof, in the process of
addressing in accordance with any applicable deadline, all actions required
by any applicable Environmental Law or appropriate Governmental Authority
to correct or otherwise respond to such violation, or is otherwise
implementing such actions as are appropriate and consistent with the
policies and programs identified in the Environmental Whitepaper.
(ii) (A) There is no pending or threatened written claim,
lawsuit, or administrative proceeding against the Seller (in respect of the
Company), Utility, Development or Reynolds, or any Company Subsidiary,
under or pursuant to any Environmental Law, and there is no claim, lawsuit,
or administrative proceeding threatened in writing against Utility,
Development or Reynolds, or any Company Subsidiary, under or pursuant to
any Environmental Law, in either case that is reasonably likely to have a
Company Material Adverse Effect; (B) neither the Seller, Utility,
Development nor Reynolds, nor any Company Subsidiary, is subject to, or is
proposed by any Governmental Authority to be subject to, any administrative
or judicial consent order, decree or unilateral administrative or judicial
order in connection with any Environmental Laws or the Release (as defined
in Section 3.11(b)(iii)) or threatened Release of Hazardous Substances (as
defined in Section 3.11(b)(ii)) that is having as of the date hereof, or is
reasonably likely to have, a Company Material Adverse Effect; and (C)
neither the Seller, Utility, Development nor Reynolds, nor any Company
Subsidiary, has received written notice from any Person, including but not
limited to any Governmental Authority, alleging that the Seller, Utility,
Development or Reynolds, or any Company Subsidiary, is in violation or
potentially in violation of any applicable Environmental Law or otherwise
may be liable under any applicable Environmental Law, which violation or
liability is unresolved or unlikely to be resolved in the ordinary course
of business and the failure to resolve such violation in the ordinary
course of business is having as of the date hereof, or is reasonably likely
to have, a Company Material Adverse Effect.
(iii) With respect to the real property that was formerly or
is currently owned, occupied or leased by the Seller (in
20
respect of the Company), Utility, Development or Reynolds, or any Company
Subsidiary, there have been no Releases of Hazardous Substances on or
underneath any of such real property during the ownership, occupation or
lease of such property by the Seller, Utility, Development, Reynolds, or
any Company Subsidiary, as the case may be, (and to the Seller's knowledge,
during any other period of time) in violation of any applicable
Environmental Law and that is having as of the date hereof, or is
reasonably likely to have, a Company Material Adverse Effect.
(iv) Where applicable, the Seller (in respect of the
Company), Utility, Development or Reynolds, or any Company Subsidiary,
holding any permit or authorization required under any applicable
Environmental Laws has timely filed any renewal application or request
necessary to continue performing, in accordance with such applicable
Environmental Laws, the permitted or otherwise authorized activity, and no
such renewal application or request is expected by the Company to be
denied, except for such failures to so file or request or for such denials
which are not having as of the date hereof, and are not reasonably likely
to have, a Company Material Adverse Effect.
(v) None of the real property currently owned, occupied,
or leased by the Seller (in respect of the Company), Utility, Development,
Reynolds, or any Company Subsidiary, and, to the Seller's knowledge, none
of the real property formerly owned, occupied or leased by the Seller (in
respect of the Company), Utility, Development, Reynolds, or any Company
Subsidiary, is listed or is proposed for listing on the National Priorities
List ("NPL") established by the federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), 42 U.S.C.
Section 9601 et seq., or any state analog to the NPL maintained or created
under the Environmental Laws of any state. In addition, to the Seller's
knowledge, none of the real property currently or formerly owned, occupied
or leased by the Seller (in respect of the Company), Utility, Development,
Reynolds, or any Company Subsidiary is listed or is proposed for listing on
the Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS") established by CERCLA or any state analog to
CERCLIS maintained or created under the Environmental Laws of any state.
(vi) To the Seller's knowledge, there are no
21
asbestos-containing materials in, on, or under any of the real property
currently owned, occupied or leased by the Seller (in respect of the
Company), Utility, Development, Reynolds, or any Company Subsidiary, except
for those materials which are appropriate to be used in, and are used in,
the ordinary course of business in substantial compliance with applicable
Environmental Laws, including roofing material, flooring material, transite
pipe and other insulating materials.
(b) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all federal, state and
local laws, regulations, rules and ordinances relating to pollution or the
protection of human health and safety or the environment, including,
without limitation, laws relating to releases or threatened releases of
Hazardous Substances into the environment (including, without limitation,
ambient air, surface water, groundwater, land, surface and subsurface
strata), in effect and applicable to the Company's operations as of the
Closing Date, unless a less stringent requirement goes into effect
thereafter. Such laws include the common law to the extent relating to
injuries caused by the release or presence of Hazardous Substances.
(ii) "Hazardous Substances" shall mean any chemicals,
materials or substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials",
"hazardous constituents", "restricted hazardous materials", "extremely
hazardous substances", "toxic substances", "contaminants", "pollutants",
"toxic pollutants", or words of similar meaning and regulatory effect under
any applicable Environmental Law including, without limitation, petroleum
and asbestos.
(iii) "Release" shall mean any spill, leaking, pumping,
pouring, emitting, emptying, dumping, injection, deposit, disposal,
discharge, dispersal, leaching, or allowing the escape of any Hazardous
Substances into the environment at or from any property.
(c) The amount of capital expenditures contained in the Business
Plan (as defined in Section 6.1) is adequate and sufficient to resolve
completely any obligations in respect of any non-compliance with Environmental
Laws that is addressed in any of those consent agreements with Governmental
Authorities disclosed in the Environmental Whitepaper.
22
(d) None of the real property currently owned, occupied or
leased by the Seller (in respect of the Company), Utility, Development,
Reynolds, or any Company Subsidiary, and, to the Seller's knowledge, none of the
real property formerly owned, occupied or leased by the Seller (in respect of
the Company), Utility, Development, Reynolds, or any Company Subsidiary, is
subject to any investigation, sampling, remediation, or other response action
under CERCLA or any state statute analogous thereto.
(e) The policies and programs described in the Environmental
Whitepaper result from the exercise of the skill, diligence, prudence and
foresight which would reasonably and ordinarily be expected from a Person
experienced in owning or operating the sort of business the Seller (in respect
of the Company), Utility, Development, Reynolds, and each Company Subsidiary own
or operate and do not, to the Seller's knowledge, violate any Environmental
Laws.
(f) The representations and warranties set forth in this Section
3.11 are the sole and exclusive representations and warranties relating to
environmental matters made by the Seller in this Agreement.
Section 3.12 No Breaches or Defaults. Except as disclosed on Section
3.7 or Section 3.12 of the Seller Disclosure Schedule, neither the Seller,
Utility, Development nor Reynolds, nor any Company Subsidiary, is in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with the lapse of time or action
by a third party, could result in a default by the Seller, Utility, Development
or Reynolds, or any Company Subsidiary, under, nor, to the knowledge of the
Seller, is any third party in breach or default in any material respect under,
any Contract, except (i) in any such case, for such breaches and defaults as to
which requisite waivers or consents have been or will be obtained prior to the
Closing Date and (ii) for such breaches and defaults that are not reasonably
likely to have a Company Material Adverse Effect. The term "Contracts" means all
written notes, bonds, mortgages, indentures, deeds of trust, licenses,
franchises, permits, contracts, leases or other instruments, obligations or
agreements of any kind which are included among the Integrated Assets or to
which Utility, Development or Reynolds, or any Company Subsidiary, is a party or
by which any of the Company's properties or assets may be bound, provided,
however, that for purposes of this Section 3.12, Contracts shall not include
Company Plans or any agreement with any Governmental Authority regarding
compliance with Environmental Laws.
Section 3.13 Insurance. Section 3.13 of the Seller Disclosure Schedule
describes the material fire and casualty, general liability, business
interruption, product liability, pollution and sprinkler and water damage
insurance policies maintained by the Seller or DQE on behalf of the Company as
well as a
23
description of any self-insurance arrangement by or affecting the Company,
including any reserves thereunder. All of such policies are in full force and
effect, all premiums with respect thereto are currently paid and neither the
Seller nor DQE has received any notice of nonrenewal, cancellation or
termination with respect to any such insurance policy or denial of coverage or
reservation of rights with respect to any claim arising from occurrences prior
to the Closing Date involving contamination of drinking water provided by the
Company or involving environmental impairment, subject to the deductible and
loss limits under such policies.
Section 3.14 Brokers or Finders. The Seller has not entered into any
agreement or arrangement entitling any agent, broker, investment banker,
financial advisor or other firm or Person to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except Lehman Brothers, whose fees and expenses
will be paid by the Seller in accordance with the Seller's agreements with such
firms.
Section 3.15 Intellectual Property. Except as set forth in Section
3.15 of the Seller Disclosure Schedule, the Seller or Utility, Development or
Reynolds (a) owns, leases or licenses all Intellectual Property Rights (as
defined below) necessary to conduct the business of the Company, except when the
failure to own, lease or license would not have a Company Material Adverse
Effect and (b) has the right to transfer all such Intellectual Property Rights
to PSC or Acquisition. Except as set forth in Section 3.15 of the Seller
Disclosure Schedule, (i) there has been no claim made against the Seller (in
respect of the Company), Utility, Development, Reynolds or any Company
Subsidiary asserting the invalidity, misuse or unenforceability of any of its
Intellectual Property Rights, (ii) to the knowledge of the Seller, there is no
infringement or misappropriation of any of the Company's Intellectual Property
Rights, (iii) to the knowledge of the Seller, neither the Seller (in respect of
the Company), Utility, Development, Reynolds nor any Company Subsidiary has
infringed or misappropriated any Intellectual Property Rights of any other
entity, and (iv) the Seller (in respect of the Company), Utility, Development,
Reynolds or any Company Subsidiary owns all the Intellectual Property Rights
free and clear of any and all liens, claims or encumbrances, except in the case
of clause (i), (ii), (iii) or (iv) for such claims, infringements,
misappropriations, violations, failures to own, liens or encumbrances as are not
reasonably likely to have a Company Material Adverse Effect. As used herein,
"Intellectual Property Rights" means any trademark, servicemark, registration
therefor or application for registration therefor, trade name, invention,
patent, patent application, trade secret, know-how, copyright, copyright
registration, application for copy registration, or any other similar type of
proprietary rights, in each case owned, leased or licensed and used or held for
use by the Company.
24
Section 3.16 Change in Business Relationships. Except as set forth in
Section 3.16 of the Seller Disclosure Schedule, neither the Seller, Utility,
Development nor Reynolds, nor any Company Subsidiary, has knowledge of any event
or circumstance that indicates that, whether on account of the transactions
contemplated by this Agreement or otherwise, any customer, agent, representative
or supplier of the Seller (in respect of the Company), Utility, Development or
Reynolds, or any Company Subsidiary, intends to discontinue, diminish or change
its relationship with the Seller, Utility, Development or Reynolds, or any
Company Subsidiary, in any way that would be reasonably likely to have a Company
Material Adverse Effect.
Section 3.17 Title to Property. The Seller, Utility, Development and
Reynolds, and the Company Subsidiaries, have good and marketable title to all of
their properties and assets, free and clear of all liens, except liens for taxes
not yet due and payable and such liens or other imperfections of title, if any,
as do not materially detract from the value of or interfere with the present use
of the property affected thereby or which would not have a Company Material
Adverse Effect; and, to the knowledge of the Seller, all leases pursuant to
which the Seller, Utility, Development or Reynolds, or any Company Subsidiary,
lease from others material amounts of real or personal property are in good
standing, valid and effective in accordance with their respective terms and
there is not, to the knowledge of the Seller, under any of such leases, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default), except when the lack of such good
standing, validity and effectiveness or the existence of such default would not
have a Company Material Adverse Effect.
Section 3.18 Other Obligations.
(a) Except as set forth in Section 3.18(a) of the Seller
Disclosure Schedule, to the Seller's knowledge, neither the Seller (in respect
of the Company), Utility, Development, Reynolds nor any Company Subsidiary has
indemnified or agreed to indemnify any third party in connection with any
transaction involving any disposition or purchase of the present or former
assets of Utility, Development, Reynolds or any Company Subsidiary or any of the
Integrated Assets, except for those indemnities or agreements to indemnify which
have been fully performed or satisfied, have expired or are otherwise no longer
in effect and binding and except for those that are not likely to have a Company
Material Adverse Effect.
(b) Except as set forth in Section 3.18(b) of the Seller
Disclosure Schedule, to the Seller's knowledge, neither the Seller (in respect
of the Company), Utility, Development, Reynolds nor any Company Subsidiary has
agreed to or has become contractually bound to pay any earn-out, profit-sharing
or similar
25
payments, which have not been satisfied as of the date hereof, to any
third party in connection with any transaction involving any disposition or
purchase of the present or former assets of the Seller (in respect of the
Company), Utility, Development, Reynolds or any of the Company Subsidiaries or
the any of the Integrated Assets.
Section 3.19 Water Quality. The drinking water supplied by the Seller
(in respect of the Company), Utility, Development, Reynolds, or any Company
Subsidiary to their customers is and has been in compliance with all applicable
federal and state drinking water standards except for such failures which are
not having as of the date hereof, and are not reasonably likely to have, a
Company Material Adverse Effect.
Section 3.20 Limitation on Representations and Warranties. Except for
the representations and warranties contained in this Article III, neither the
Seller nor any other Person or entity acting on behalf of the Seller makes any
representation or warranty, express or implied, concerning the Shares, the
Integrated Assets or the business, assets, or liabilities of the Company or any
other matter.
ARTICLE IV
INDEMNIFICATION
Section 4.1 Indemnification Obligations.
(a) Subject to the limitations set forth in Sections 4.3 and 4.4
hereof, the Seller and DQE shall, jointly and severally, indemnify, defend and
hold harmless PSC, the Buyer Subsidiaries, its and their officers, directors,
employees, shareholders, affiliates and agents (each, a "Buyer Indemnitee") from
and against any and all Indemnifiable Losses (as defined below) asserted against
or suffered by any Buyer Indemnitee (each, a "Buyer Indemnifiable Loss") during
the Indemnity Period (as defined below) in any way relating to, resulting from
or arising out of (i) any breach by the Seller of the representations and
warranties contained in Article III hereof, and (ii) the Indemnified Liabilities
(as defined below).
(b) Subject to the limitations set forth in Sections 4.3 and 4.4
hereof, PSC and Acquisition shall, jointly and severally, indemnify, defend and
hold harmless the Seller, DQE, its and their Subsidiaries, officers, directors,
employees, shareholders, affiliates and agents (each, a "Seller Indemnitee")
from and against any and all Indemnifiable Losses asserted against or suffered
by any Seller Indemnitee (each, a "Seller Indemnifiable Loss") during the
Indemnity Period in any way relating to, resulting from or arising out of (i)
any breach by PSC or Acquisition of the representations and warranties contained
in Article V hereof, and (ii) the Indemnified Liabilities.
26
Section 4.2 Certain Definitions. As used in this Agreement:
(a) the term "Indemnity Period" shall mean the period of time
commencing with the Closing Date and continuing until the second (2/nd/)
anniversary of the Closing Date; provided, however, that if, prior to the first
(1/st/) anniversary of the Closing Date, PSC, Acquisition and/or any Buyer
Subsidiary designated by PSC pursuant to Section 1.1 identifies additional
liabilities and obligations of the Company that arose prior to the Closing Date
but were not disclosed on the Seller Disclosure Schedule on the Closing Date and
that have an aggregate value of $5,000,000 or more (excluding additional
liabilities and obligations that should have been disclosed on Section 3.11 or
3.19 of the Seller Disclosure Schedule), then the Indemnity Period shall
continue until the third (3/rd/) anniversary of the Closing Date, and provided
further, that, in any event, (i) the Indemnity Period shall not limit the
indemnity obligations of the Parties in respect of Taxes, as set forth in
Section 4.5, (ii) the Indemnity Period shall not limit the indemnity obligations
of the Seller and DQE in respect of certain litigation, as set forth in Section
4.6, and (iii) the Indemnity Period in respect of the indemnity obligations of
DQE and the Seller as set forth in Section 4.7 (other than in respect of
breaches of any representation or warranty made in Section 3.11 or Section 3.19)
shall continue until the tenth (10/th/) anniversary of the Closing Date;
(b) the term "Indemnifiable Loss" shall mean any claim, demand,
suit, loss, liability, damage, obligation, payment, fine, penalty, cost or
expense (including, without limitation, the cost and expense of any action,
suit, proceeding, assessment, judgment, settlement or compromise relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith);
(c) the term "Indemnified Liabilities" shall mean, in
determining the Buyer Indemnifiable Losses: (i) all litigation, existing or
threatened, that is set forth in Section 3.7 of the Seller Disclosure Schedule,
(ii) any liabilities or obligations that relate to the Excluded Assets, and
(iii) any liabilities or obligations of Utility, Development, Reynolds and the
Company Subsidiaries except for Excepted Liabilities (as defined in Section
4.2(d)), and any liabilities or obligations that relate to or arise by virtue of
the Seller's or any Subsidiary of the Seller's ownership of the Integrated
Assets except for Excepted Liabilities, in any case whether direct or indirect,
known or unknown, absolute or contingent, that relate to, resulted from, arose
during or are attributable to the period of time prior to the Closing Date;
provided, however, that Indemnified Liabilities shall exclude any liabilities or
obligations that are disclosed in any Section of the Seller Disclosure Schedule
and are expressly designated, by agreement of the Parties, as Excepted
Liabilities on such Seller Disclosure Schedule; and shall mean in determining
the Seller Indemnifiable Losses: (i) any liabilities or obligations of Utility,
Development or Reynolds and any liabilities that relate to or arise by virtue of
the Buyer's or any
27
Buyer Subsidiary's ownership of the Company, the Integrated Assets or Integrated
Liabilities, in any case whether direct or indirect, known or unknown, absolute
or contingent, that relate to, resulted from, arose during, or are attributable
to the period of time on or after the Closing Date and (ii) any liabilities or
obligations that relate to the Excepted Liabilities;
(d) the term "Excepted Liabilities" shall mean (i) any
liabilities or obligations of Utility, Development or Reynolds, or the Company
Subsidiaries, that arise out of any of the following liabilities or obligations
incurred by Utility, Development or Reynolds, or the Company Subsidiaries, as
the case may be, prior to the Closing Date: (1) any liability or obligation of
Utility, Development or Reynolds, or the Company Subsidiaries, that is allocable
to the right of Utility, Development or Reynolds, or the Company Subsidiaries,
as the case may be, to receive property, services or other benefits on or after
the Closing Date (excluding any obligation of Kaanapali Water Corporation to
indemnify Maui Pineapple Limited in connection with that certain letter of
understanding dated May 18, 1999), (2) any liability or obligation of Utility,
Development or Reynolds, or the Company Subsidiaries, to repay the $11,500,000
owed to third parties as reflected on the June 30, 2002 Balance Sheet as well as
any indebtedness incurred as permitted by Section 6.1, and (3) any liability or
obligation of Utility, Development or Reynolds, or the Company Subsidiaries, to
make any expenditure under any Contract, settlement agreement or consent order,
including, without limitation, those disclosed in the Environmental Whitepaper,
to which Utility, Development or Reynolds, or the Company Subsidiaries, is a
party, pursuant to any order, rule or regulation of any Governmental Authority
by which Utility, Development or Reynolds, or the Company Subsidiaries, or any
of their assets, is bound, as listed in the Seller Disclosure Schedule, or if
not required to be listed in the Seller Disclosure Schedule, or if entered into
in compliance with Section 6.1 or otherwise in the ordinary course of business,
(ii) with respect to the Integrated Assets, any liabilities or obligations of
the Seller that arise out of any of the following liabilities or obligations
incurred by the Seller prior to the Closing Date: (1) any liability or
obligation that is allocable to the right of the owner of the Integrated Assets
to receive property, services or other benefits in respect of the Integrated
Assets on or after the Closing Date, (2) any liability or obligation to repay
the $11,500,000 owed to third parties as reflected on the June 30, 2002 Balance
Sheet as well as any indebtedness incurred as permitted by Section 6.1, and (3)
any liability or obligation to make any expenditure in respect of any Integrated
Asset under any Contract, settlement agreement or consent order relating to the
Integrated Assets, pursuant to any order, rule or regulation of any Governmental
Authority relating to or by which any of the Integrated Assets is bound, as
listed in the Seller Disclosure Schedule, or if not required to be listed in the
Seller Disclosure Schedule, or if entered into in compliance with Section 6.1 or
otherwise in the ordinary course of business, and (iii) those liabilities or
obligations that are disclosed on any Section of the Seller Disclosure Schedule
and expressly
28
designated on such Section of the Seller Disclosure Schedule, by agreement of
the Parties, as Excepted Liabilities.
Section 4.3 Limitations on Indemnification.
(a) Notwithstanding any other provision of this Agreement to the
contrary, the Parties' obligations pursuant to this Article IV are, and at all
times shall be, subject to the limitations set forth in this Section 4.3. The
Parties shall not be required to indemnify, defend or hold harmless any Buyer
Indemnitee or Seller Indemnitee, as the case may be, until the aggregate amount
of the Buyer Indemnifiable Losses or Seller Indemnifiable Losses, as the case
may be, exceeds the Indemnity Basket (as defined in Section 4.3(b)), following
which the indemnifying Party shall indemnify, defend and hold harmless the Buyer
Indemnitees or the Seller Indemnitees, as the case may be, only to the extent
that the Buyer Indemnifiable Losses or the Seller Indemnifiable Losses, as the
case may be, exceed the Indemnity Basket. In addition, the Seller's and DQE's
liability, taken together, for Buyer Indemnifiable Losses and the Buyer's
liability for Seller Indemnifiable Losses, in either case, as contemplated by
this Article IV shall in no event exceed an aggregate amount of dollars equal to
the Indemnity Cap (as defined in Section 4.3(b)); provided, however, that in
determining whether the Seller's and DQE's liability for a particular Buyer
Indemnifiable Loss or the Buyer's liability for a particular Seller
Indemnifiable Loss, in either case, pursuant to this Article IV is limited by
the Indemnity Cap, the Parties shall refer to the Indemnity Cap that is or was
in effect on the date that the Buyer Indemnitee or Seller Indemnitee, as the
case may be, delivered a written notice of such Buyer Indemnifiable Loss or
Seller Indemnifiable Loss, as the case may be, to the Seller as contemplated by
Section 4.4 hereof.
(b) As used in this Agreement, (i) the term "Indemnity Basket"
shall mean $250,000, and (ii) the term "Indemnity Cap" shall mean $15,000,000;
provided, however, that on the first (1/st/) anniversary of the Closing Date,
the Indemnity Cap shall be reduced to, and shall thereafter mean, $7,500,000;
and provided further, that on the second (2/nd/) anniversary of the Closing
Date, the Indemnity Cap shall be reduced to, and shall thereafter mean, zero,
unless the Indemnity Period has been extended until the third (3/rd/)
anniversary of the Closing Date, pursuant to Section 4.2(a), in which case the
Indemnity Cap shall continue to mean $7,500,000 until the third (3/rd/)
anniversary of the Closing Date, upon which it shall be reduced to, and shall
thereafter mean, zero. Notwithstanding any other provision of this Agreement to
the contrary, the Seller's and DQE's liability for the following Buyer
Indemnifiable Losses shall not be limited by the Indemnity Cap: Buyer
Indemnifiable Losses relating to (i) any litigation, existing or threatened,
that is required to be set forth in Sections 3.7, 3.8(a), 3.8(b), 3.9(i) or 3.10
of the Seller Disclosure Schedule, (ii) Excluded Assets, (iii) any and all
liabilities and obligations of the Seller or the Subsidiaries of the Seller
(other than any liabilities or obligations
29
of the Seller (in respect of the Company), Utility, Development, Reynolds or any
Company Subsidiary or any of the Integrated Assets or Integrated Liabilities),
(iv) indemnity obligations of the Parties in respect of Taxes, as set forth in
Section 4.5, (v) indemnity obligations of the Seller and DQE in respect of
certain litigation as set forth in Section 4.6, (vi) indemnity obligations of
the Seller and DQE in respect of Environmental Law, as set forth in Section 4.7,
and (vii) any fraud committed by DQE, the Seller, the Company or any Company
Subsidiary (provided that the foregoing reference to the Company or any Company
Subsidiary refers to fraud committed prior to the Closing Date); in addition,
the Buyer's liability for the following Seller Indemnifiable Losses shall not be
limited by the Indemnity Cap: Seller Indemnifiable Losses relating to (i)
indemnity obligations of the Parties in respect of Taxes, as set forth in
Section 4.5, (ii) any breach or violation of any Environmental Law by PSC,
Acquisition, any Buyer Subsidiary designated by PSC pursuant to Section 1.1, the
Company or any Company Subsidiary on or after the Closing Date, and (iii) any
fraud committed by PSC, Acquisition, any Buyer Subsidiary designated by PSC
pursuant to Section 1.1, the Company or any Company Subsidiary (provided that
the foregoing reference to the Company or any Company Subsidiary refers to fraud
committed on or after the Closing Date).
(c) For the avoidance of doubt, if at any time during the
Indemnity Period, the amount of the Seller's and DQE's aggregate liability for
Buyer Indemnifiable Losses, taking into account all liability for Buyer
Indemnifiable Losses incurred by the Seller and DQE since the Closing Date
(other than those Buyer Indemnifiable Losses that are not limited by the
Indemnity Cap as contemplated by Section 4.3(b)), equals the applicable
Indemnity Cap, then the Seller shall have no further obligation whatsoever to
indemnify, defend or hold harmless any Buyer Indemnitee in respect of any Buyer
Indemnifiable Losses that are subject to the Indemnity Cap; similarly, if at any
time during the Indemnity Period, the amount of PSC's aggregate liability for
Seller Indemnifiable Losses, taking into account all liability for Seller
Indemnifiable Losses incurred by PSC since the Closing Date (other than those
Seller Indemnifiable Losses that are not limited by the Indemnity Cap as
contemplated by Section 4.3(b)), equals the applicable Indemnity Cap, then PSC
shall have no further obligation whatsoever to indemnify, defend or hold
harmless any Seller Indemnitee in respect of any Seller Indemnifiable Losses
that are subject to the Indemnity Cap.
(d) Notwithstanding any other provision of this Agreement to the
contrary, any Buyer Indemnitee or Seller Indemnitee shall use commercially
reasonable efforts to mitigate all losses, damages and the like relating to a
claim under these indemnification provisions, including availing itself of any
defenses, limitations, rights of contribution, claims against third Persons and
other rights at law or equity. The Buyer Indemnitee's or Seller Indemnitee's, as
the case may be, commercially reasonable efforts shall include the reasonable
expenditure of money
30
to mitigate or otherwise reduce or eliminate any loss or expenses for which
indemnification would otherwise be due, and the indemnifying Party shall, to the
extent that Buyer Indemnifiable Losses or Seller Indemnifiable Losses, as the
case may be, exceed the Indemnity Basket, reimburse the Buyer Indemnitee or
Seller Indemnitee, as the case may be, for its reasonable expenditures (except
for any portion of the wages, salary, benefits, overhead or other costs
attributable to Buyer Indemnitee or Seller Indemnitee, as the case may be, and
its officers, directors, employees and agents) in undertaking the mitigation and
shall, to such extent, take such expenses into account in calculating the
aggregate amount of the Seller's and DQE's liability for the Buyer Indemnifiable
Losses or the Buyer liability for the Seller Indemnifiable Losses, as the case
may be. Notwithstanding any other provision of this Agreement to the contrary,
any Buyer Indemnifiable Loss or Seller Indemnifiable Loss shall be net of (i)
the dollar amount of any insurance or other proceeds actually received by the
Buyer Indemnitee or any of its affiliates with respect to the Buyer
Indemnifiable Loss or by the Seller or DQE or any of their affiliates with
respect to the Seller Indemnifiable Loss, and (ii) income tax benefits to the
Buyer Indemnitee, to the extent realized by the Buyer Indemnitee, or to the
Seller Indemnitee, to the extent recognized by the Seller Indemnitee. Any Person
seeking indemnity hereunder shall use commercially reasonable efforts to seek
coverage (including both costs of defense and indemnity) under applicable
insurance policies with respect to any such Buyer Indemnifiable Loss or Seller
Indemnifiable Loss, as the case may be.
(e) Notwithstanding any other provision of this Agreement to the
contrary, (i) except to the extent otherwise provided in Article IX, the rights
and remedies of the Parties under this Article IV are exclusive and in lieu of
any and all other rights and remedies which the Parties may have under this
Agreement for monetary relief with respect to (A) any breach by the Parties of
their respective representations and warranties and (B) the Indemnified
Liabilities, and (ii) no Party (nor any Buyer Indemnitee or Seller Indemnitee)
shall be entitled to recover from any other Party for any liabilities, damages,
obligations, payments, losses, costs, or expenses under this Agreement any
amount in excess of the actual compensatory damages, court costs and reasonable
attorneys' and other advisor fees suffered by such Party (or Buyer Indemnitee or
Seller Indemnitee, as the case may be). Each Party waives any right to recover
incidental, special, exemplary and consequential damages arising in connection
with or with respect to this Agreement.
Section 4.4 Defense of Claims.
(a) (i) If any Buyer Indemnitee receives notice of the
assertion or commencement of any claim, action or proceeding made or
brought by any Person who is not a Party or an affiliate of a Party (a
"Third Party Claim") with respect to which indemnification is to be sought
from the
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Seller and DQE, the Buyer Indemnitee shall give the Seller and DQE
reasonably prompt written notice thereof, but in any event such notice
shall not be given later than twenty (20) calendar days after the Buyer
Indemnitee's receipt of written notice of such Third Party Claim. Such
written notice shall describe the nature of the Third Party Claim in
reasonable detail and shall indicate the estimated amount, if practicable,
of the Buyer Indemnifiable Loss that has been or may be sustained by the
Buyer Indemnitee. The Seller and DQE will have the right to participate in
or, by giving written notice to the Buyer Indemnitee, to elect to assume
the defense of any Third Party Claim by the Seller's own counsel, the cost
for which shall be borne by the Seller and DQE to the extent that Buyer
Indemnifiable Losses exceed the Indemnity Basket and shall, to such extent,
be taken into account in calculating the aggregate amount of the Seller's
and DQE's liability for Buyer Indemnifiable Losses under the Indemnity Cap.
The Buyer Indemnitee shall cooperate in good faith in such defense at such
Buyer Indemnitee's own expense. If the Seller and DQE elect not to assume
the defense of any Third Party Claim, the Buyer Indemnitee may compromise
or settle such Third Party Claim over the objection of the Seller and DQE,
which settlement or compromise shall conclusively establish the Seller's
and DQE's liability pursuant to this Agreement.
(ii) If any Seller Indemnitee receives notice of the
assertion or commencement of a Third Party Claim with respect to which
indemnification is to be sought from the Buyer, the Seller Indemnitee shall
give the Buyer reasonably prompt written notice thereof, but in any event
such notice shall not be given later than twenty (20) calendar days after
the Seller Indemnitee's receipt of written notice of such Third Party
Claim. Such written notice shall describe the nature of the Third Party
Claim in reasonable detail and shall indicate the estimated amount, if
practicable, of the Seller Indemnifiable Loss that has been or may be
sustained by the Seller Indemnitee. The Buyer will have the right to
participate in or, by giving written notice to the Seller Indemnitee, to
elect to assume the defense of any Third Party Claim by the Buyer's own
counsel, the cost for which shall be borne by the Buyer to the extent that
Seller Indemnifiable Losses exceed the Indemnity Basket and shall, to such
extent, be taken into account in calculating the aggregate amount of the
Buyer's liability for Seller Indemnifiable Losses under the Indemnity Cap.
The Seller Indemnitee shall cooperate in good faith in such defense at such
Seller Indemnitee's own expense. If the Buyer elects not to assume the
defense of any Third Party Claim, the Seller Indemnitee may compromise or
settle such Third Party Claim over the objection of the Buyer, which
settlement or compromise shall
32
conclusively establish the Buyer's liability pursuant to this Agreement.
(b) (i) If, after a Buyer Indemnitee provides written notice
to the Seller and DQE of any Third Party Claims, the Buyer Indemnitee
receives written notice from the Seller or DQE that the Seller or DQE has
elected to assume the defense of such Third Party Claim, the Seller and DQE
will not be liable for any legal expenses subsequently incurred by the
Buyer Indemnitee in connection with the defense thereof. Without the prior
written consent of the Buyer Indemnitee, the Seller and DQE shall not enter
into any settlement of any Third Party Claim that would lead to liability
or create any financial or other obligation on the part of the Buyer
Indemnitee for which the Buyer Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other
obligation on the part of the Buyer Indemnitee for which the Buyer
Indemnitee is not entitled to indemnification hereunder and the Seller and
DQE desire to accept and agree to such offer, the Seller and DQE shall give
written notice to the Buyer Indemnitee to that effect. If the Buyer
Indemnitee fails to consent to such firm offer within ten (10) calendar
days after its receipt of such notice, the Seller and DQE shall be relieved
of their obligations to defend such Third Party Claim and the Buyer
Indemnitee may contest or defend such Third Party Claim. In such event, the
maximum liability of the Seller and DQE as to such Third Party Claim will
be the amount of such settlement offer plus reasonable costs and expenses
paid or incurred by the Buyer Indemnitee up to the date of said notice, at
all time subject to the additional limitations on the Seller's and DQE's
liability contained in this Article IV.
(ii) If, after a Seller Indemnitee provides written notice
to the Buyer of any Third Party Claims, the Seller Indemnitee receives
written notice from the Buyer that the Buyer has elected to assume the
defense of such Third Party Claim, the Buyer will not be liable for any
legal expenses subsequently incurred by the Seller Indemnitee in connection
with the defense thereof. Without the prior written consent of the Seller
Indemnitee, the Buyer shall not enter into any settlement of any Third
Party Claim that would lead to liability or create any financial or other
obligation on the part of the Seller Indemnitee for which the Seller
Indemnitee is not entitled to indemnification hereunder. If a firm offer is
made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the Seller
Indemnitee for which the Seller Indemnitee is not entitled to
indemnification hereunder and the Buyer desires to accept and agree to such
offer, the Buyer shall give written notice to the Seller Indemnitee to that
effect. If the Seller Indemnitee fails to consent to
33
such firm offer within ten (10) calendar days after its receipt of such
notice, the Buyer shall be relieved of its obligation to defend such Third
Party Claim and the Seller Indemnitee may contest or defend such Third
Party Claim. In such event, the maximum liability of the Buyer as to such
Third Party Claim will be the amount of such settlement offer plus
reasonable costs and expenses paid or incurred by the Seller Indemnitee up
to the date of said notice, at all time subject to the additional
limitations on the Buyer's liability contained in this Article IV.
(c) (i) Any claim that does not result from a Third Party
Claim (a "Direct Claim") by a Buyer Indemnitee on account of a Buyer
Indemnifiable Loss shall be asserted by giving the Seller and DQE
reasonably prompt written notice thereof, stating the nature of such claim
in reasonable detail and indicating the estimated amount, if practicable,
but in any event such notice shall not be given later than twenty (20)
calendar days after the Buyer Indemnitee becomes aware of such Direct
Claim, and the Seller and DQE shall have a period of thirty (30) calendar
days from receipt of such notice within which to respond to such Direct
Claim. If the Seller or DQE does not respond within such thirty (30)
calendar day period, the Seller and DQE shall be deemed to have accepted
such claim. If the Seller and DQE reject such claim, the Buyer Indemnitee
will be free to seek enforcement of its right to indemnification under this
Agreement.
(ii) Any Direct Claim by a Seller Indemnitee on account of
a Seller Indemnifiable Loss shall be asserted by giving the Buyer
reasonably prompt written notice thereof, stating the nature of such claim
in reasonable detail and indicating the estimated amount, if practicable,
but in any event such notice shall not be given later than twenty (20)
calendar days after the Seller Indemnitee becomes aware of such Direct
Claim, and the Buyer shall have a period of thirty (30) calendar days from
receipt of such notice within which to respond to such Direct Claim. If the
Buyer does not respond within such thirty (30) calendar day period, the
Buyer shall be deemed to have accepted such claim. If the Buyer rejects
such claim, the Seller Indemnitee will be free to seek enforcement of its
right to indemnification under this Agreement.
(d) If the amount of any Buyer Indemnifiable Loss or Seller
Indemnifiable Loss, as the case may be, at any time subsequent to the making of
an indemnity payment in respect thereof, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by, from or against any other entity, the amount
of such reduction, less any costs, expenses or premiums incurred in connection
therewith (together with interest thereon from the date of payment thereof at
the
34
publicly announced prime rate then in effect of The Chase Manhattan Bank) shall
promptly be repaid by the Buyer Indemnitee to the Seller and DQE or by the
Seller Indemnitee to the Buyer, as the case may be.
(e) With respect to those pending litigation matters set forth
in Schedule 3.7 of the Seller Disclosure Schedule (each a "Pending Litigation
Matter"), the Parties agree as follows: no later than the Closing Date, DQE
and/or the Seller shall identify those Pending Litigation Matters for which DQE
and/or the Seller will defend, continue to defend or assume the defense of on
and after the Closing Date (each such defense, an "Assumed Defense"). PSC and
Acquisition agree to cooperate, and to cause their Subsidiaries, officers,
directors and employees to cooperate, fully in connection therewith, including,
but not limited to, providing access to personnel and records. The Seller or DQE
shall reimburse PSC, Acquisition and their Subsidiaries for any out of pocket
expenses (e.g. travel, lodging, meals and related expenses) incurred by them in
cooperation with the Seller or DQE as contemplated by this Section 4.4(e);
provided, however, that the Seller and DQE shall not reimburse PSC, Acquisition
or their Subsidiaries, and PSC, Acquisition and their Subsidiaries shall not be
entitled to reimbursement, for any portion of the wages, salary, benefits,
overhead or other costs, attributable to the officers, directors and employees
of PSC, Acquisition or their Subsidiaries whose cooperation may be required by
this Section 4.4(e). For the avoidance of doubt, (i) the defense of any Pending
Litigation Matter, the defense of which is not assumed by the Seller or DQE as
an Assumed Defense, shall be the responsibility of PSC or Acquisition on and
after the Closing Date, subject at all times to the procedures, limitations and
other obligations in respect thereof set forth in Article IV, and (ii) the
obligations set forth in this Section 4.4(e) in no way limit or reduce the
Seller's and DQE's indemnity obligation, in respect of any Pending Litigation
Matters, whether or not any such Pending Litigation Matter has been assumed by
the Seller or DQE as an Assumed Defense.
Section 4.5 Tax Indemnity. Notwithstanding any other provision of this
Agreement to the contrary, the Seller and DQE shall, jointly and severally,
indemnify, defend and hold harmless each Buyer Indemnitee, and PSC and
Acquisition shall, jointly and severally, indemnify, defend and hold harmless
each Seller Indemnitee from and against any and all of the liabilities of the
Seller and DQE, and PSC and Acquisition, respectively, as set forth below:
(a) The Seller and DQE shall be liable for, shall pay to the
appropriate Tax authorities (or shall pay to Utility, Development or Reynolds,
as the case may be, as a reimbursement of Taxes paid to the appropriate Tax
authorities for a Straddle Period (as defined below) Tax Return), and shall
indemnify and hold the Buyer and the Company harmless against, all Taxes of the
Company that relate to (i) the taxable periods ending before or on the Closing
Date (other than Taxes
35
attributable to transactions not in the ordinary course of business occurring
after the Closing which are effectuated or initiated by the Buyer), (ii) any
taxable period that includes but does not end on the Closing Date (a "Straddle
Period"), but only to the extent that such Taxes relate to the portion of such
Straddle Period up to and including the Closing Date, and (iii) any liability
for Taxes of the consolidated group of which DQE is the common parent arising
under Treasury Regulation section 1.1502-6 (or similar provision of state, local
or foreign law). The Seller shall be entitled to all Tax refunds (including
interest) attributable to the taxable periods for which it is liable; provided,
that the Buyer shall elect under Treasury Regulation section 1.1502-21(b)(3)(ii)
(or similar provision of state, local or foreign law) to relinquish, with
respect to any net operating losses attributable to Utility, Development or
Reynolds, or any Company Subsidiary, the portion of the carryback period for
which any such corporation was a member of the consolidated group of which DQE
is the common parent.
(b) The Buyer shall be liable for, shall pay to the appropriate
Tax authorities, and shall indemnify and hold the Seller and DQE harmless
against all Taxes of the Company that relate to (i) the taxable periods that
begin after the Closing Date (including, for this purpose, any Taxes
attributable to transactions not in the ordinary course of business occurring
after the Closing which are effectuated or initiated by the Buyer) and (ii) the
portion of any Straddle Period commencing with the first (1/st/) day after the
Closing Date. The Buyer shall be entitled to all Tax refunds (including
interest) attributable to the taxable periods for which it is liable.
(c) The obligations of the Parties to indemnify each other
pursuant to this Section 4.5 shall continue until the statutory period of
limitations (taking into account any extensions or waivers thereof) for the
assessment of Taxes, covered by this Section 4.5, has expired. Any payment due
to an indemnified Party pursuant to this Section 4.5 shall be paid promptly by
the indemnifying Party upon receipt of written notice.
(d) Neither Party shall take any action the purpose and intent
of which is to prejudice the defense of any claim subject to indemnification
hereunder or to induce a third party to assert a claim subject to
indemnification hereunder.
(e) After the Closing, each of the Seller and the Buyer shall
notify the chief tax officer of the other Party in writing (including by
telecopier) within ten (10) calendar days of the receipt of any written notice
of any pending or threatened Audit (as defined below) which, if determined
adversely, could be grounds for indemnification under this Section 4.5 (a "Tax
Claim"); provided, however, that any failure to give such notice shall not
affect the rights of the Parties hereunder unless and to the extent such failure
materially and adversely affects the
36
indemnifying Party's right to participate in and defend such Tax Claim. The
Seller shall have the right at its expense to participate in and control the
conduct of any Tax Claim of or attributable to the Company relating to taxable
periods ending on or before the Closing Date and to employ counsel of its own
choice at its expense; provided, however, that the Seller shall not settle any
such Tax Claim or make or agree to any adjustment in any manner without the
consent of the Buyer, which consent shall not be unreasonably withheld,
conditioned or delayed; and provided, further, that the Buyer shall have the
right to participate in (but not to control) such Tax Claim. If the Seller fails
to participate in any Tax Claim of the Company relating to taxable periods
ending on or before the Closing Date for which notice was provided pursuant to
this Section 4.5(e), the Buyer may defend and settle such Tax Claim in such
manner as it may deem appropriate in its sole discretion. Except as set forth
above in the first sentence of this Section 4.5(e), the Buyer shall control the
conduct of any Tax Claim of the Company relating to any taxable period ending
after the Closing Date and may defend and settle such Tax Claim in such manner
as it may deem appropriate in its sole discretion. The term "Audit" means any
audit, assessment of Taxes, reassessment of Taxes, or other examination by any
Governmental Authority or any judicial or administrative proceedings or appeal
of such proceedings.
(f) All indemnity payments made by the Seller to the Buyer, or
by the Buyer to the Seller, pursuant to this Agreement shall, to the maximum
extent permitted under the Code (or other applicable Tax law), be treated for
all Tax purposes as adjustments to the consideration paid with respect to the
Shares and the Integrated Assets.
Section 4.6 Certain Litigation Indemnification and Related Matters.
(a) Notwithstanding any other provision of this Agreement to the
contrary, the Seller and DQE shall, jointly and severally, indemnify, defend and
hold harmless each Buyer Indemnitee from and against any claims that were
brought or could have been brought in (i) the litigation captioned Edward
Wallace, et al. v. AquaSource, Inc., et al. (Cause No. 2001-05987), filed in the
270/th/ Judicial District Court of Harris County, Texas (the "Class B Stock
Litigation"), or any settlement or compromise relating thereto, (ii) the
litigation captioned AquaSource, Inc. v. JPT Financial, Inc. and Acquisition
Partners, Inc., (Cause No. 2001-31233), filed in the 270/th/ Judicial District
Court of Harris County, Texas (the "JPT Litigation"), or any settlement or
compromise relating thereto, and (iii) any other claims involving the Seller's
Class B Common Stock, or any settlement or compromise relating thereto. In
addition, notwithstanding any other provision of this Agreement to the contrary,
any right, title or interest that Utility, Development or Reynolds, or any
Company Subsidiary, may have in or to any benefit resulting from or arising out
of the Class B Stock Litigation or the JPT Litigation, including any
37
benefits in the nature of claims or counterclaims, payments, insurance proceeds,
settlements, awards, judgments and the like, shall be deemed to be Excluded
Assets and, as such, shall be assigned to the Seller as contemplated by Section
6.3 of this Agreement.
(b) PSC and Acquisition acknowledge and agree that the Seller
shall be entitled exclusively to control, defend, prosecute and settle the Class
B Stock Litigation and the JPT Litigation and PSC and Acquisition agree that
each of them will, and will cause their respective Subsidiaries (including,
after the Closing Date, Utility, Development and Reynolds, and the Company
Subsidiaries) and each of their Subsidiaries' officers, directors and employees,
to cooperate fully in connection therewith, including, but not limited to,
providing access to personnel and records. The Seller shall reimburse PSC,
Acquisition and their Subsidiaries for any out-of-pocket expenses (i.e., travel,
lodging, meals and related expenses) incurred by the them in cooperating with
the Seller as contemplated by this Section 4.6(b), provided, however, that the
Seller shall not reimburse PSC, Acquisition or their Subsidiaries, and PSC,
Acquisition and their Subsidiaries shall not be entitled to reimbursement, for
any portion of the wages, salary, benefits, overhead or other costs attributable
to the officers, directors, employees and agents of PSC, Acquisition or their
Subsidiaries whose cooperation may be required by this Section 4.6(b).
Section 4.7 Certain Indemnification in Respect of Environmental Law.
(a) Notwithstanding any other provision of this Agreement, the
Seller and DQE shall, jointly and severally, indemnify, defend, reimburse, and
hold harmless each Buyer Indemnitee from and against any and all Indemnifiable
Losses arising out of or resulting from any of the following: (i) any breach of
any representation or warranty made by the Seller in Section 3.11 or Section
3.19 hereof that is discovered within the Indemnity Period; (ii) any Third Party
Claim (as defined in Section 4.4) asserted prior to the tenth (10/th/)
anniversary of the Closing Date for any Pre-Closing Environmental Liability (as
defined in Section 4.7(b)(ii)); and (iii) any First Party Environmental Claim
(as defined in Section 4.7(b)(iv)) asserted prior to the tenth (10/th/)
anniversary of the Closing Date for any Pre-Closing Violation or Contamination
(as defined in Section 4.7(b)(i)). Any and all Indemnifiable Losses arising out
of or resulting from clauses (i), (ii), or (iii) above shall not be limited by
the Indemnity Cap (as defined in Section 4.3(b)), but shall be subject to the
Indemnity Basket (as defined in Section 4.3(b)).
(b) As used in this Agreement:
(i) the term "Pre-Closing Violation or Contamination"
means any and all cost and liability (other than
38
Excepted Liabilities) arising out of or related to: (A) any violation of
any Environmental Laws by the Seller, Utility, Development, Reynolds, or
any of the Company Subsidiaries, or any presence in the environment,
Release, threat of Release or any exposure of either an individual or the
environment, of or to any Hazardous Substances at or under any of the
Properties (as defined in Section 4.7(b)(iii)), which, for any of the
foregoing, occurred on or before or existed as of the Closing Date, and (B)
any post-Closing Date liabilities arising from any such pre-Closing Date
violation, presence, Release, threat of Release or exposure.
(ii) the term "Pre-Closing Environmental Liability" means
any and all cost and liability (other than Excepted Liabilities) arising
out of or related to: (A) any presence in the environment, Release, threat
of Release, or any exposure of either an individual or the environment, of
or to any Hazardous Substances from, at, or under any of the Properties or
otherwise arising in connection with the Company's current or former
operations before the Closing Date; (B) the off-site transportation,
storage, treatment, recycling, or Release of any Hazardous Substances
generated or Released, before the Closing Date, by the Seller, Utility,
Development, Reynolds, or any of the Company Subsidiaries, or any
predecessor of such Persons; (C) any violation of any Environmental Laws by
the Seller, Utility, Development, Reynolds, or any of the Company
Subsidiaries at or under any of the Properties which, occurred on or before
or existed as of the Closing Date; and (D) any post-Closing Date
liabilities arising from any such pre-Closing Date violation or presence,
Release, threat of Release or exposure.
(iii) the term "Properties" means any property currently or
formerly owned, occupied, or leased by the Seller, Utility, Development,
Reynolds or any Company Subsidiary.
(iv) the term "First Party Environmental Claim" means any
claim, action, or proceeding, made or brought by any Buyer Indemnitee
asserting either liability or the potential for liability under any
Environmental Laws.
(c) If, after the Closing Date, PSC, Acquisition or any Buyer
Subsidiary: (i) exacerbates any Release or threatened Release of Hazardous
Substances specifically disclosed by the Seller to PSC or Acquisition existing
on or before the Closing Date (a "Pre-Existing Release") or (ii) exacerbates any
violation by the Seller, Utility, Development, Reynolds, or any of the Company
Subsidiaries
39
of any Environmental Laws that existed as of the Closing Date (a "Pre-Existing
Violation"), then the obligation of the Seller and DQE for any Buyer
Indemnifiable Losses in respect of any such Pre-Existing Release or Pre-Existing
Violation shall be reduced to the extent that PSC, Acquisition or any Buyer
Subsidiary exacerbated such Pre-Existing Release or Pre-Existing Violation. PSC,
Acquisition and the Buyer Subsidiaries shall not be considered to have
exacerbated a Pre-Existing Release or Pre-Existing Violation by having their
employees act, in the ordinary course of business, in the same manner that any
employees of the Seller, Utility, Development, Reynolds, or any of the Company
Subsidiaries acted in the ordinary course of business before the Closing Date
(the "Pre-Existing Actions"); provided, however, that PSC, Acquisition and the
Buyer Subsidiaries shall be considered to have exacerbated a Pre-Existing
Release or Pre-Existing Violation by their inaction or failure to modify any
Pre-Existing Actions to the extent required to comply with any applicable
Environmental Laws.
(d) Notwithstanding any other provision of this Agreement to the
contrary, nothing in this Agreement is intended to restrict PSC, Acquisition or
any Buyer Subsidiary from fulfilling its or their obligations to take
appropriate actions as may be required by applicable Environmental Laws.
(e) The right of any Buyer Indemnitee to indemnification under
this Section 4.7 shall be in addition to, and not in lieu of, any statutory
rights which such Buyer Indemnitee has or may obtain under Environmental Laws.
(f) For the avoidance of doubt, the Parties agree that the
provisions of Section 4.3(d), Section 4.3(e), and all of Section 4.4 shall apply
to the indemnity obligations set forth in this Section 4.7, provided, however,
that for purposes of applying such provisions to this Section 4.7, (i) all
references to the Indemnity Cap contained in such provisions shall be
disregarded, and (ii) all references to Direct Claims shall be read to include
First Party Environmental Claims.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
Section 5.1 Organization and Qualification.
(a) Except as set forth in Section 5.1 of the schedule delivered
by PSC to the Seller on the date hereof and attached to this Agreement (the
"Buyer Disclosure Schedule") PSC, Acquisition and each of the Buyer Subsidiaries
(as defined below) is a corporation duly organized, validly existing and in good
40
standing under the laws of its respective jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and operate
its assets and properties to the extent owned, leased and operated and to carry
on its business as it is now being conducted and is duly qualified to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary other than in such jurisdictions where the failure to be in good
standing or be so qualified is not reasonably likely to have a Buyer Material
Adverse Effect (as defined in Section 5.1(b)).
(b) As used in this Agreement, the term "Buyer Material Adverse
Effect" shall mean any material adverse effect on the business, assets,
financial condition or results of operations of the Buyer, taken as a whole,
totaling in each instance $1,000,000; provided, however, that the term "Buyer
Material Adverse Effect" shall not include (i) any such effect resulting from
any change in law, rule, or regulation of any Governmental Authority that
applies generally to similarly situated Persons, (ii) effects relating to or
resulting from general changes in the industries in which the Buyer operates its
assets or conducts its business, or (iii) any Permitted Financial Impact. The
term "Buyer Subsidiary" shall mean a Subsidiary of the Buyer.
Section 5.2 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. Each of PSC and Acquisition has all requisite
corporate power and authority (i) to enter into this Agreement and (ii) subject
to the receipt of the applicable Buyer Required Statutory Approvals (as defined
in Section 5.2(c)) and applicable Buyer Required Consents (as defined in Section
5.2(b)), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by PSC, Acquisition and any
Buyer Subsidiary as PSC may designate pursuant to Section 1.1 of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of PSC and Acquisition. No vote of, or consent by,
the holders of any class or series of stock issued by PSC, Acquisition or any
Buyer Subsidiary is necessary to authorize the execution and delivery by PSC and
Acquisition of this Agreement or the consummation by PSC, Acquisition and any
Buyer Subsidiary as PSC may designate pursuant to Section 1.1 of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by PSC and Acquisition and, assuming the due authorization, execution
and delivery hereof by the Seller and DQE, constitutes the valid and binding
obligation of PSC and Acquisition enforceable against them in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
41
(b) Non-Contravention. Except as set forth in Section 5.2(b)(i)
of the Buyer Disclosure Schedule, the execution and delivery of this Agreement
by PSC and Acquisition does not, and the consummation of the transactions
contemplated hereby will not, result in a Violation pursuant to any provisions
of (i) the articles of incorporation, by-laws or similar governing documents of
PSC, Acquisition or any of the Buyer Subsidiaries, (ii) subject to obtaining the
Buyer Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to PSC, Acquisition or any of the Buyer
Subsidiaries or any of their respective properties or assets, or (iii) subject
to obtaining the third-party consents set forth in Section 5.2(b)(iii) of the
Buyer Disclosure Schedule (the "Buyer Required Consents"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which PSC, Acquisition or any of the Buyer Subsidiaries is a party or by which
they or any of their respective properties or assets may be bound or affected,
except in the case of clause (ii) or (iii) for any such Violation which is not
reasonably likely to have a Buyer Material Adverse Effect.
(c) Statutory Approvals. Except as described in Section 5.2(c)
of the Buyer Disclosure Schedule (the "Buyer Required Statutory Approvals"), no
declaration, filing or registration with, or notice to or authorization, consent
or approval of, any Governmental Authority is necessary for the execution and
delivery of this Agreement by PSC or Acquisition or the consummation by PSC,
Acquisition or any of the Buyer Subsidiaries of the transactions contemplated
hereby, except those which the failure to obtain is not reasonably likely to
result in a Buyer Material Adverse Effect (it being understood that references
in this Agreement to "obtaining" such Buyer Required Statutory Approvals shall
mean (i) making such declarations, filings or registrations; (ii) giving such
notices; (iii) obtaining such authorizations, consents or approvals; (iv) having
such waiting periods expire as are necessary to avoid a violation of law) and
(v) having any applicable appeals period expire without any appeal being filed,
or if such an appeal is filed, such appeal is fully and finally dismissed
without the opportunity for further appeal.
(d) Compliance. Except as set forth in Section 5.2(d)(i) or
Section 5.3 of the Buyer Disclosure Schedule, or as disclosed in the Buyer SEC
Reports (as defined below) filed prior to the date hereof, neither PSC,
Acquisition nor any of the Buyer Subsidiaries is in violation of, or has been
given notice of or been charged with any violation of, or to the knowledge of
PSC or Acquisition is under investigation with respect to any violation of any
law, statute, order, rule, regulation, ordinance, tariff, rate or judgment of
any Governmental Authority, except for possible violations which are not
reasonably likely to have a Buyer Material Adverse Effect or to prevent,
materially delay or materially impair PSC's,
42
Acquisition's or any Buyer Subsidiary's ability to consummate the transactions
contemplated by this Agreement. Except as set forth in Section 5.2(d)(ii) of the
Buyer Disclosure Schedule or as disclosed in the Buyer SEC Reports filed prior
to the date hereof, PSC, Acquisition and the Buyer Subsidiaries have all
permits, licenses, franchises and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently conducted
except those that the absence of which are not reasonably likely to have a Buyer
Material Adverse Effect or to prevent, materially delay or materially impair the
ability of PSC, Acquisition or any Buyer Subsidiary to consummate the
transactions contemplated by this Agreement. Except as set forth in Section
5.2(d)(iii) of the Buyer Disclosure Schedule, neither PSC, Acquisition nor any
Buyer Subsidiary is in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default by PSC,
Acquisition or any Buyer Subsidiary under (i) their respective articles of
incorporation or by-laws or (ii) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which they are a party or by which the PSC, Acquisition or any
Buyer Subsidiary is bound or to which any of their property is subject, except
for possible violations, breaches or defaults which are not reasonably likely to
have a Buyer Material Adverse Effect or to prevent, materially delay or
materially impair PSC's, Acquisition's or any Buyer Subsidiary's ability to
consummate the transactions contemplated by this Agreement. As used in this
Agreement, the term "Buyer SEC Reports" shall mean each report, schedule,
registration statement and definitive proxy statement filed with the SEC by the
Buyer, since December 31, 1999, pursuant to the requirements of the Securities
Act or the Exchange Act.
Section 5.3 Litigation. Except as set forth in Section 5.3 of the
Buyer Disclosure Schedule, (a) there are no claims, suits, actions or
proceedings before any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, pending or, to the knowledge of
the PSC or Acquisition, threatened, nor are there, to the knowledge of PSC or
Acquisition, any investigations or reviews by any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
pending or threatened against, relating to or affecting the PSC, Acquisition or
any Buyer Subsidiary, and (b) there are no judgments, decrees, injunctions,
rules or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to PSC, Acquisition or
any Buyer Subsidiary except, in the case of both clause (a) and clause (b), for
such that are not reasonably likely to have a Buyer Material Adverse Effect or
reasonably likely to prevent, materially delay or materially impair PSC's,
Acquisition's or any Buyer Subsidiary's ability to consummate the transactions
contemplated by this Agreement.
43
Section 5.4 Investigation by the Buyer; the Seller's Liability. Each
of PSC and Acquisition has conducted its own independent investigation, review
and analysis of the business, operations, assets, liabilities, results of
operations, financial condition, software, technology and prospects of the
Company, which investigation, review and analysis was done by PSC, Acquisition
and their affiliates and, to the extent PSC or Acquisition deemed appropriate,
by the officers, directors, employees, accountants, counsel, investment bankers,
financial advisors and other representatives (collectively, "Representatives")
of PSC. In entering into this Agreement, each of PSC and Acquisition
acknowledges that it has relied solely upon the aforementioned investigation,
review and analysis and not on any factual representations of the Seller or the
Seller's Representatives (except the specific representations and warranties of
the Seller set forth in Article III of this Agreement), and each of PSC and
Acquisition:
(a) acknowledges that none of the Seller, Utility, Development,
Reynolds, any Company Subsidiary or any of their respective directors, officers,
shareholders, employees, affiliates, controlling Persons, agents, advisors or
Representatives makes or has made any representation or warranty, either express
or implied, as to the accuracy or completeness of any of the information
(including in materials furnished in the Seller's data room, in presentations by
the Seller's management, on site visits or otherwise) provided or made available
to PSC, Acquisition or their directors, officers, employees, affiliates,
controlling Persons, advisors, agents or Representatives, and
(b) agrees, to the fullest extent permitted by law, that none of
the Seller, Utility, Development, Reynolds, any Company Subsidiary or any of
their respective directors, officers, employees, shareholders, affiliates,
controlling Persons, agents, advisors or Representatives shall have any
liability or responsibility whatsoever to PSC, Acquisition or their directors,
officers, employees, affiliates, controlling Persons, agents or Representatives
on any basis (including in contract or tort, under federal or state securities
laws or otherwise) based upon any information provided or made available, or
statements made (including in materials furnished in the Seller's data room, in
presentations by the Seller's management, on site visits or otherwise) to PSC,
Acquisition or their directors, officers, employees, affiliates, controlling
Persons, advisors, agents or Representatives (or any omissions therefrom),
including in respect of the specific representations and warranties of the
Seller set forth in this Agreement, except that the foregoing limitations shall
not apply to (i) fraud or willful breach of this Agreement by the Seller or DQE,
or (ii) the Seller insofar as the Seller makes the specific representations and
warranties set forth in Article III of this Agreement, but always subject to the
limitations and restrictions contained in Articles IV and X.
44
Section 5.5 Acquisition of Shares; Ability to Evaluate and Bear Risk.
(a) PSC is acquiring the Shares for investment and not with a
view toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling the Shares. PSC acknowledges
that the Shares have not been registered under the Securities Act and agrees
that the Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act and any applicable state securities laws, except pursuant to an exemption
from such registration under the Securities Act and any applicable state
securities laws.
(b) PSC is able to bear the economic risk of holding the Shares
for an indefinite period, and has knowledge and experience in financial and
business matters such that it is capable of evaluating the risks of the
investment in the Shares.
Section 5.6 Financing. PSC has or will have available, prior to the
Closing, sufficient cash in immediately available funds to pay the Purchase
Price pursuant to Article I hereof and to consummate the transactions
contemplated hereby.
Section 5.7 Brokers or Finders. The Buyer has not entered into any
agreement or arrangement entitling any agent, broker, investment banker,
financial advisor or other firm or Person to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 6.1 Covenants of the Seller. After the date hereof and prior
to the Closing Date or earlier termination of this Agreement, the Seller agrees
that, except as set forth in Section 6.1 of the Seller Disclosure Schedule and
except as expressly contemplated in or permitted by (i) this Agreement, (ii) the
business plan for the Company in the form delivered to the Buyer by the Seller
on July 29, 2002 (as the same may be amended from time to time, but only to the
extent that any such amendments do not result, or are not reasonably likely to
result, in a Company Material Adverse Effect, the "Business Plan"), or (iii) or
to the extent the Buyer shall otherwise consent in writing, which decision
regarding consent shall be made as soon as reasonably practical, and which
consent shall not be unreasonably withheld, conditioned or delayed:
45
(a) the business of the Company shall be conducted in the
ordinary and usual course in substantially the same manner as heretofore
conducted, in material compliance with all applicable laws, statutes, ordinances
and regulations, and, to the extent consistent therewith, each of the Seller (in
respect of the Company), Utility, Development and Reynolds, and each Company
Subsidiary, shall use its respective commercially reasonable efforts to preserve
its business organization intact and maintain its existing Contracts, relations
and goodwill with customers, suppliers, creditors, regulators, lessors,
employees and business associates;
(b) each of Utility, Development and Reynolds shall not (i)
amend its articles of incorporation or by-laws; (ii) split, combine or
reclassify its outstanding shares of capital stock; or (iii) declare, set aside
or pay any dividend payable in cash, stock or property in respect of any of its
capital stock except for dividends paid or payable by Utility in respect of
Utility Preferred Shares, and except for dividends of Excluded Assets to the
Seller as contemplated by Section 6.3;
(c) neither Utility, Development nor Reynolds, nor any Company
Subsidiary, shall (i) issue, sell, pledge, dispose of or encumber any shares of,
or securities convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class or any other property or assets; (ii) except for
intercompany indebtedness incurred by the Seller that will not be reflected on
the balance sheet of the Company at the Closing, indebtedness incurred in
connection with the refinancing of the existing indebtedness to third parties of
$11,500,000 as reflected on the June 30, 2002 Balance Sheet at a commercially
reasonable cost of funds, transfer, lease, license, guarantee, sell, mortgage,
pledge, dispose of or encumber any other property or assets (including capital
stock of any Company Subsidiary) or incur or modify any indebtedness or other
liability; or (iii) make any commitments for, make or authorize any capital
expenditures (other than (A) those contemplated by the Business Plan, (B)
capital expenditures not in excess of $7,500,000 in the aggregate incurred in
connection with the repair or replacement of facilities destroyed or damaged due
to casualty or accident (to the extent not covered by insurance), (C) as
required by law or by any consent agreement with a Governmental Authority by
which the Seller, Utility, Development or Reynolds, or any Company Subsidiary,
or its or their assets, is bound, or (D) in amounts less than $500,000
individually and $1,000,000 in the aggregate in any calendar year); or (iv)
other than the ordinary and usual course of business, make any acquisition of,
or investment in, assets or stock of any other Person or entity in excess of
$500,000 in the aggregate in any calendar year;
(d) neither the Seller, Utility, Development or Reynolds, nor
any Company Subsidiary, shall terminate, establish, adopt, enter into, make any
new
46
grants or awards of stock-based compensation or other benefits under, amend or
otherwise modify any Company Plan or increase the salary, wage, bonus or other
compensation of any directors, officers or employees except (i) for grants or
awards to directors, officers and employees under existing Company Plans in such
amounts and on such terms as are consistent with past practice, (ii) in the
normal and usual course of business (which shall include normal periodic
performance reviews and related plans and the provision of individual Company
Plans consistent with past practice for newly hired or appointed officers and
employees), or (iii) for actions necessary to satisfy existing contractual
obligations under Company Plans existing as of the date hereof; provided,
however, that the Seller shall have satisfied its obligations with respect to
the Company Plans under this provision if the Seller or DQE maintains the
Company Plans in such a manner as to comply with this provision;
(e) the Seller, on behalf of the Company, shall maintain
insurance in such amounts and against such risks and losses as are consistent
with the insurance heretofore maintained by DQE, on behalf of the Company;
provided, however, that the Seller shall have satisfied its obligations under
this provision if DQE maintains such insurance on behalf of the Seller;
(f) the Seller shall promptly provide PSC with copies of all
filings made by the Seller, Utility, Development or Reynolds, or any Company
Subsidiary, with, and inform PSC of any communications received from, any state
or federal court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby;
(g) the Seller shall, and shall cause Utility, Development and
Reynolds, and each Company Subsidiary, to, use all commercially reasonable
efforts to promptly obtain all of the Seller Required Consents and the Seller
Required Statutory Approvals. The Seller shall promptly notify PSC of any
failure or prospective failure to obtain any such consents or approvals and
shall provide to PSC copies of all of the Seller Required Consents and the
Seller Required Statutory Approvals obtained by the Seller, Utility, Development
and Reynolds, and each Company Subsidiary;
(h) the Seller shall promptly provide PSC with copies of all
notices of violation or proposed investigations involving the violation of any
Environmental Laws by the Seller or the Company, and inform PSC of any
communications received from, any state or federal court, administrative agency,
commission or other Governmental Authority in connection with any such notice of
violation or investigation;
47
(i) the Seller shall promptly provide PSC with copies of all
pleadings in any lawsuit, equity action or other legal proceeding involving the
Seller (in respect of the Company) or the Company with an amount in controversy
in excess of $50,000;
(j) the Seller shall cause the Company to not enter into any
contract or obligation extending beyond December 31, 2003 except for (i) the
renewal or replacement of the Contracts included in the Integrated Assets on
substantially similar or other commercially reasonable terms and conditions and
(ii) other contract or obligations with an annualized value or liability not in
excess of $25,000 unless PSC shall have first been provided a copy of such
contract or obligation and a reasonable opportunity to comment on such contract
or obligation prior to it becoming binding on the Company;
(k) the Seller shall not, and the Seller shall not permit any of
its Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement, or in
any of its representations and warranties set forth in this Agreement being
untrue on and as of the Closing Date, or to unduly delay the Closing;
(l) the Seller shall cause Utility, Development or Reynolds to
accrue on their books any accrued and unpaid salary, bonus, vacation or other
amounts due Affected Employee (as defined in Section 7.6(a)) for service prior
to the Closing except for such salary, bonus, vacation or other amounts that
are, or will be, paid by the Seller no later than thirty (30) calendar days
following the Closing Date;
(m) the Seller shall use all commercially reasonable efforts to
remedy the failures to be duly qualified, validly existing and in good standing
disclosed in Section 3.1(a) of the Seller Disclosure Schedule; and
(n) the Seller shall from the date hereof until the Closing Date
make capital expenditures in respect of the Company in such amounts for each
calendar month from the date hereof until the Closing Date such that the
cumulative amount of such capital expenditures are no less than the cumulative
amount of capital expenditures for such months as set forth on Exhibit 6.1(n).
Section 6.2 Covenants of the Buyer. After the date hereof and prior to
the Closing Date or earlier termination of this Agreement, each of PSC and
Acquisition agrees, as to itself and to each of the Buyer Subsidiaries, as
follows except as expressly contemplated or permitted in this Agreement or to
the extent the Seller shall otherwise consent in writing, which decision
regarding consent shall be made as soon as reasonably practical, and which
consent shall not be unreasonably
48
withheld, conditioned or delayed:
(a) PSC and Acquisition shall promptly provide the Seller with
copies of all filings made by PSC or Acquisition or any of the Buyer
Subsidiaries with, and inform the Seller of any communications received from,
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby;
(b) PSC and Acquisition shall, and PSC shall cause the Buyer
Subsidiaries to, use all commercially reasonable efforts to promptly obtain all
of the Buyer Required Consents and the Buyer Required Statutory Approvals. PSC
and Acquisition shall promptly notify the Seller of any failure or prospective
failure to obtain any such consents or approvals and shall provide to the Seller
copies of all of the Buyer Required Consents and the Buyer Required Statutory
Approvals obtained by PSC, Acquisition or any Buyer Subsidiary to the Seller;
and
(c) PSC and Acquisition shall not, and PSC shall not permit any
of the Buyer Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement or in any of its representations and warranties set forth in this
Agreement being untrue on and as of the Closing Date or to unduly delay the
Closing.
Section 6.3 Mutual Covenants of the Seller and the Buyer.
Notwithstanding any other provision of this Agreement to the contrary,
the Seller, PSC and Acquisition expressly agree that prior to the Closing, the
Seller shall cause any and all of Utility's, Development's and Reynolds', and
the Company Subsidiaries', right, title and interest in and to all of those
assets set forth on Section 6.3 of the Seller Disclosure Schedule (collectively,
the "Excluded Assets") to be assigned, and all such Excluded Assets to be
delivered, by Utility, Development, Reynolds and the Company Subsidiaries, as
applicable, to the Seller, DQE or such third party as the Seller may designate,
and all of the obligations and liabilities of Utility, Development, Reynolds or
any Company Subsidiary in respect of any such Excluded Assets shall be assumed
by the Seller, DQE or such third party, as the case may be.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 7.1 Access to Company Information and Cooperation.
(a) Upon reasonable notice, the Seller shall, and shall cause
Utility, Development and Reynolds, and each Company Subsidiary, to, afford to
the
49
Representatives of the Buyer reasonable access, during normal business hours
throughout the period prior to the Closing Date, to all of the Seller's (in
respect of the Company), Utility's, Development's and Reynolds', and the Company
Subsidiaries', properties, books, contracts, commitments and records (including,
but not limited to, Tax Returns) and, during such period, the Seller shall, and
shall cause Utility, Development and Reynolds, and each Company Subsidiary, to,
furnish promptly to the Buyer and its Representatives, (i) access to each
report, schedule and other document filed or received by the Seller (in respect
of the Company), Utility, Development or Reynolds, or any Company Subsidiary,
pursuant to the requirements of federal or state securities laws or filed with
or sent to any federal or state regulatory agency or commission and (ii) access
to all information concerning the Seller (in respect of the Company), the
Integrated Assets, Utility, Development or Reynolds, or any Company Subsidiary,
and its or their respective directors and officers and such other matters as may
be reasonably requested by the Buyer or its Representatives in connection with
any filings, applications or approvals required or contemplated by this
Agreement or for any other reason related to the transactions contemplated by
this Agreement; provided, however, that (i) any such access shall be granted
only in such a manner as not to interfere unreasonably with the Seller's
business operations in respect of the Company or otherwise, (ii) upon being
granted such access, the Buyer shall not interfere with the Seller's business
operations in respect of the Company or otherwise, (iii) in granting any such
access the Seller, Utility, Development and Reynolds, and the Company
Subsidiaries, shall not be required to take any action that would constitute a
waiver of any legal privilege, including the attorney-client privilege, the work
product privilege and the self critical investigation privilege, and (iv) in
granting any such access, the Seller, Utility, Development and Reynolds, and the
Company Subsidiaries, shall not be required to provide the Buyer with access to
any information which the Seller, Utility, Development or Reynolds, or any
Company Subsidiary, is under a legal or contractual obligation to withhold from
disclosure. The Buyer shall, and shall cause its Subsidiaries and
Representatives to, hold in strict confidence all documents and information
concerning the Seller or the Company furnished or made available to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated January 23, 2001, entered into by and
among the Seller, DQE and the Buyer (as amended on March 19, 2002, the
"Confidentiality Agreement").
(b) Between the date hereof and the Closing Date, the Parties
shall reasonably cooperate with one another so as to inform one another of the
condition of the Company and the status of the transactions contemplated by this
Agreement. Toward that end, the Parties shall each appoint an officer-level
employee to serve as the head of their transition team and shall use
commercially reasonable efforts to hold regular meetings and/or conference calls
so that the members of the Seller's and the Buyer's management and transition
teams may
50
discuss the Company and the transactions contemplated by this Agreement.
Section 7.2 Regulatory Matters.
(a) HSR Filings. The Seller and the Buyer shall, as soon as
practicable after the date hereof, file or cause to be filed with the Federal
Trade Commission and the Department of Justice any notifications required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules and regulations promulgated thereunder with
respect to the transactions contemplated hereby. The Seller and the Buyer will
use all commercially reasonable efforts to respond on a timely basis to any
requests for additional information made by either of such agencies.
(b) Other Regulatory Approvals. The Seller and the Buyer shall
cooperate and use all commercially reasonable efforts to promptly prepare and
file all necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to use all commercially reasonable
efforts to obtain all necessary permits, consents, approvals and authorizations
of all Governmental Authorities necessary or advisable to obtain the Seller
Required Statutory Approvals and the Buyer Required Statutory Approvals;
provided, however, that the Seller and the Buyer shall cooperate and use all
commercially reasonable efforts to prepare and file any such applications,
notices, petitions, filings and other documents within sixty (60) calendar days
after the date hereof and shall thereafter cooperate to diligently prosecute all
such applications, notices, petitions, filings and other documents. To the
extent any such applications, notices, petitions, filings or other documents
require an allocation of the Purchase Price among the assets of the Company, the
Seller and the Buyer shall make any such allocation in a manner that is
consistent with any allocations made pursuant to Section 7.9 hereof. The Buyer
shall be precluded from including in any application for regulatory approval
contingencies relating to rate treatment of acquisition premiums.
Section 7.3 Consents. The Seller and the Buyer agree to use all
commercially reasonable efforts to obtain the Seller Required Consents and the
Buyer Required Consents, respectively, and to cooperate with each other in
connection with the foregoing.
Section 7.4 Directors' and Officers' Indemnification.
(a) Indemnification. To the fullest extent permitted by law,
from and after the Closing Date, all rights to indemnification existing
immediately prior to the Closing in favor of the current and former employees,
agents, directors or officers of the Seller, Utility, Development and Reynolds,
and each Company Subsidiary, (each, a "Company Indemnified Party" and,
collectively, the "Company
51
Indemnified Parties") with respect to their activities as such prior to or on
the Closing Date, as provided in the Seller's, Utility's, Development's and
Reynolds', and each Company Subsidiary's, respective articles of incorporation,
by-laws, other organizational documents or indemnification agreements in effect
on the date of such activities or otherwise in effect on the date hereof, shall
survive the Closing and shall continue in full force and effect for a period of
not less than six (6) years from the Closing Date, provided that, in the event
any claim or claims are asserted or made within such six (6) year period, all
such rights to indemnification in respect of any claim or claims shall continue
until final disposition of such claim or claims and provided further that, the
Buyer's or any Buyer Subsidiary's indemnity obligation for a particular claim
hereunder shall be reduced in respect of any Company Indemnified Party asserting
such claim to the extent of any insurance proceeds actually received by such
Company Indemnified Party in respect of such claim.
(b) Successors. In the event that after the Closing Date,
Utility, Development or Reynolds, or any of their successors or assigns (i)
consolidates with or merges into any other Person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
Person or entity, then and in either such case, proper provisions shall be made
so that the successors and assigns of Utility, Development or Reynolds, as the
case may be, shall assume the respective obligations of Utility, Development or
Reynolds, as the case may be, set forth in this Section 7.4.
(c) Insurance for Pre-Closing Period. For a period of six (6)
years after the Closing Date, DQE or the Seller shall maintain policies of
directors' and officers' liability insurance for those Persons covered by such
policies maintained by the Seller (in respect of the Company), Utility,
Development or Reynolds immediately prior to the Closing in respect of
pre-Closing acts or omissions on terms no less favorable than the terms of any
such current insurance coverage.
(d) Benefit. The provisions of this Section 7.4 are intended to
be for the benefit of, and shall be enforceable by, each Company Indemnified
Party, his or her heirs and his or her representatives.
Section 7.5 Public Announcements. The Buyer and the Seller shall
consult with each other before issuing any press release with respect to this
Agreement and the transactions contemplated hereby and shall not issue any such
press release or make any such written public statement without the prior
written consent of the other Party, which shall not be unreasonably withheld,
delayed or conditioned, provided, however, that a Party may, without the prior
written consent of the other Party, issue such press release or make such
written public statement as
52
the Party may determine, in good faith after consultation with counsel, is
required by law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange, if it has used all commercially
reasonable efforts to consult with the other Party.
Section 7.6 Workforce Matters.
(a) Neither Utility, Development, Reynolds nor any Company
Subsidiary has any employees. The Buyer will make offers of employment,
effective as of the Closing, to those employees of the Seller identified by
mutual written agreement of the Seller and PSC as Affected Employees (such
individuals, the "Affected Employees") such that such Affected Employees do not
suffer an "employment loss" under the WARN Act (as defined below) as a result of
such offers. The Buyer and the Seller acknowledge that if the Buyer makes
appropriate offers to all Affected Employees, none of such Affected Employees
will suffer an "employment loss" as defined under the WARN Act. As used in this
Agreement, the term "WARN Act" shall mean the Worker Adjustment and Retraining
Notification Act. In connection with the hiring process for Affected Employees,
the Buyer shall comply with applicable laws pertaining to labor and employment,
including, without limitation, Title VII of the Civil Rights Act of 1964, as
amended, the Age Discrimination in Employment Act, the Americans With
Disabilities Act, the Rehabilitation Act and comparable state and local laws. If
any Affected Employee is not hired by the Buyer as of the Closing or if the
Buyer or any Affected Employee terminates such Affected Employee's employment as
of or after the Closing, then the Buyer shall be responsible for any and all
severance costs for all such Affected Employees, including payments owing under
those agreements, plans or arrangements listed in Section 3.9(a) of the Seller
Disclosure Schedule. As between the Seller and the Buyer, neither the Seller nor
DQE shall be obligated to provide any severance or separation pay benefits to
any Affected Employee on account of any termination of such Affected Employee's
employment on or after the Closing Date. Neither Buyer nor its affiliates shall
be responsible for providing severance benefits to any employee of Seller or its
affiliates other than benefits payable in respect of Affected Employees in
accordance with this Section 7.6(a). The Buyer shall be responsible for
providing any continuation coverage required under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), in respect of Affected
Employees who experience a qualifying event (within the meaning of COBRA)
before, on or after the Closing Date. The Seller shall be responsible for any
notices required to be given under, or otherwise comply with, the WARN Act or
similar statutes or regulations of any jurisdiction relating to any "plant
closing" or "mass layoff" or similar triggering event ordered by the Seller with
respect to the Affected Employees prior to the Closing Date. The Buyer shall be
responsible for any notices required to be given under, or otherwise comply
with, the WARN Act or similar statutes or regulations of any jurisdiction
relating to any
53
"plant closing" or "mass layoff" or similar triggering event ordered by the
Buyer or any Buyer Subsidiary with respect to the Affected Employees on and
after the Closing Date. For the avoidance of doubt, for purposes here, the
Parties intend for the "effective date" within the meaning of the WARN Act to
refer to and mean the Closing Date. To the extent possible, the Buyer and the
Seller agree to treat the Buyer as a "successor employer" and the Seller or one
or more of its affiliates as a "predecessor employer" within the meaning of
Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to Affected
Employees, for purposes of Taxes imposed under the United States Federal
Unemployment Tax or the United States Federal Insurance Contributions Act.
(b) The Buyer expressly agrees that without the Seller's
consent, (i) from the date hereof until the first (1/st/) anniversary of the
Closing Date, it will not directly solicit for employment or employ any
employees of the Seller who are not Affected Employees, and (ii) from the
Closing Date until the first (1/st/) anniversary of the Closing Date, it will
cause the Company and the Company Subsidiaries and any Buyer Subsidiaries not to
directly solicit for employment or employ any employees of the Seller who are
not Affected Employees; provided that nothing herein shall prohibit the Buyer or
any of its affiliates from placing advertisements for employment. The Seller
expressly agrees that without PSC's consent, (i) from the date hereof until the
first (1/st/) anniversary of the Closing Date, it will not directly solicit for
employment any of the Affected Employees or employ after the Closing Date any of
the Affected Employees actually hired by the Buyer, and (ii) from the Closing
Date until the first anniversary of the Closing Date, it will cause its
affiliates to not, and require in any agreement entered into for the sale of any
of its operations that any purchaser of such operations will not, directly
solicit for employment any of the Affected Employees or employ after the Closing
Date any of the Affected Employees actually hired by the Buyer; provided that
nothing herein shall prohibit the Seller or any of its affiliates or any
purchaser of the Seller's operations from placing advertisements for employment.
Section 7.7 Employee Benefit Plans.
(a) Continued Employment; Service Credit. Except as otherwise
provided herein, the Buyer shall not assume any Company Plan, nor shall there be
any transfer of assets or liabilities of any Company Plan to any plan, program
or arrangement maintained by the Buyer or any of its affiliates. If any Affected
Employee becomes a participant in any employee benefit plan, practice or policy
of the Buyer or any of its affiliates, such Affected Employee shall be given
credit under such plan for all service prior to the Closing Date with the
Company, any of its affiliates, any ERISA Affiliate or any predecessor employer
to the extent such credit was given by the Company, any of its affiliates, any
ERISA Affiliate or any predecessor employer under a Company Plan, and all
service with the Buyer or
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any of its affiliates on and after the Closing Date but prior to the time such
employee becomes such a participant, for purposes of determining eligibility and
vesting and for purposes of severance and vacation. As of the Closing, the
Company and its affiliates shall cease to provide coverage and benefits for
Affected Employees and their dependents and beneficiaries under any benefit plan
maintained by the Seller or DQE or any of their respective affiliates, except as
required by applicable law.
(b) Continuation of Agreements. Section 7.7(b) of the Seller
Disclosure Schedule lists all contracts, agreements and commitments of the
Seller, Utility, Development or Reynolds, or any Company Subsidiary in effect as
of the date hereof that apply to any Affected Employee (each, a "Section 7.7(b)
Agreement"). The Buyer shall, and shall cause Utility, Development and Reynolds,
and each Company Subsidiary, to assume and honor each Section 7.7(b) Agreement
in accordance with its terms; provided, however, that this undertaking is not
intended to prevent the Seller, Utility, Development or Reynolds, or any Company
Subsidiary, from enforcing a Section 7.7(b) Agreement in accordance with its
terms, including, without limitation, any reserved right to amend, modify,
suspend, revoke or terminate the Section 7.7(b) Agreement or portion thereof.
Section 7.8 Tax Treatment.
(a) Neither the Seller nor the Buyer shall make or file any
election under Section 338 of the Code or any corresponding provision of state
or local Tax law with respect to the purchase of the Shares and for the stock of
each Company Subsidiary pursuant to this Agreement.
(b) Utility, Development and Reynolds will each elect under
Section 168(k)(2)(C)(iii) of the Code not to deduct additional first (1/st/)
year depreciation for any water utility property placed in service during
taxable years that include any period from September 11, 2001 through the
Closing Date.
Section 7.9 Allocation of Consideration.
(a) The consideration attributable to the purchase of the Shares
and the Integrated Assets shall be allocated among the Shares and the Integrated
Assets as set forth in Exhibit 7.9 hereto, in compliance with Section 1060 of
the Code and the regulations promulgated thereunder. Within thirty (30) calendar
days after the determination of the adjustments pursuant to Article I, the
Seller shall deliver to the Buyer a schedule (the "Adjustment Schedule")
allocating said adjustments among the Shares and the Integrated Assets.
(b) The Buyer may dispute any allocation set forth on the
Adjustment Schedule; provided, however, that (i) the Buyer shall not dispute any
of
55
the original allocations set forth in Exhibit 7.9 and (ii) the Buyer shall
notify the Seller in writing (the "Allocation Dispute Notice") of each disputed
item, specifying the allocation in dispute and setting forth, in reasonable
detail, the basis for such dispute within thirty (30) calendar days of the
Buyer's receipt of the Adjustment Schedule. The Buyer shall submit only one
Allocation Dispute Notice containing all disputed allocations. In the event of
such a dispute, the Buyer and the Seller shall attempt to reconcile their
differences and any resolution by them as to any disputed allocations shall be
final, binding and conclusive. If the Buyer and the Seller are unable to reach a
resolution with such effect within thirty (30) calendar days of the receipt by
the Seller of the Allocation Dispute Notice, the Buyer and the Seller shall
submit the items remaining in dispute for resolution to a nationally recognized
accounting firm, mutually acceptable to both the Seller and PSC, which shall,
within thirty (30) calendar days after submission, determine and report to the
Parties upon such remaining disputed allocations, and such report shall be
final, binding and conclusive on the Parties hereto. All costs and expenses of
the nationally recognized accounting firm relating to the disputed allocations
shall be borne equally by the Buyer and the Seller.
(c) Upon agreement of the Parties with respect to the Adjustment
Schedule, or the completion of a report prepared by a nationally recognized
accounting firm pursuant to Section 7.9(b), a schedule (the "Final Allocation
Schedule") setting forth the allocation among the Shares and the Integrated
Assets as specified in Section 7.9(a) and modified pursuant to Section 7.9(b)
shall be prepared by the Parties. Each of the Buyer and the Seller shall (i)
timely file with each relevant Tax authority all forms and Tax Returns required
to be filed in connection with the allocation set forth in the Final Allocation
Schedule (including Internal Revenue Service Form 8594), (ii) be bound by such
allocation for purposes of determining Taxes, (iii) prepare and file, and cause
their respective affiliates to prepare and file, their Tax Returns on a basis
consistent with such allocation, and (iv) not take any position, or cause their
respective affiliates to take any position, inconsistent with such allocation on
any Tax Return, in any audit or proceeding before any Tax authority or in any
report made for Tax purposes; provided, however, that, notwithstanding anything
in this Section 7.9 to the contrary, the Parties shall be permitted to take a
position inconsistent with that set forth in this Section 7.9 if required to do
so by a final and unappealable decision, judgment, decree or other order by any
court of competent jurisdiction. In the event that any of such allocations are
disputed by any Tax authority, the Seller or the Buyer, as the case may be,
receiving notice of the dispute shall promptly notify the Seller or the Buyer,
as the case may be, not receiving notice of the dispute.
Section 7.10 Tax Returns. The Seller shall prepare and file, or cause
to be prepared and filed, when due all Tax Returns that are required to be filed
by or with respect to all or any portion of the Company for taxable years or
periods
56
ending on or before the Closing Date. PSC shall prepare and file, or cause to be
prepared and filed, when due all Tax Returns that are required to be filed by or
with respect to all or any portion of the Company for taxable years or periods
ending after the Closing Date. Any Tax Return required to be filed by PSC,
Acquisition or any Buyer Subsidiary relating to any Straddle Period shall be
prepared based on past practice and submitted (with copies of any relevant
schedules, work papers and other documentation then available) to the Seller for
the Seller's approval not less than thirty (30) calendar days prior to the due
date for the filing of such Tax Return, which approval shall not be unreasonably
withheld. The Seller and PSC shall make available all books and records and
cooperate with each other as reasonably necessary for the preparation and filing
of any Tax Returns relating to all or any portion of the Company.
Section 7.11 Transfer Taxes. Notwithstanding any other provision of
this Agreement to the contrary, the Buyer and the Seller shall bear equally (a)
all transfer (including real property transfer and documentary transfer) Taxes
and fees imposed with respect to the transactions contemplated hereby and (b)
all sales, use, gains (including state and local transfer gains), excise and
other transfer or similar Taxes imposed with respect to the transactions
contemplated hereby. The Seller shall execute and deliver to PSC, and PSC shall
execute and deliver to the Seller at the Closing any certificates or other
documents as the requesting Party may reasonably request in order to perfect any
exemption from any such transfer, documentary, sales, use, gains, excise or
other Taxes, or to otherwise comply with any applicable reporting requirements
with respect to any such Taxes.
Section 7.12 Financial Information.
(a) After the Closing, upon reasonable written notice, the Buyer
and the Seller shall furnish or cause to be furnished to each other and their
respective accountants, counsel and other Representatives, during normal
business hours, such information (including records pertinent to the Company) as
is reasonably necessary for financial reporting and accounting matters.
The Buyer shall retain all of the books and records of the Integrated
Assets, Utility, Development and Reynolds, and the Company Subsidiaries, for a
period of ten (10) years after the Closing Date or such longer time as may be
required by law. After the end of such period, before disposing of such books or
records, the Buyer shall give notice to such effect to the Seller and give the
Seller an opportunity to remove and retain all or any part of such books or
records as the Seller may select.
Section 7.13 Transition Services. Within one hundred eighty (180)
calendar days of the date hereof, the Parties shall use all commercially
reasonable
57
effects to enter into one or more definitive agreements pursuant to which DQE or
the Seller shall provide to the Buyer, for a period of six months following the
Closing Date, any or all services previously provided by DQE or the Seller,
respectively, to the Company prior to the Closing Date including, but not
limited to: (i) accounting services (specifically the Lawson System), (ii)
information technology services, (iii) data processing services, and (iv) such
other services and products as shall be mutually agreed to by the Parties, in
each case to the extent that DQE or the Seller is able to provide such services
without any undue hardship on DQE or the Seller and in all cases at a price for
any such services that is equal to DQE's or the Seller's actual cost for such
services, as the case may be, to be paid on a monthly basis by the Buyer to DQE
or the Seller.
Section 7.14 Update of the Seller Disclosure Schedule. The Seller may
from time to time prior to or on the Closing Date by notice in accordance with
this Agreement supplement or amend the Seller Disclosure Schedule, including one
or more supplements or amendments to correct any matter that would otherwise
constitute a breach of any representation, warranty or covenant contained
herein. If the Seller Disclosure Schedule is updated pursuant to this provision
so as to disclose additional liabilities or obligations of the Company that, in
the aggregate, exceed $15,000,000 (except for those liabilities or obligations
resulting from (i) any change in law, rule or regulation of any Governmental
Authority that applies generally to similarly situated Persons, (ii) general
changes in the industries in which the Company operates its assets or conducts
its business, and (iii) a Permitted Financial Impact), then the Buyer shall have
the right to terminate this Agreement pursuant to Section 9.1(f).
Notwithstanding any other provision hereof to the contrary, the Seller
Disclosure Schedule and the representations and warranties made by the Seller
shall be deemed for all purposes to include and reflect such supplements and
amendments as of the date hereof and at all times thereafter, including the
Closing Date.
Section 7.15 Surety Bonds.
(a) After the Closing, PSC shall, and shall cause Utility,
Development and Reynolds to, use all commercially reasonable efforts to recover
and replace those surety bonds listed in Exhibit 7.15(a) and to have such surety
bonds returned to Seller within ninety (90) calendar days of the Closing Date.
(b) Each of PSC and Acquisition expressly acknowledges that,
after the Closing, the Seller and/or DQE may cancel those surety bonds listed in
Exhibit 7.15(b) without notice PSC or Acquisition, subject to the terms of the
bond documents.
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Section 7.16 Governmental Taking.
(a) Between the date hereof and the Closing Date, the Seller
shall immediately notify PSC if a Governmental Authority commences condemnation,
expropriation, eminent domain or similar proceedings affecting all or any
portion of any real property, franchise, service territory or operations of the
Company (a "Condemnation Proceeding"). Except for any Condemnation Proceeding in
respect of Utility Center, Inc.'s "North System" (a "North System Condemnation")
between the date hereof and the Closing Date, the Seller shall not enter into
any Condemnation Proceeding settlement with the Governmental Authority that
commences such Condemnation Proceeding without the prior written consent of PSC
unless (i) the settlement pays the Seller at least Rate Base as compensation
from the Governmental Authority in connection with the subject Condemnation
Proceeding, (ii) the Seller shall deposit any monies resulting from any such
settlement into a separate escrow account and (iii) the Seller shall cause such
monies to be transferred from the Seller to the Company immediately prior to the
Closing Date.
(b) Except for a North System Condemnation, between the date
hereof and the Closing Date, with respect to any Condemnation Proceeding that is
not resolved pursuant to a settlement and results in a governmental taking, (i)
the Seller shall deposit any monies resulting from any such governmental taking
into a separate escrow account and (ii) the Seller shall cause such monies to be
transferred from the Seller to the Company immediately prior to the Closing
Date.
(c) Between the date hereof and the Closing Date, with respect
to any North System Condemnation, the Seller shall not enter into any settlement
without the prior written consent of PSC unless (i) the settlement pays the
Seller at least Rate Base of the North System as compensation from the
Governmental Authority in connection with the North System Condemnation, (ii)
the Seller shall deposit any monies resulting from any such settlement that do
not exceed said Rate Base into a separate escrow account, together with fifty
percent (50%) of the monies resulting from any such settlement that do exceed
said Rate Base and (iii) the Seller shall cause such monies to be transferred
from the Seller to the Company immediately prior to the Closing Date; provided,
however, that the Seller shall be entitled to retain as an Excluded Asset or
otherwise fifty percent (50%) of any monies resulting from any such settlement
that exceeds said Rate Base.
(d) Between the date hereof and the Closing Date, with respect
to any North System Condemnation that is not resolved pursuant to a settlement
and results in a governmental taking, (i) the Seller shall deposit any monies
resulting from any such taking that do not exceed the Rate Base of the North
System into a separate escrow account, together with fifty percent (50%) of any
59
monies resulting from any such governmental taking that do exceed said Rate
Base; provided, however, that the Seller shall be entitled to retain as an
Excluded Asset or otherwise fifty percent (50%) of any monies resulting from any
such governmental taking that exceeds said Rate Base.
(e) As used in this Section 7.16, the term "Rate Base" shall
mean Rate Base with respect to a particular portion of real property, franchise,
service territory or operations.
Section 7.17 AquaSource Name. The Seller and the Buyer acknowledge
that as a result of the consummation of the transactions contemplated by this
Agreement, on and after the Closing Date neither the Buyer nor the Company shall
have any right, title or interest in and to the name and mark "AquaSource" or
any derivations thereof. Notwithstanding the foregoing, the Seller agrees that
on the Closing Date, and continuing until the first (1/st/) anniversary of
Closing Date, it shall grant the Buyer, in respect of Utility, Development and
Reynolds, and the Company Subsidiaries, a non-exclusive, fully-paid license to
use the name "AquaSource" or any derivations thereof that may have been used by
the Company on the date hereof anywhere in the United States of America and that
upon the expiration of such one year period, the Buyer shall, for a period not
to exceed ninety (90) calendar days, have the right to purchase Seller's right,
title and interest in and to the name "AquaSource", as well as any and all
federal or state applications and/or registrations thereof, for a purchase price
of $100,000. Within ninety (90) calendar days of the execution of this
Agreement, the Seller and PSC shall use all commercially reasonable efforts to
enter into an appropriate written agreement for the license and option to
purchase the name and mark "AquaSource" as contemplated by this Section 7.17.
Section 7.18 General and Automobile Liability Insurance. The Seller
agrees to use commercially reasonable efforts to have its general and automobile
liability insurance policies for the twenty-four (24) months immediately
following the Closing Date endorsed to make PSC and Acquisition an additional
insured under such policies with respect to occurrences involving the Company
and the Integrated Assets occurring prior to the Closing Date; provided,
however, that the Seller shall have satisfied its obligations under this
provision if DQE uses commercially reasonable efforts to have its general and
automobile liability insurance so endorsed. PSC and Acquisition agree to use
commercially reasonable efforts to have their general and automobile liability
insurance policies for the twenty-four (24) months immediately following the
Closing Date endorsed to make the Seller an additional insured under such
policies with respect to occurrences involving the Company and the Integrated
Assets occurring after the Closing Date.
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Section 7.19 Further Assurances. Each Party will, and will cause its
Subsidiaries to, execute such further documents or instruments and take such
further actions as may reasonably be requested by any other Party in order to
consummate the transaction contemplated hereby in accordance with the terms
hereof or otherwise perform those obligations required hereunder. In the event
that any Integrated Asset to be conveyed, assigned, transferred and delivered
hereunder to the Buyer shall not have been so conveyed, assigned, transferred
and delivered to the Buyer at the Closing, the Parties shall use all
commercially reasonable efforts to so convey, assign, transfer and deliver such
Integrated Asset to the Buyer and to cause the Buyer to assume all Integrated
Liabilities associated therewith as promptly as is practicable following the
Closing Date.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the
Closing. The respective obligations of each Party to effect the Closing shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 10.3 by the joint action
of the Parties hereto:
(a) No Injunction. No application for a temporary restraining
order or preliminary or permanent injunction or other order by any federal or
state court preventing consummation of the transactions contemplated hereby
shall have been applied or petitioned for and not dismissed with prejudice, and
the transactions contemplated hereby shall not have been prohibited under any
applicable federal or state law or regulation.
(b) Statutory Approvals. The Seller Required Statutory Approvals
and the Buyer Required Statutory Approvals shall have been obtained at or prior
to the Closing Date, such approvals shall have become Final Orders (as defined
below) and such Final Orders shall not, individually or in the aggregate, impose
terms or conditions (other than the preclusion of recovery of an acquisition
premium) which would have a material adverse effect on the business, operations,
properties, assets, financial condition, or results of operations of the Company
and the Buyer and their respective Subsidiaries taken as a whole. A "Final
Order" means action by the relevant regulatory authority which has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect to
which any waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, as to which all conditions to the
consummation of such transactions prescribed by law, regulation or order have
been satisfied and having any applicable appeals period expire without any
appeal being filed, or if such an appeal is filed, such appeal is fully and
finally dismissed without the opportunity for further appeal.
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(c) Assignment and Delivery of Excluded Assets and Assumption of
Related Liabilities. All of Utility's, Development's, Reynolds, and the Company
Subsidiaries' right, title and interest in and to the Excluded Assets shall have
been assigned, and all such Excluded Assets shall have been delivered, to the
Seller or such third party as the Seller may designate, and the Seller or such
third party, as the case may be, shall have assumed all of the obligations and
liabilities of Utility, Development, Reynolds and the Company Subsidiaries in
respect of such Excluded Assets, as contemplated by Section 6.3 of this
Agreement.
Section 8.2 Conditions to Obligation of the Buyer to Effect the
Closing. The obligation of the Buyer to effect the Closing shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Buyer in writing pursuant to Section
10.3:
(a) Performance of Obligations of the Seller. The Seller and/or
the Company will have performed in all material respects its agreements and
covenants contained in or contemplated by this Agreement which are required to
be performed by it at or prior to the Closing.
(b) Representations and Warranties of the Seller. The
representations and warranties of the Seller set forth in this Agreement shall
be true and correct (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time which need
only be true and correct as of such date or time) except in each of cases (i)
and (ii) for such failures of representations or warranties to be true and
correct (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which would not result in
a Company Material Adverse Effect.
(c) Closing Certificate of the Seller. The Buyer shall have
received a certificate signed by a duly authorized officer of the Seller, dated
as of the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 8.2(a) and Section 8.2(b) have
been satisfied.
(d) Material Adverse Effect on the Company. There shall exist no
facts or circumstances that would result in a material adverse effect on the
business, assets, financial condition or results of operations of the Company
totaling, in the aggregate, $15,000,000 or more other than those facts or
circumstances which result from (i) any change in law, rule, or regulation of
any Governmental Authority that applies generally to similarly situated Persons,
(ii) general changes in the industries in which the Company operates its assets
or conducts its businesses or (iii) any Permitted Financial Impact.
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(e) The Seller Required Consents. The Seller Required Consents,
the failure of which to obtain would have a Company Material Adverse Effect,
shall have been obtained.
(f) Intercompany Debt. There shall be no intercompany
indebtedness on the balance sheet of the Company.
Section 8.3 Conditions to Obligation of the Seller to Effect the
Closing. The obligation of the Seller to effect the Closing shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Seller in writing pursuant to Section
10.3:
(a) Performance of Obligations of the Buyer. The Buyer (and/or
its appropriate Subsidiaries) will have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement which
are required to be performed by it at or prior to the Closing Date.
(b) Representations and Warranties of the Buyer. The
representations and warranties of PSC and Acquisition set forth in this
Agreement shall be true and correct (i) on and as of the date hereof and (ii) on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without giving effect to any materiality qualification or
standard contained in any such representations and warranties) which would not
result in a Buyer Material Adverse Effect.
(c) Closing Certificates of the Buyer. The Seller shall have
received certificates signed by a duly authorized officer of PSC and
Acquisition, dated as of the Closing Date, to the effect that, to the best of
such officer's knowledge, the conditions set forth in Section 8.3(a) and Section
8.3(b) have been satisfied.
(d) Buyer Material Adverse Effect. No Buyer Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance that
would result in a material adverse effect material adverse effect on the
business, assets, financial condition or results of operations of the Buyer
totaling, in the aggregate, $15,000,000 or more other than those facts or
circumstances which result from (i) any change in law, rule, or regulation of
any Governmental Authority that applies generally to similarly situated Persons,
(ii) general changes in the industries in which the Buyer operates its assets or
conducts its business, or (iii) any Permitted Financial Impact.
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(e) Buyer Required Consents. The Buyer Required Consents, the
failure of which to obtain would have a Buyer Material Adverse Effect, shall
have been obtained.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the Seller and PSC;
(b) by PSC or the Seller, if any state or federal law, order,
rule or regulation is adopted or issued, which has the effect, as supported by
the written opinion of outside counsel for such Party, of prohibiting the
Closing, or by PSC or the Seller, if any court of competent jurisdiction in the
United States or any state shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the Closing, and, in
either case, if such order, rule, regulation, judgment or decree shall have
become final and nonappealable;
(c) by PSC or the Seller, by written notice to the other Party,
if the Closing Date shall not have occurred on or before December 31, 2003 (the
"Termination Date"); provided, however, that the right to terminate the
Agreement under this Section 9.1 shall not be available to any Party whose
failure (or whose affiliate's failure) to fulfill any obligation under this
Agreement shall have proximately caused the failure of the Closing Date to occur
on or before such date;
(d) by PSC, by written notice to the Seller, if there shall have
been any breach or breaches of any representations or warranties, or any breach
or breaches of any covenants or agreements of the Seller or DQE hereunder, which
breach or breaches would, taken together, result in a material adverse effect on
the business, assets, financial condition or results of operations of the
Company totaling, in the aggregate, $15,000,000 or more except for those
breaches resulting from (i) any change in law, rule, or regulation of any
Governmental Authority that applies generally to similarly situated Persons,
(ii) general changes in the industries in which the Company operates its assets
or conducts its businesses or (iii) any Permitted Financial Impact, and such
breach or breaches shall not have been remedied within thirty (30) calendar days
after receipt by the Seller of notice in writing from PSC, specifying the nature
of such breach or breaches and requesting that it or they be remedied, or PSC
shall not have received adequate assurance of a cure of such breach or breaches
within such thirty (30) calendar day period;
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(e) by the Seller, by written notice to PSC, if there shall have
been any breach or breaches of any representations or warranties, or any breach
or breaches of any covenants or agreements of PSC or Acquisition hereunder,
which breach or breaches would, taken together, result in a material adverse
effect on the business, assets, financial condition or results of operations of
the Company totaling, in the aggregate, $15,000,000 or more except for those
breaches resulting from (i) any change in law, rule, or regulation of any
Governmental Authority that applies generally to similarly situated Persons,
(ii) general changes in the industries in which the Company operates its assets
or conducts its businesses or (iii) any events or circumstances that are taken
into consideration in adjusting the Purchase Price, and such breach or breaches
shall not have been remedied within thirty (30) calendar days after receipt by
PSC of notice in writing from the Seller, specifying the nature of such breach
or breaches and requesting that it or they be remedied, or the Seller shall not
have received adequate assurance of a cure of such breach or breaches within
such thirty (30) calendar day period; or
(f) by PSC if the Seller Disclosure Schedule is updated so as to
disclose additional liabilities or obligations of the Company that, in the
aggregate, exceed $15,000,000 (except for those liabilities or obligations
resulting from (i) any change in law, rule, or regulation of any Governmental
Authority that applies generally to similarly situated Persons, (ii) general
changes in the industries in which the Company operates its assets or conducts
its businesses or (iii) any events or circumstances that are taken into
consideration in adjusting the Purchase Price).
Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Buyer pursuant to Section 9.1 there shall
be no liability on the part of either the Seller or the Buyer or their
respective officers or directors hereunder, except (a) for fraud or for willful
breach of this Agreement prior to such termination or abandonment of the
transactions and (b) that Sections 10.2, 10.4, 10.8, 10.9, 10.10, 10.13, and the
agreement contained in the last sentence of Section 7.1(a) shall survive the
termination.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Obligations. The representations and
warranties of the Parties contained in this Agreement shall survive the Closing
until the second (2/nd/) anniversary of the Closing Date. None of the covenants,
obligations or agreements of the Parties contained in this Agreement or in any
instrument, certificate, opinion or other writing provided for herein, shall
survive the Closing; provided, however, that, notwithstanding the foregoing, the
covenants of the Seller and the Buyer contained in Sections 1.3(b), 1.4(b), 7.4,
7.5, 7.6, 7.7, 7.8, 7.9, 7.10,
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7.11, 7.12, 7.13, 7.15, 7.16, 7.17, 7.18 and 7.19, the last sentence of Section
7.1(a) and all of Articles IV and X shall survive the Closing.
Section 10.2 Amendment and Modification. This Agreement may be
amended, modified and supplemented in any and all respects, but only by a
written instrument signed by each of the Parties hereto expressly stating that
such instrument is intended to amend, modify or supplement this Agreement.
Section 10.3 Extension; Waiver. Any failure of any of the Parties to
comply with any obligation, covenant, agreement or condition herein, and any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and any time for the performance of any of
the obligations or other acts of a Party hereto, may be waived or extended, as
the case may be, but only pursuant to a written instrument signed by all Parties
entitled to the benefits thereof; provided, however, that any such waiver or
extension of such obligation, covenant, agreement or condition, or inaccuracy,
shall not operate as a waiver of, or estoppel with respect to, any subsequent
failure to comply therewith. The failure of any Party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
Section 10.4 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the Party incurring such expenses except that the Seller and the Buyer shall
each bear 50% of the fee payable in connection with the filing required by the
HSR Act.
Section 10.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) when delivered personally, (b)
when sent by reputable overnight courier service, or (c) when telecopied (which
is confirmed by copy sent within one (1) business day by a reputable overnight
courier service) to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice):
(i) If to the Seller, to
AquaSource, Inc.
c/o DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Telecopier No.: 412-393-1071
Telephone No.: 412-393-1143
Attention: David R. High, Esq.
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with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 393-5760
Telephone No.: (202) 371-7000
Attention: Erica Ward, Esq.
(ii) if to DQE, to
DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Telecopier No.: 412-393-1071
Telephone No.: 412-393-1143
Attention: David R. High, Esq.
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 393-5760
Telephone No.: (202) 371-7000
Attention: Erica Ward, Esq.
(iii) if to PSC, to
Philadelphia Suburban Corporation
762 West Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3489
Telecopier No.: (610) 645-1061
Telephone No.: (610) 525-1400
Attention: Nicholas DeBenedictis
Chairman, President and Chief Executive
Officer
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with a copy to
Reed Smith LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103-7301
Telecopier No.: (215) 851-1420
Telephone No.: (215) 851-8130
Attention: Peter J. Tucci, Esq.
And
(iv) if to Acquisition, to
Aqua Acquisition Corporation
762 West Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3489
Telecopier No.: (610) 645-1061
Telephone No.: (610) 525-1400
Attention: Nicholas DeBenedictis
Chairman, President and Chief Executive
Officer
with a copy to
Reed Smith LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103-7301
Telecopier No.: (215) 851-1420
Telephone No.: (215) 851-8130
Attention: Peter J. Tucci, Esq.
Section 10.6 Entire Agreement; No Third Party Beneficiaries. This
Agreement, including the Schedules attached hereto, and the Confidentiality
Agreement (a) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among the Seller and the Buyer with
respect to the subject matter hereof and thereof and (b) are not intended to
confer any rights or remedies hereunder upon any Person other than the Parties
hereto and thereto, Company Indemnified Parties to the extent set forth in
Section 7.4 and Buyer Indemnitees to the extent set forth in Article IV.
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Section 10.7 Severability. Any term or provision of this Agreement
that is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the Parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.
Section 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to the principles of conflicts of law thereof.
Section 10.9 Venue. EACH OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT
ITSELF TO THE EXCLUSIVE PERSONAL JURISDICTION OF ANY FEDERAL OR STATE COURT
LOCATED IN AND FOR PITTSBURGH, PENNSYLVANIA OR PHILADELPHIA, PENNSYLVANIA IN THE
EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT, (B) AGREES THAT IT SHALL NOT
ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST
FOR LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT SHALL NOT BRING ANY ACTION
RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT
SITTING IN AND FOR PITTSBURGH, PENNSYLVANIA OR PHILADELPHIA, PENNSYLVANIA.
Section 10.10 Waiver of Jury Trial and Certain Damages. EACH PARTY TO
THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (A)
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (B) ANY RIGHT IT MAY
HAVE TO RECEIVE DAMAGES FROM THE OTHER PARTY BASED ON ANY THEORY OF LIABILITY
FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL (INCLUDING LOST PROFITS) DAMAGES.
The Parties agree that the aggregate liability of the Seller arising out of or
relating to this Agreement or the transactions contemplated herein shall in no
event exceed the Purchase Price.
Section 10.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any Party hereto
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(whether by operation of law or otherwise) without the prior written consent of
the other Party; provided, however, that any Party may assign this Agreement,
without the consent of the assigning Parties, to the assigning Party's successor
as a result of a change in control of the assigning Party, a consolidation of
the assigning Party with or into another entity, a sale of all or substantially
all of the assets of the assigning Party, or a merger of the assigning Party
with or into another entity, in any case whether or not the assigning Party is
the surviving entity.
Section 10.12 Interpretation. When a reference is made in this
Agreement to Articles or Sections, such reference shall be to an Article or
Section of this Agreement, respectively, unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 10.13 No Specific Enforcement. Except with respect to the
obligations set forth in the last sentence of Section 7.1(a) and all of Sections
1.3(b), 1.4(b), 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.15, 7.16,
7.17, 7.18, 7.19, 9.2, 10.1, 10.4, 10.7, 10.8, 10.9, 10.10, 10.11, and Article
IV, the Parties agree that in the event of a breach of this Agreement, the
Parties shall not be entitled to specific performance of the terms hereof.
Section 10.14 Counterparts; Effect. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, each of the Seller, DQE, PSC and Acquisition has
caused this Agreement to be signed by a duly authorized officer as of the date
first written above.
AQUASOURCE, INC.
By: /s/ Frank A. Hoffmann
------------------------------------
Name: Frank A. Hoffmann
Title: President
DQE, INC.
By: /s/ Frank A. Hoffmann
------------------------------------
Name: Frank A. Hoffmann
Title: Executive Vice President
PHILADELPHIA SUBURBAN CORPORATION
By: /s/ Nicholas DeBenedictis
------------------------------------
Name: Nicholas DeBenedictis
Title: Chairman, President and
Chief Executive Officer
AQUA ACQUISITION CORPORATION
By: /s/ Nicholas DeBenedictis
------------------------------------
Name: Nicholas DeBenedictis
Title: Chairman, President and
Chief Executive Officer
71