EXHIBIT 2.1
Execution Copy
PURCHASE AND SALE
AGREEMENT
dated as of August 2, 2001
By and Among
Azurix Corp.,
American Water Services, Inc.
and
American Water Works Company, Inc.
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions....................................................1
Section 1.02. Rules of Construction..........................................1
ARTICLE II.
SALE AND PURCHASE
Section 2.01. Sale and Purchase of Subject Company Stock.....................2
Section 2.02. Purchase Price.................................................2
Section 2.03. Manner of Determining the Estimated Purchase Price.............3
Section 2.04. Closing .......................................................3
Section 2.05. Post-Closing Purchase Price Adjustment Amount..................5
Section 2.06. Procedures for Calculating and Paying the Purchase Price
Adjustment Amount............................................5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES REGARDING SELLER
Section 3.01. Organization and Qualification.................................7
Section 3.02. Authorization of Agreement.....................................7
Section 3.03. Approvals and Consents.........................................8
Section 3.04. No Violation...................................................8
Section 3.05. No Brokers.....................................................9
Section 3.06. Title to Subject Company Stock.................................9
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES REGARDING SUBJECT COMPANIES
Section 4.01. Organization; Qualification; Subsidiaries......................9
Section 4.02. Organizational Documents......................................10
Section 4.03. Approvals and Consents........................................10
Section 4.04. No Violation..................................................10
Section 4.05. Capitalization................................................11
Section 4.06. Title to Properties...........................................12
Section 4.07. Financial Statements..........................................13
Section 4.08. Authorizations................................................14
Section 4.09. Compliance With Laws; Regulation of Businesses................14
Section 4.10. Insurance.....................................................15
Section 4.11. Taxes.........................................................15
Section 4.12. Material Contracts............................................17
Section 4.13. Employees.....................................................18
-i-
Section 4.14. Environmental Matters.........................................21
Section 4.15. Litigation....................................................22
Section 4.16. Material Adverse Changes......................................23
Section 4.17. Intellectual Property.........................................23
Section 4.18. Transactions with Affiliates..................................24
Section 4.19. SEC Filings...................................................24
ARTICLE V.
REPRESENTATIONS AND WARRANTIES REGARDING BUYER
Section 5.01. Organization and Qualification................................25
Section 5.02. Authorization of Agreement....................................25
Section 5.03. Approvals and Consents........................................25
Section 5.04. No Violation..................................................25
Section 5.05. Financing Commitments.........................................26
Section 5.06. No Brokers....................................................26
Section 5.07. Investment in Subject Company Stock...........................26
ARTICLE VI.
COVENANTS OF THE SELLER
Section 6.01. Affirmative Covenants Regarding Operation of the Businesses...26
Section 6.02. Negative Covenants Regarding the Operation of the Businesses..27
Section 6.03. Access to Information.........................................30
Section 6.04. Conversion of Intercompany Indebtedness.......................31
Section 6.05. Employees.....................................................31
Section 6.06. Covenants Not to Compete......................................31
Section 6.07. Insurance.....................................................32
ARTICLE VII.
COVENANTS OF THE BUYER
Section 7.01. Corporate Name................................................33
Section 7.02. Guarantees....................................................33
Section 7.03. Employee Benefits.............................................34
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.01. Appropriate Action; Consents; Filings.........................35
Section 8.02. Public Announcements..........................................36
Section 8.03. Taxes.........................................................36
Section 8.04. Expenses......................................................39
Section 8.05. Post-Closing Matters..........................................40
-ii-
ARTICLE IX.
CONDITIONS TO CLOSING
Section 9.01. Conditions to Obligations of Each Party Under This Agreement..41
Section 9.02. Conditions to the Seller's Obligations........................41
Section 9.03. Additional Conditions to the Buyer's Obligations..............42
ARTICLE X. INDEMNIFICATION
Section 10.01. Survival of Representations, Warranties, Covenants and
Agreements.................................................43
Section 10.02. General Indemnification......................................43
Section 10.03. Procedures...................................................46
Section 10.04. Consequential Damages........................................48
Section 10.05. Sole Remedy..................................................48
Section 10.06. Tax Effect of Payments.......................................49
ARTICLE XI.
TERMINATION, AMENDMENT AND WAIVER
Section 11.01. Termination..................................................49
Section 11.02. Effect of Termination........................................50
Section 11.03. Waiver.......................................................51
ARTICLE XII.
FINANCIAL SUPPORT
Section 12.01. Guarantee of Parent..........................................51
Section 12.02. Representation and Warranties Regarding Parent...............51
Section 12.03. Financial Support of Seller..................................52
ARTICLE XIII.
MISCELLANEOUS
Section 13.01. Notices......................................................53
Section 13.02. Severability.................................................54
Section 13.03. Entire Agreement.............................................54
Section 13.04. Assignment...................................................54
Section 13.05. Parties in Interest..........................................55
Section 13.06. Failure or Indulgence Not Waiver.............................55
Section 13.07. Disclosure Letters...........................................55
Section 13.08. Governing Law................................................55
Section 13.09. Counterparts.................................................55
Section 13.10. Amendment....................................................55
Section 13.11. Disclaimer...................................................55
ANNEX A Definitions
ANNEX B Form of Escrow Agreement
-iii-
This PURCHASE AND SALE AGREEMENT (this "Agreement") dated as of
August 2, 2001 is by and among Azurix Corp., a Delaware corporation (the
"Seller"), American Water Services, Inc., a Delaware corporation (the
"Buyer"), and American Water Works Company, Inc., a Delaware corporation
(the "Parent").
RECITALS:
WHEREAS the Seller is the record and beneficial owner of the Subject
Company Stock; and
WHEREAS the Seller desires to sell, and the Buyer desires to
purchase, the Subject Company Stock for the Purchase Price on the terms and
subject to the conditions set forth herein; and
WHEREAS, the Parent owns all of the outstanding Equity Securities of
the Buyer and thus will benefit from the transactions contemplated by this
Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the premises
and of the mutual representations, warranties and covenants herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. Certain capitalized and other terms used in
this Agreement are defined in Annex A hereto and are used herein with the
meanings ascribed to them therein.
Section 1.02. Rules of Construction.
(a) Unless the context otherwise requires, as used in this
Agreement: (i) a term defined in Annex A has the meaning ascribed to it
in Annex A; (ii) an accounting term not otherwise defined herein has the
meaning ascribed to it in accordance with GAAP; (iii) "including" and its
variants mean "including, without limitation" and its variants; (iv)
words defined in the singular have the parallel meaning in the plural and
vice versa; (v) references to "written" or "in writing" include in
electronic form; (vi) words applicable to one gender shall be construed
to apply to each gender; (vii) the terms "hereof," "herein," "hereby,"
"hereto" and derivative or similar words refer to this entire Agreement,
including the Annexes hereto; (viii) the terms "Article," "Section," and
"Annex" refer to the specified Article, Section or Annex of or to this
Agreement; and (ix) the term "Schedule" refers to the appropriate
Schedule to the Seller's Disclosure Letter or the Buyer's Disclosure
Letter.
(b) A reference to any Law or Regulation includes all other Laws and
Regulations varying, consolidating or replacing the same, and a reference
to a statute includes all regulations, policies, protocols,
proclamations, executive orders and ordinances issued or otherwise
applicable under that statute unless, in any such case, otherwise
expressly provided in any such statute or in this Agreement; a reference
to a particular section, paragraph or other part of a particular statute
shall be deemed to be a reference to any other section, paragraph or
other part substituted therefor from time to time.
(c) A reference to any Person includes such Person's successors and
permitted assigns.
(d) Any reference to "days" means calendar days unless Business Days
are expressly specified.
(e) The Annexes to this Agreement and the Seller's Disclosure Letter
and the Buyer's Disclosure Letter delivered pursuant to this Agreement
are incorporated herein by reference and made a part hereof for all
purposes.
(f) Any references to "dollars" or "$" means dollars of the United
States of America unless expressly specified otherwise. If, for purposes
of the calculation of the Purchase Price Adjustment Amount, any
conversion is required between dollars of the United States of America
and any other currency, including Canadian dollars, that conversion shall
be made in accordance with GAAP.
(g) The Seller and the Buyer, each represented by legal counsel,
have each participated in the negotiation and drafting of this Agreement.
If an ambiguity or question of intent or interpretation should arise,
this Agreement shall be construed as if drafted jointly by such parties
and no presumption or burden of proof shall arise favoring or burdening
any party hereto by virtue of the authorship of any of the provisions of
this Agreement.
ARTICLE II.
SALE AND PURCHASE
Section 2.01. Sale and Purchase of Subject Company Stock. On the terms
and subject to the conditions contained in this Agreement, the Seller agrees
to sell, and the Buyer agrees to purchase, the Subject Company Stock on the
Closing Date. The consideration to be paid by the Buyer for the Subject
Company Stock shall be determined pursuant to the further provisions of this
Article II.
Section 2.02. Purchase Price. The parties hereto have agreed that the
price to be paid by the Buyer for the Subject Company Stock (the "Purchase
Price") shall be:
(a) $141,500,000, and
(b) either (i) plus the amount, if any, by which $8,300,000 exceeds
the Closing Date Indebtedness or (ii) less the amount, if any, by which
the Closing Date Indebtedness exceeds $8,300,000, as applicable, and
-2-
(c) either (i) plus the amount, if any, by which the Closing Date
Working Capital exceeds $5,000,000 or (ii) less the amount, if any, by
which $5,000,000 exceeds the Closing Date Working Capital, as applicable,
and
(d) either (i) plus the amount, if any, by which the Closing Date
338(h)(10) Value exceeds $6,500,000 or (ii) less the amount, if any, by
which $6,500,000 exceeds the Closing Date 338(h)(10) Value, as
applicable.
The Buyer shall pay the Purchase Price by paying the Estimated Purchase
Price at Closing pursuant to Sections 2.04(b) and (d)(i) below, and by
subsequently paying or receiving the Purchase Price Adjustment Amount, as
appropriate, pursuant to Sections 2.05 and 2.06 below.
Section 2.03. Manner of Determining the Estimated Purchase Price. The
Seller shall deliver to the Buyer in writing, no less than five Business Days
prior to the Closing Date, (i)(A) a good faith estimate of the Closing Date
Indebtedness as of the close of business on the Business Day immediately
preceding the Closing Date (the "Estimated Closing Date Indebtedness") and (B)
a good faith estimate of the Closing Date Working Capital as of the close of
business on the Business Day immediately preceding the Closing Date (the
"Estimated Closing Date Working Capital"), in each case using the most recent
financial information available, (ii) a statement of the calculation of the
estimated Purchase Price using the Estimated Closing Date Indebtedness (rather
than the Closing Date Indebtedness) and the Estimated Closing Date Working
Capital (rather than the Closing Date Working Capital) and assuming for
purposes of this estimate that the Closing Date 338(h)(10) Value equals
$6,500,000 (the "Estimated Purchase Price"), (iii) the financial information
used to derive the Estimated Purchase Price, the Estimated Closing Date
Indebtedness and the Estimated Closing Date Working Capital, and (iv) a
certificate signed by an officer or director of the Seller to the effect that
the Estimated Purchase Price, the Estimated Closing Date Indebtedness and the
Estimated Closing Date Working Capital were determined in good faith in
accordance with the Adjusted GAAP Principles (as defined below).
Section 2.04. Closing. The transactions contemplated hereby (other than
those transactions relating to the Purchase Price Adjustment Amount
contemplated in Section 2.05) shall be consummated at a closing (the
"Closing") that shall be held at the offices of Xxxxxx & Xxxxxx L.L.P., 000
Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, at 9:00 a.m. local time on the
Closing Date. The "Closing Date" shall be: (x) the fifth Business Day after
the later to occur of (i) the date on which the Closing Conditions (other than
the deliveries to be made at Closing by the Seller or the Buyer) have been
fulfilled or waived and (ii) the earlier to occur of (A) the date on which the
City consents (or indicates that no such consent is required) in writing in a
manner reasonably acceptable to the Buyer to the purchase of the Subject
Company Stock by the Buyer pursuant to the terms hereof or unconditionally
terminates (without regard, however, to any condition constituting the Closing
or consummation of the transactions contemplated hereby) or irrevocably agrees
in writing in a manner reasonably acceptable to the Buyer to terminate the
-0-
Xxxxxxxx-Xxxxxxxxx Agreement or (B) the 90th day after the date of this
Agreement; or (y) such other date as the Seller and the Buyer may, by written
agreement, establish. At the Closing, the following events shall occur, each
event being (i) conditioned on the occurrence or waiver of each other event
and (ii) deemed to occur simultaneously with each other event:
(a) The Seller shall deliver to the Buyer:
(i) the certificate or certificates evidencing the Subject
Company Stock, which certificates shall be duly endorsed for transfer or
accompanied by duly executed stock transfer powers;
(ii) the certificate required by Section 9.03(c) of this
Agreement;
(iii) the director and officer resignations required by
Section 9.03(d) of this Agreement;
(iv) the minute books, stock records and corporate seals
required by Section 9.03(e) of this Agreement; and
(v) the certificate required by Section 9.03(g) of this
Agreement.
(b) The Buyer shall pay to the Seller the Estimated Purchase Price,
less the Escrow Amount, if any, in United States Dollars by wire transfer
of immediately available funds to the wire transfer address of the
Seller, which address shall have been designated by the Seller by notice
to the Buyer on or before the second Business Day before the Closing
Date.
(c) The Buyer shall deliver to the Seller:
(i) the certificate required by Section 9.02(c) of this
Agreement; and
(ii) as applicable, evidence satisfactory to the Seller of the
releases and substitute guarantees or letters of credit required by
Sections 7.02 of this Agreement.
(d) Unless any of the circumstances described in clause (x)(ii)(A)
of the introductory paragraph of this Section 2.04 shall have occurred:
(i) the Buyer shall deposit with the Escrow Agent the Escrow
Amount, in United States Dollars by wire transfer of immediately
available funds to the wire transfer address of the Escrow Agent, which
address shall have been designated by the Escrow Agent by notice to the
Buyer on or before the second Business Day before the Closing Date, and
the Escrow Amount shall be released as provided in the Escrow Agreement;
-4-
(ii) the Seller shall deliver to the Buyer a copy of the Escrow
Agreement, executed by the Seller, as required by Section 9.03(f) of this
Agreement;
(iii) the Buyer shall deliver to the Seller a copy of the Escrow
Agreement, executed by the Buyer, as required by Section 9.02(d) of this
Agreement; and
(iv) each of the Buyer and the Seller shall deliver a copy of
the Escrow Agreement, executed by such party, to the Escrow Agent, and
Escrow Agent shall deliver to each such party a copy of the Escrow
the Agreement executed by the Escrow Agent.
Section 2.05. Post-Closing Purchase Price Adjustment Amount. After the
Closing, an additional amount shall be paid, which amount (the "Purchase Price
Adjustment Amount") shall be determined by the Seller and the Buyer in
accordance with this Section 2.05 and Section 2.06. The Purchase Price
Adjustment Amount shall be equal to the sum (whether positive or negative) of
the amounts determined pursuant to subsections (a), (b) and (c) (in each case
whether that amount is positive or negative):
(a) the Closing Date Working Capital minus the Estimated Closing
Date Working Capital; plus
(b) the Estimated Closing Date Indebtedness minus the Closing Date
Indebtedness; plus
(c) the Closing Date 338(h)(10) Value minus $6,500,000.
Section 2.06. Procedures for Calculating and Paying the Purchase Price
Adjustment Amount.
(a) As soon as practicable after the Closing Date but in no event
later than the 90th day after the Closing Date, the Buyer shall prepare
or cause to be prepared, and shall deliver to the Seller, the Closing
Balance Sheet (as defined below) and a schedule setting forth the Buyer's
calculation of the Purchase Price Adjustment Amount, including a
worksheet setting forth its calculation of each of the amounts set forth
in subsections (a), (b) and (c) of Section 2.05, and the Buyer shall
thereafter provide to the Seller such supporting work papers or other
supporting information as may be reasonably requested by the Seller. The
Closing Date Working Capital and the Closing Date Indebtedness shall be
determined from a balance sheet of the Businesses as of the close of
business on the Business Day immediately preceding the Closing Date (the
"Closing Balance Sheet"). The Closing Balance Sheet shall be prepared in
accordance with GAAP applied in a manner consistent with the accounting
principles and practices applied in the preparation of the AIC Financial
Statements and XXX Financial Statements; provided, however, that: (i) the
Closing Balance Sheet shall contain all normal year-end adjustments which
would be required if the Closing were to occur on the last day of the
-5-
Subject Companies' fiscal year; (ii) any receivables or payables owed by
or owed to the Seller or its Subsidiaries (other than trade payables
incurred in the ordinary course of business with the Seller's
Subsidiaries) shall not be reflected in the Closing Balance Sheet; (iii)
Taxes (including deferred Taxes) shall not be reflected in the Closing
Balance Sheet; and (iv) the respective amounts included for litigation
reserves and for any other reserves or any accruals which were determined
for each of the AIC Balance Sheet and XXX Balance Sheet by subjective
estimates shall not be changed from the amounts included in the AIC
Balance Sheet and XXX Balance Sheet except to reflect (A) cash payments
made subsequent to the date of the AIC Balance Sheet and XXX Balance
Sheet, and (B) changes in circumstances or events occurring between the
date of the AIC Balance Sheet and XXX Balance Sheet and the Closing Date,
but only if such changes either definitively resolve or otherwise
conclusively establish the amount of the liability exposure with respect
to which the reserve or accrual in question has been established. GAAP as
so adjusted by the foregoing provisions (i), (ii), (iii) and (iv) of this
Section 2.06(a) is referred to herein as the "Adjusted GAAP Principles."
The Seller shall cooperate with Buyer and make available to Buyer such
books, records, other information (including work papers) and personnel
of Seller which Buyer may reasonably request in order to prepare the
Closing Balance Sheet and any schedules to be delivered pursuant to this
Section 2.06(a).
(b) If the Seller shall have any objections to the Buyer's
calculation of the Purchase Price Adjustment Amount or the elements of or
the amounts reflected in the Closing Balance Sheet, the Seller shall so
notify the Buyer no later than the tenth day after delivery of the
Closing Balance Sheet and any related schedules, whereupon the Buyer and
the Seller shall endeavor in good faith for a period not to exceed 15
days from the date of delivery of such notice to resolve their
differences (the "Differences"). If at the end of the 15-day period the
parties are unable to resolve any of their Differences, the Seller and
the Buyer shall submit the calculation and resolution of such Differences
to Ernst & Young LLP or an Independent Public Accounting Firm of
recognized national standing in the United States as they may agree in
writing. If Ernst & Young LLP refuses or fails to serve and the Buyer and
the Seller have not agreed on an Independent Public Accounting Firm by
the end of the 15-day period referred to above, the Independent Public
Accounting Firm shall be selected by lot from those Independent Public
Accounting Firms of recognized national standing in the United States
that are willing to act and, if there are no such Independent Public
Accounting Firms, from the willing Independent Public Accounting Firms of
recognized regional standing in one or more regions of the United States
in which a Subject Company has offices (the Independent Public Accounting
Firm selected pursuant to the foregoing procedures or Ernst & Young LLP,
as the case may be, the "Accounting Mediator"). The Accounting Mediator
shall resolve such Differences and such resolution shall be (i) in
writing and signed by the Accounting Mediator, (ii) delivered to the
Buyer and the Seller as soon as practicable after the Differences are
submitted to the Accounting Mediator but not later than the 30th day
after such submission, (iii) made in accordance with this Agreement and
-6-
(iv) conclusive and binding on the parties hereto on the date of delivery
of such resolution. If the foregoing procedure does not result in the
selection of an Accounting Mediator or the Accounting Mediator does not
or is unwilling to resolve all of the Differences on or before the
expiration of 30 days from the date of submission of the Differences,
either party shall be entitled for a period of 15 additional days to
apply for AAA Arbitration of the unresolved Differences, and, if a party
so applies, the parties shall submit the matter to AAA Arbitration, which
shall be binding upon the parties. If neither party shall apply for AAA
Arbitration of the unresolved Differences, the Purchase Price Adjustment
Amount shall be deemed to be the amount provided by the Buyer to the
Seller pursuant to this subsection, adjusted to reflect those Differences
that were theretofore resolved, if any, by the parties or, if applicable,
by the Accounting Mediator. The fees and expenses of the Accounting
Mediator or AAA Arbitration or both, if any, shall be borne equally by
the Buyer and the Seller.
(c) If the Purchase Price Adjustment Amount as finally determined
(whether by agreement of the parties, lapse of time or resolution of the
Differences) is positive, the Buyer shall pay to the Seller the Purchase
Price Adjustment Amount plus interest from the Closing Date to the Final
Payment Date, inclusive of each such date, at a per annum floating rate
of interest equal to the prime rate, as published from time to time in
the Money Rates section of The Wall Street Journal. If the Purchase Price
Adjustment Amount as so finally determined is negative, the Seller shall
pay to the Buyer the Purchase Price Adjustment Amount plus interest for
the period and at the rate described in the preceding sentence.
(d) Payment of the Purchase Price Adjustment Amount plus accrued
interest shall be made by the Buyer or the Seller, as the case may be, to
the other in United States Dollars by wire transfer of immediately
available funds to the wire transfer address of the other on the fifth
Business Day following the date on which the procedures for resolution of
the Differences in this Section 2.06 have been completed (the "Final
Payment Date"), which wire transfer address shall be designated by the
Buyer or the Seller, as the case may be, by notice to the other on or
before the second Business Day prior to the Final Payment Date; provided
that if no such notice is delivered by the Seller, the Buyer shall make
payment to the wire transfer address previously designated by the Seller
pursuant to Section 2.04(b).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES REGARDING SELLER
The Seller represents and warrants to the Buyer that:
Section 3.01. Organization and Qualification. The Seller is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware.
Section 3.02. Authorization of Agreement. The Seller has all requisite
corporate power and authority to execute and deliver this Agreement and to
-7-
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Seller of this
Agreement and the performance by the Seller of its obligations hereunder have
been duly and validly authorized by all requisite corporate action on the part
of the Seller and no other corporate proceedings on the part of the Seller are
necessary to consummate the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by the Seller and (assuming due
authorization, execution and delivery hereof by the Buyer and the Parent)
constitutes the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its terms, except as enforcement hereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar Laws relating to or affecting the
enforcement of creditors' rights generally and legal principles of general
applicability governing the availability of equitable remedies (whether
considered in a proceeding in equity or at law or otherwise under applicable
Law).
Section 3.03. Approvals and Consents. Except for Legal Requirements set
forth in Schedule 3.03 to the Seller's Disclosure Letter or those Legal
Requirements the noncompliance with which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Seller or the Businesses, and subject to the proviso in the last sentence of
this Section 3.03, no filing or registration with, no waiting period imposed
by and no Authorization of any Governmental Authority is required under any
Legal Requirement applicable to the Seller to permit the Seller to execute,
deliver or perform this Agreement or to consummate the transactions
contemplated hereby. Except as set forth in Schedule 3.03 to the Seller's
Disclosure Letter, no Third Person Consent is required to permit the Seller to
execute, deliver or perform this Agreement or to consummate the transactions
contemplated hereby, other than such consents, the failure which to obtain
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Seller or the Businesses; provided that the
failure of Seller to obtain the consent of the City to this transaction shall
not constitute a breach of this Section 3.03, it being agreed that the sole
consequences of such failure under this Agreement shall be as provided in
Section 10.02(e) and in the Escrow Agreement.
Section 3.04. No Violation. Upon effectuation of all filings and
registrations with, termination or expiration of any applicable waiting
periods imposed by and receipt of all Authorizations of any Governmental
Authority as set forth in Schedule 3.03 to the Seller's Disclosure Letter, and
the receipt of all Third Person Consents set forth in Schedule 3.03 to the
Seller's Disclosure Letter, neither the execution and delivery by the Seller
of this Agreement nor the performance by the Seller of its obligations
hereunder (a) (i) violates or breaches or causes a default under any of the
terms of any Legal Requirement applicable to the Seller, (ii) contravenes the
certificate of incorporation, bylaws or any other organizational document of
the Seller or (iii) violates or breaches or causes a default or gives rise to
any right of termination, purchase or amendment under any of the terms,
conditions or provisions of any indenture, loan, credit agreement, contract,
agreement, written commitment, license or other instrument to which any member
of the Seller Company Group is a party or by which any member of the Seller
Company Group or any of their properties or assets are bound or affected or
(b) will, with the passage of time, the giving of notice or the taking of any
action by a third Person, have any of the effects set forth in clause (a) of
this Section 3.04, except in any such case for any matters described in this
-8-
Section 3.04 that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Seller or the Businesses;
provided that the failure of Seller to obtain the consent of the City to this
transaction shall not constitute a breach of this Section 3.04, it being
agreed that the sole consequences of such failure under this Agreement shall
be as provided in Section 10.02(e) and in the Escrow Agreement.
Section 3.05. No Brokers. No broker, finder or investment banker (other
than X.X. Xxxxxx Securities Inc.) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Seller, the
Subject Companies or their Subsidiaries. All fees and expenses of the Seller
incurred pursuant to the engagement of X.X. Xxxxxx Securities Inc. will be
discharged by the Seller, and Seller shall indemnify and hold the Buyer and
its Affiliates harmless from any claims by X.X. Xxxxxx Securities Inc. in
respect of such fees and expenses. This indemnification shall be in addition
to the indemnification provided pursuant to Article X and shall not be subject
to the thresholds, deductibles or other limitations on amount set forth in
Section 10.02(a).
Section 3.06. Title to Subject Company Stock. Upon consummation of the
transactions contemplated hereby, the Buyer will acquire good title to the
Subject Company Stock free and clear of any Liens (other than any created by
the Buyer), proxies, restrictions on transfer, voting trust and voting
agreements.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES REGARDING SUBJECT COMPANIES
The Seller represents and warrants to the Buyer that:
Section 4.01. Organization; Qualification; Subsidiaries. Each Subject
Company and each of its Subsidiaries are legal entities duly incorporated or
formed, validly existing and in good standing (in those jurisdictions in which
the concept of good standing is applicable) under the Laws of their respective
jurisdictions of incorporation or formation and have all requisite
organizational power and authority to own, lease and operate their respective
properties and to carry on their respective businesses as they are now being
conducted, other than any matters that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Businesses. Each Subject Company and each of its Subsidiaries is duly
qualified and in good standing as a foreign corporation and duly authorized to
do business in the jurisdictions set forth in Schedule 4.01 to the Seller's
Disclosure Letter, which jurisdictions are the only jurisdictions wherein the
properties owned or leased or the nature of activities conducted by it make
such qualification necessary, other than any such failure to be so qualified
that would not reasonably be expected to have a Material Adverse Effect on the
Businesses. Schedule 4.01 to the Seller's Disclosure Letter sets forth a true
and complete list of each Subject Company and its Subsidiaries, together with
(a) a specification of the nature of the legal organization of each such
Subject Company and Subsidiary, (b) the jurisdiction of incorporation or other
formation of each such Subject Company and Subsidiary and the jurisdictions in
which each such Subsidiary is qualified as a foreign corporation and (c) a
-9-
description of the type of Equity Security (voting or non-voting) and the
percentage of all of such type of Equity Security outstanding of each such
Subsidiary held directly or indirectly by a Subject Company. No Subject
Company, directly or indirectly, owns any stock of, or any other interest in,
any corporation, partnership, or other entities, with the exception of each
Subject Company and its Subsidiaries as set forth in Schedule 4.01 to the
Seller's Disclosure Letter.
Section 4.02. Organizational Documents. The Seller has heretofore made
available to the Buyer complete and correct copies of the certificate of
incorporation, bylaws or other organizational documents, in each case as
amended or restated to the date hereof, of each Subject Company and each of
its Subsidiaries. No Subject Company or Subsidiary of a Subject Company is in
violation of any of the provisions of its certificate of incorporation, bylaws
or other organizational documents.
Section 4.03. Approvals and Consents. Except for Legal Requirements set
forth in Schedule 4.03 to the Seller's Disclosure Letter or those Legal
Requirements the noncompliance with which would not prevent a Subject Company
or its Subsidiaries from performing this Agreement in all material respects or
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Seller or the Businesses, and subject to the
proviso in the last sentence of this Section 4.03, no filing or registration
with, no waiting period imposed by and no Authorization of any Governmental
Authority is required under any Legal Requirement applicable to a Subject
Company or its Subsidiaries to permit the Seller to execute, deliver or
perform this Agreement or to permit the Seller, a Subject Company or its
Subsidiaries to consummate the transactions contemplated hereby. Except as set
forth in Schedule 4.03 to the Seller's Disclosure Letter, no Third Person
Consent is required with respect to a Subject Company or its Subsidiaries to
permit the Seller to execute, deliver or perform this Agreement or to permit
the Seller, a Subject Company or its Subsidiaries to consummate the
transactions contemplated hereby, other than such consents the failure which
to obtain would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Seller or the Businesses; provided
that the failure of Seller to obtain the consent of the City to this
transaction shall not constitute a breach of this Section 4.03, it being
agreed that the sole consequences of such failure under this Agreement shall
be as provided in Section 10.02(e) and in the Escrow Agreement.
Section 4.04. No Violation. Upon effectuation of all filings and
registration with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Authorizations of any Government Authority as
set forth in Schedule 4.03 to the Seller's Disclosure Letter, and the receipt
of all Third Person Consents set forth in Schedule 4.03 to the Seller's
Disclosure Letter, neither the execution and delivery by the Seller of this
Agreement nor the performance by the Seller, the Subject Companies or their
Subsidiaries of their obligations hereunder (a) (i) violates or breaches or
causes a default under any of the terms of any Legal Requirements applicable
to a Subject Company or a Subsidiary of a Subject Company, (ii) contravenes
the certificate of incorporation, bylaws or any other organizational document
of a Subject Company or a Subsidiary of a Subject Company, (iii) violates or
breaches or causes a default or gives rise to any right of termination,
-10-
purchase or amendment under any of the terms, conditions or provisions of any
indenture, loan, credit agreement, contract, agreement, written commitment,
license or other instrument to which a Subject Company or any of its
Subsidiaries is a party or by which a Subject Company, any of its Subsidiaries
or any of their properties or assets are bound or affected, (iv) results in
the creation or imposition of any Lien upon any assets of a Subject Company or
any Subsidiary of a Subject Company or, except as provided in this Agreement,
gives to others any interests or rights therein; (v) results in the maturation
or acceleration of any liability or obligation of any Subject Company or any
Subsidiary of a Subject Company (or give others the right to cause such a
maturation or acceleration); or (vi) results in the termination of or loss of
any right (or give others the right to cause such a termination or loss) under
any agreement or contract to which any Subject Company or any Subsidiary of a
Subject Company is a party or by which any of them may be bound or (b) will,
with the passage of time, the giving of notice or the taking of any action by
a third Person, have any of the effects set forth in clause (a) of this
Section, except in any such case for any matters described in subsection (a)
or (b) of this Section that would not prevent the Seller from performing this
Agreement in all material respects or that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Businesses or, in the case of clauses (v) or (vi) of subsection (a) of this
Section, for any matters that occur in the ordinary course of business of the
Subject Companies and their Subsidiaries and that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Businesses; provided that the failure of Seller to obtain the consent of
the City to this transaction shall not constitute a breach of this Section
4.04, it being agreed that the sole consequences of such failure under this
Agreement shall be as provided in Section 10.02(e) and in the Escrow
Agreement.
Section 4.05. Capitalization.
(a) The sole authorized Equity Securities of each Subject Company,
along with a description of each type of such Equity Security and its par
value, and the total issued and outstanding Equity Securities of each
Subject Company are as set forth in Schedule 4.05(a) to the Seller's
Disclosure Letter. No Equity Securities are held in treasury. The Seller
is the sole record and beneficial owner of all of the issued and
outstanding Equity Securities of each Subject Company.
(b) Except as may be required by Section 6.04 of this Agreement, no
Equity Securities of a Subject Company are reserved for issuance to any
Person other than a Subject Company or a Subsidiary of a Subject Company,
and there are no contracts, agreements, commitments, arrangements,
obligating the Seller or a Subject Company (A) to offer, sell, issue,
grant, pledge, dispose of or encumber any Equity Securities of a Subject
Company, (B) to redeem, purchase or acquire, or offer to purchase or
acquire, any outstanding Equity Securities of a Subject Company or (C) to
grant any Lien on any outstanding Equity Securities of a Subject Company.
-11-
(c) Except as set forth in Schedule 4.05 to the Seller's Disclosure
Letter, (i) all of the issued and outstanding Equity Securities of each
Subject Company and all of the issued and outstanding Equity Securities
of each Subsidiary of a Subject Company that are owned by a Subject
Company or a Subsidiary of a Subject Company have been duly authorized
and are validly issued and, with respect to capital stock, are fully paid
and nonassessable, (ii) all such issued and outstanding Equity Securities
are owned free and clear of all Liens, proxies, restrictions or transfer,
voting trusts or voting agreements; (iii) no such issued and outstanding
Equity Securities were obtained by the Seller, a Subject Company or a
Subsidiary of a Subject Company, as the case may be, in violation of any
preemptive rights, rights of first refusal or similar rights of
stockholders, (iv) no Equity Securities of a Subsidiary of a Subject
Company are reserved for issuance to any Person other than a Subject
Company or a Subsidiary of a Subject Company and there are no contracts,
agreements, commitments, arrangements, obligating a Subsidiary of a
Subject Company (A) to offer, sell, issue, grant, pledge, dispose of or
encumber any of its Equity Securities or (B) to redeem, purchase or
acquire, or offer to purchase or acquire, any of its outstanding Equity
Securities; and (v) there are no contracts, agreements, commitments,
arrangements, obligating a Subject Company or any of its Subsidiaries (A)
to offer, sell, issue, grant, pledge, dispose of or encumber any Equity
Securities of a Subsidiary of a Subject Company, (B) to redeem, purchase
or acquire, or offer to purchase or acquire any outstanding Equity
Securities of a Subsidiary of a Subject Company or (C) to grant any Lien
on any outstanding Equity Securities of a Subsidiary of a Subject
Company.
(d) Except for revocable proxies, if any, granted by a Subject
Company or any of its Subsidiaries with respect to the Equity Securities
of any Subsidiary of a Subject Company, there are no voting trusts,
proxies or other agreements, commitments or understandings of any
character to which a Subject Company or any of its Subsidiaries is a
party or by which a Subject Company or any of its Subsidiaries is bound
with respect to the voting of any of the Equity Securities of such
Subject Company or Subsidiary.
Section 4.06. Title to Properties. Schedule 4.06 to the Seller's
Disclosure Letter contains (a) a list of all real property owned by the
Subject Companies or their Subsidiaries (the "Owned Real Property") and (b) a
list of all real property leased by the Subject Companies or their
Subsidiaries (the "Leased Real Property"). The applicable Subject Companies or
Subsidiaries have good and valid title to all of the Owned Real Property and
to all of the plant, property and equipment reflected in the XXX Balance Sheet
and the AIC Balance Sheet (other than any plant, property or equipment
included in Leased Property as defined below) (the "Owned Personal Property"
and, together with the Owned Real Property, the "Owned Property"), other than
any such Owned Personal Property that has been sold or disposed of in the
ordinary course of business consistent with past practice since the date of
such Balance Sheet on which such Owned Personal Property was reflected or that
is not, individually or in the aggregate, material, which title is free and
clear of Liens, other than (i) Liens securing debt, the existence of which is
reflected in the XXX Financial Statements and AIC Financial Statements, (ii)
Permitted Encumbrances, (iii) Liens securing obligations that are permitted to
be incurred under Section 6.02(b)(xvii) of this Agreement and (iv) Liens that,
-12-
individually or in the aggregate are not material. The Subject Companies or
their Subsidiaries hold under valid lease agreements all personal property
reflected in the XXX Balance Sheet and AIC Balance Sheet as being held under
capitalized leases and all personal property that is subject to the operating
leases to which reference is made in the notes to the XXX Financial Statements
and AIC Financial Statements (the "Leased Personal Property" and, together
with the Leased Real Property, the "Leased Property"), and enjoy peaceful and
undisturbed possession of the Leased Property, other than (A) any Leased
Personal Property as to which the leases have terminated in the ordinary
course of business without any material liability of the Subject Company or
Subsidiary party thereto since the date of such Balance Sheet on which the
Leased Personal Property was reflected and (B) any Leased Property that,
individually or in the aggregate, is not material. There is no pending
condemnation, expropriation, eminent domain or similar proceeding affecting
all or any portion of any Owned Real Property or material Leased Real Property
and, to the Knowledge of the Seller, no such proceeding is threatened. The
Owned Property and the material Leased Property are in good condition
(ordinary wear and tear excepted) and are sufficient to carry on the
Businesses in the ordinary course as currently conducted. All material Leased
Property is leased by a Subject Company or one of its Subsidiaries pursuant to
leases which are valid and enforceable. Each Subject Company and each of its
Subsidiaries has complied in all material respects with the terms of the
leases for material Leased Property to which it is a party and under which it
is in occupancy. Notwithstanding anything to the contrary contained herein,
the Owned Property and the Leased Property do not include the Subject Company
Intellectual Property.
Section 4.07. Financial Statements.
(a) Attached to Schedule 4.07(a) to the Seller's Disclosure Letter
are copies of the XXX Financial Statements. The XXX Financial Statements
(i) have been prepared in accordance with GAAP (except to the extent
indicated in any available notes thereto) consistently applied in each
case (except to the extent required by changes in GAAP) and (ii) fairly
present the consolidated financial position of XXX and its consolidated
Subsidiaries as of the respective dates thereof and the results of
operations and, where available, cash flows of XXX and such Subsidiaries
for the periods indicated.
(b) Attached to Schedule 4.07(b) to the Seller's Disclosure Letter
are copies of the AIC Financial Statements. The AIC Financial Statements
(i) have been prepared in accordance with GAAP (except to the extent
indicated in any available notes thereto) consistently applied in each
case (except to the extent required by changes in GAAP) and (ii) fairly
present the consolidated financial position of AIC and its consolidated
Subsidiaries as of the respective dates thereof and the results of
operations of AIC and its consolidated Subsidiaries as of the respective
dates hereof and the results of operations and, where available, cash
flows of AIC and such Subsidiaries for the periods indicated.
-13-
(c) There exist no liabilities or obligations of any nature, whether
absolute or contingent, which liabilities or obligations would be
required to be reflected or reserved against in a consolidated balance
sheet of the Subject Companies and their Subsidiaries prepared in
accordance with GAAP as of the date of this Agreement, other than
liabilities or obligations that are (i) specifically reflected, reserved
for or disclosed in the XXX Financial Statements or the AIC Financial
Statements, (ii) incurred in the ordinary course of business of a Subject
Company and its Subsidiaries since December 31, 2000 or (iii) disclosed
in Schedule 4.07(c) to the Seller's Disclosure Letter.
Section 4.08. Authorizations.
(a) The Subject Companies and their Subsidiaries have obtained and
hold all Authorizations that are required under applicable Laws or
necessary to carry on their Businesses as currently conducted, except for
any such Authorizations which, if not obtained, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Businesses and except for Authorizations pursuant to
Environmental Laws and Regulations (which are addressed in Section 4.14).
All such Authorizations are in full force and effect and all fees and
charges payable with respect thereto as of the date of this Agreement
have been paid.
(b) Except as disclosed in Schedule 4.08 to the Seller's Disclosure
Letter, with respect to each Subject Company and each Subsidiary of a
Subject Company, since May 18, 1999 (or, if later, the date on which the
Seller acquired its direct or indirect interest in such Subject Company
or Subsidiary) and, to the Knowledge of the Seller, prior to such date,
the Subject Companies and their Subsidiaries have not received from any
Governmental Authority specific written notification that any of such
Authorizations (i) is not in full force and effect, (ii) has been
violated in any respect or (iii) is subject to any suspension, revocation
or cancellation, except in any circumstances that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Businesses.
(c) There is no action, proceeding or investigation pending or, to
the Knowledge of the Seller, threatened regarding suspension, revocation
or cancellation of any of such Authorizations, except in any
circumstances in which the suspension, revocation or cancellation of such
Authorizations would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Businesses.
Section 4.09. Compliance With Laws; Regulation of Businesses.
(a) Except as provided in Section 4.14 or as disclosed in Schedule
4.09 to the Seller's Disclosure Letter, each Subject Company and each
Subsidiary of a Subject Company is in compliance with all Authorizations
obtained from any Governmental Authority and the Laws and Regulations
applicable to such Subject Company, Subsidiary and their respective
Businesses, except for any such noncompliance that would not,
-14-
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Businesses.
(b) Except as provided in Section 4.14 or as disclosed in Schedule
4.09 to the Seller's Disclosure Letter, with respect to each Subject
Company and each Subsidiary of a Subject Company, since May 18, 1999 (or,
if later, the date on which the Seller first acquired its direct or
indirect interest in such Subject Company or Subsidiary) and, prior to
such date, to the Seller's Knowledge:
(i) Such Subject Company or Subsidiary has not received written
notification from any Governmental Authority that it is not in compliance
with all applicable Laws and Regulations or that it is in default with
respect to any Order applicable to any such Subject Company or
Subsidiary, except for any specific notification concerning events of
noncompliance or defaults that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the
Businesses.
(ii) Such Subject Company or Subsidiary has filed for the related
Business all reports required to be filed by it with the appropriate
Governmental Authority that regulates that Business, except where the
failure to file any such reports would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
the Businesses. Such reports have been prepared in all material respects
in accordance with applicable Legal Requirements.
Section 4.10. Insurance
(a) Schedule 4.10 to the Seller's Disclosure Letter sets forth a
list, including the name of the underwriter, the risks insured, coverage
and related limits and deductibles and expiration dates, of the principal
insurance policies currently maintained by the Seller Company Group or
the Subject Company Groups for the benefit of one or more of the Subject
Companies and their respective Subsidiaries, which policies will not
apply to the Businesses after the Closing.
(b) Except as set forth on Schedule 4.10 to the Seller's Disclosure
Letter, all such insurance policies are on an "occurrence," as opposed to
"claims made," basis.
Section 4.11. Taxes.
(a) (i) Except as set forth in Schedule 4.11 to the Seller's
Disclosure Letter, all Tax Returns that were required to be filed by or
with respect to a Subject Company or a Subsidiary of a Subject Company
have been duly and timely filed, (ii) all items of income, gain, loss,
deduction and credit or other items ("Tax Items") required to be included
in each such Tax Return have been so included and all such Tax Items and
any other information provided in each such Tax Return are true, correct
and complete, and each such Tax Return has been prepared in accordance
-15-
with all applicable Laws and Regulations, (iii) all Taxes owed with
respect to each such Tax Return, whether or not shown as due on each such
Tax Return, have been timely paid in full, (iv) no penalty, interest or
other charge is or will become due with respect to the late filing of any
such Tax Return or late payment of any such Tax, and (v) all Tax
withholding and deposit requirements imposed on or with respect to a
Subject Company and its Subsidiaries have been satisfied in full in all
respects.
(b) No waiver of any statute of limitations in respect of Taxes or
any extension of time with respect to a Tax assessment or deficiency is
in force with respect to a Subject Company or Subsidiary of a Subject
Company.
(c) Except as disclosed in Schedule 4.11(c) to the Seller's
Disclosure Letter, there are no pending written proposed deficiencies or
other written claims for unpaid Taxes or current audits of a Subject
Company or Subsidiary of a Subject Company, and no Subject Company or
Subsidiary of a Subject Company has been notified by any Governmental
Authority that it is or may be required to file Tax Returns where it has
not filed such Tax Returns.
(d) There is no agreement, contract, arrangement or plan that has
resulted or could result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of
the Code by or on behalf of a Subject Company or Subsidiary of a Subject
Company.
(e) Except as disclosed in Schedule 4.11(e) to the Seller's
Disclosure Letter, no Subject Company or Subsidiary of a Subject Company
has ever (i) filed (or had filed on its behalf) any consent agreement
under Section 341(f) of the Code, (ii) been the subject of a Tax ruling
that would have continuing effect to any Subject Company or Subsidiary of
a Subject Company after the Closing, (iii) been the subject of a closing
agreement with any Governmental Authority that would have continuing
effect to any Subject Company or Subsidiary of a Subject Company after
the Closing, (iv) filed (or had filed on its behalf) or been the subject
of an election under Section 338(g) or Section 338(h)(10) of the Code (or
any comparable provisions under state, local, or foreign law), or caused
or been the subject of a deemed election under Section 338(e) thereof (or
any comparable provisions under state, local, or foreign law), at any
time on or after May 18, 1999 or (v) granted a power of attorney with
respect to any Tax matters that would have continuing effect to any
Subject Company or Subsidiary of a Subject Company after the Closing. No
Subject Company or Subsidiary of a Subject Company has agreed to make, or
is required to make, any adjustment under Section 481 of the Code.
(f) Except as disclosed in Schedule 4.11(f) to the Seller's
Disclosure Letter, no Subject Company or Subsidiary of a Subject Company
owns any interest in an entity characterized as a partnership for U.S.
federal income tax purposes.
(g) To the Knowledge of the Seller, except as disclosed on Schedule
4.11(g), none of the Subject Companies nor any of their Subsidiaries (i)
has been a member of an affiliated group filing a consolidated federal
-16-
income Tax Return other than a group the common parent of which is the
Seller ("Seller Group") or (ii) has any liability for the Taxes of any
Person (A) pursuant to Treasury Regulation Section 1.1502-6 (or any
comparable provision of state, local or foreign Tax law) other than for
any member of the Seller Group, or (B) as a transferee or successor, by
contract or otherwise.
(h) No Subject Company or Subsidiary of a Subject Company has been a
party to a Section 355 transaction that could give rise to a Tax
liability pursuant to Section 355(e) of the Code.
(i) Each Subject Company and each Subsidiary of a Subject Company
has complied with all registration, reporting, collection and remittance
requirements in respect of all Canadian federal and provincial sales tax
legislation, including the Excise Tax Act (Canada), an Act Respecting
Quebec Sales Tax and the Retail Sales Tax Act (Ontario). To the Knowledge
of the Seller, there are no amounts outstanding and unpaid for which a
Subject Company or a Subsidiary of a Subject Company has previously
claimed a deduction in respect of which section 78 of the Income Tax Act
(Canada) applies. Except for the Intercompany Indebtedness that will be
converted to equity or Equity Securities pursuant to Section 6.04 of this
Agreement, there are no circumstances existing which could result in the
application of either (i) sections 79 to 80.04 of the Income Tax Act
(Canada) or (ii) any equivalent provincial provision, to a Subject
Company or a Subsidiary of a Subject Company where such application could
have a Material Adverse Effect on the Businesses. The Subject Company
Stock does not constitute taxable Canadian property for purposes of the
Income Tax Act (Canada).
Section 4.12. Material Contracts.
(a) Schedule 4.12(a) to the Seller's Disclosure Letter contains a
list of all Scheduled Material Contracts, other than Guarantees. The
Subject Companies and their Subsidiaries have not received from any other
party to any Material Contract or, to the Knowledge of the Seller, any
other party to any Other Designated Contract written notification that
such Material Contract or Other Designated Contract is not in full force
and effect, or that a Subject Company or any of its Subsidiaries party to
such Material Contract or Other Designated Contract or any other party to
such Material Contract or Other Designated Contract has not performed its
obligations under such Material Contract or Other Designated Contract to
date, other than notification of any nonperformance thereof that would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Businesses. There are no non-written
Material Contracts or, to the Knowledge of the Seller, non-written Other
Designated Contracts.
(b) Schedule 4.12(b) to the Seller's Disclosure Letter contains a
list of all Guarantees and identifies each surety in such arrangement,
whether that be the Seller or another member of the Seller Company Group.
All such Guarantees are legal, valid, binding and in full force and
-17-
effect, and none of the Seller nor any member of the Seller Company Group
is in default under any Guarantee as of the date of this Agreement.
(c) True, correct and complete copies of all Scheduled Material
Contracts and Guarantees described in Schedules 4.12(a) and (b) to the
Seller's Disclosure Letter have been made available to the Buyer. None of
the Subject Companies or any of their Subsidiaries is in default under or
has breached any Material Contract or, to the Knowledge of the Seller,
any Other Designated Contract to which such Subject Company or Subsidiary
is a party and no act or omission by a Subject Company or Subsidiary of a
Subject Company has occurred which, with notice or lapse of time or both,
would constitute a breach or default under any term or provision of any
Material Contract or, to the Knowledge of the Seller, any Other
Designated Contract, other than any defaults or breaches or any acts or
omissions that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Businesses.
Section 4.13. Employees.
(a) Schedule 4.13(a) to the Seller's Disclosure Letter contains a
list of (i) the names of employees who have entered into employment
agreements (which are still in effect, except as set forth in Schedule
4.13(a) to the Seller's Disclosure Letter) with either of the Subject
Companies or any of their Subsidiaries and each such employee's position,
(ii) the names of all employees who have entered into Divestiture and
Retention Bonus Agreements (dated January 31, 2001) with either of the
Subject Companies or any of their Subsidiaries, and (iii) all collective
bargaining agreements and other labor union contracts applicable to
employees of a Subject Company or any of its Subsidiaries, including any
collective bargaining agreement or other labor union contract currently
being negotiated by a Subject Company or any of its Subsidiaries.
(b) Except as disclosed in Schedule 4.13(b) to the Seller's
Disclosure Letter, (i) there is no unfair labor practice complaint
against a Subject Company or its Subsidiaries pending or, to the
Knowledge of the Seller, threatened before the National Labor Relations
Board (or equivalent Canadian Governmental Authority); (ii) there is no
labor strike or other coordinated labor action actually pending or, to
the Knowledge of the Seller, threatened against or involving a Subject
Company or its Subsidiaries; (iii) no grievance is pending against or
involving a Subject Company or its Subsidiaries, which grievance would,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Businesses; (iv) no Material Contract
restricts a Subject Company or its Subsidiaries from relocating, closing
or terminating any of its operations or facilities, except for matters
pertaining to collective bargaining agreements or other labor union
contracts applicable to employees of a Subject Company or any of its
Subsidiaries; and (v) none of the Subject Companies or their Subsidiaries
has since May 18, 1999 (or, if later, the date on which the Seller
-18-
acquired its direct or indirect interest in such Subject Company or
Subsidiary) experienced any work stoppage or other labor difficulty or
committed any unfair labor practice in connection with the operation of
the related Business, which labor practice is actionable under applicable
Laws and Regulations, other than any work stoppage, labor difficulty or
labor practice the commission of which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
the Businesses.
(c) Schedule 4.13(c) to the Seller's Disclosure Letter contains a
true and complete list of the Benefit Plans. Copies of all such Benefits
Plans have been made available to the Buyer. The most recent actuarial
reports and valuation of the assets and liabilities subject to each
Benefit Plan, to the extent that any such reports or valuations are
required to be prepared by applicable Laws and Regulations, have been
made available to the Buyer. Each Benefit Plan, as applicable, has
received a favorable determination letter from the Internal Revenue
Service regarding the qualification of such plan under Section 401(a) of
the Code, and nothing has occurred that would be reasonably expected to
result in the loss of such qualification.
(d) (i) No Person, trade or business that is not a Subject Company
or a Subsidiary of a Subject Company is a participating employer or
sponsor of any Benefit Plan, (ii) each Benefit Plan has been invested,
operated and administered in substantial compliance with its governing
documents and all applicable Legal Requirements, (iii) except to the
extent of failures that would not result in material liabilities to the
Subject Companies, their Subsidiaries or the Buyer, the Subject Companies
and their Subsidiaries have performed all obligations, whether arising by
operation of Law or by contract, required to be performed by them in
connection with the Benefit Plans (including payment, when due, of all
premiums due and owing, to the extent applicable), (iv) there are no
actions, suits or claims pending (other than routine claims for benefits)
or threatened against, or with respect to, any of the Benefit Plans or
their assets, (v) except to the extent of failures that would not result
in material liabilities to the Subject Companies, their Subsidiaries or
the Buyer, all contributions required to be made to the Benefit Plans
pursuant to their terms and the provisions of all applicable Legal
Requirements have been timely made, (vi) each Benefit Plan is either
fully insured or the assets of such Benefit Plan equal or exceed the
actuarial present value of the benefit liabilities under such Benefit
Plan, (vii) there is no matter pending (or reasonably expected to be
pending) with respect to any of the Benefit Plans before any Governmental
Authority, except for routine filings and reports, (viii) the Subject
Companies and their Subsidiaries are in substantial compliance with all
applicable Laws mandating benefits for their employees, and (ix) the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (A) require any Subject Company
or any of its Subsidiaries to make a larger contribution to, or pay
greater benefits or provide other rights under, any Benefit Plan than it
otherwise would, whether or not some other subsequent action or event
would be required to cause such payment or provision to be triggered or
-19-
(B) create or give rise to any additional vested rights or service
credits under any Benefit Plan.
(e) No Subject Company and no Subsidiary of a Subject Company
currently sponsors or maintains or has at any time sponsored or
maintained an employee pension benefit plan which is or has been subject
to Title IV of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any corresponding provision of Canadian law,
including any "multiemployer pension plan" within the meaning of Section
3(37) of ERISA.
(f) There does not currently exist nor could there reasonably be
expected to exist or be incurred any liability with respect to an ERISA
Affiliate Plan (as hereinafter defined) which would result or could
reasonably be expected to result in a material liability for any of the
Subject Companies or any Subsidiary of a Subject Company. For purposes of
the preceding sentence, the term "ERISA Affiliate Plan" includes any
employee benefit plan which is not a Benefit Plan and which is sponsored,
maintained or contributed to or which has been sponsored, maintained or
contributed to by any entity which is or was treated as a "single
employer" with respect to any Subject Company or any Subsidiary of a
Subject Company under Sections 414(b), 414(c) or 414(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and which is or was
subject to Title IV of ERISA including, without limitation, any
multiemployer pension plan, within the meaning of Section 3(37) of ERISA.
(g) None of the Seller, any Subject Company or any Subsidiary of a
Subject Company, or any ERISA Affiliate has incurred or is reasonably
likely to incur any liability with respect to any plan or arrangement
that would be included within the definition of "Benefit Plan" hereunder
but for the fact that such plan or arrangement was terminated before the
date of this Agreement.
(h) Except as disclosed on Schedule 4.13(h) to the Seller's
Disclosure Letter, there are no claims pending against the Seller, any
Subject Company or any Subsidiary of a Subject Company by any employee,
former employee, or any beneficiary of any employee or former employee,
for workers' compensation or similar benefits based on employment related
illness or injury, nor are there any claims by any such individuals based
on claims of unfair employment practices, wrongful dismissal, employment
discrimination or any other violation of Legal Requirements applicable to
employment matters, including applicable health and safety legislation,
nor are there any such claims pending under the terms, including the
grievance procedures of any applicable collective bargaining agreements,
except in any such case for such claims that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Businesses.
(i) Except pursuant to earn-out agreements set forth in Section
4.13(i) to the Seller's Disclosure Letter and except for minority
interest holders in any Subject Company or Subsidiary of a Subject
-20-
Company, no current or former employee, director or consultant of any
Subject Company or Subsidiary of a Subject Company holds any equity or
equity-based rights in Seller, any Subject Company or Subsidiary of a
Subject Company (including, without limitation, any stock option or
restricted stock) and no Subject Company or Subsidiary of a Subject
Company has, or would reasonably be expected to have, any liability in
respect of any equity or equity-based rights held or formerly held by any
current or former employee, director or consultant thereof.
(j) Any and all short term and/or long term liabilities of any
Subject Company or Subsidiary of a Subject Company in respect of any
Benefit Plans are fully accrued for and set forth on the XXX Financial
Statements and/or the AIC Financial Statements, or the XXX Balance Sheet
and/or the AIC Balance Sheet, as applicable, in accordance with GAAP.
Section 4.14. Environmental Matters. Notwithstanding any other provisions
of this Agreement, the representations and warranties set forth in this
Section 4.14 are the only representations and warranties of the Seller
relating to Environmental Laws and Regulations, Authorizations thereunder or
Hazardous Substances:
(a) Except as disclosed in Schedule 4.14(a) to the Seller's
Disclosure Letter and except for matters that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Businesses, (i) the properties and operations of the
Subject Companies, their Subsidiaries and the Businesses are, and since
May 18, 1999 (or, if later, the date on which the Seller acquired its
direct or indirect interest in such Subject Company or Subsidiary), and
to the Knowledge of the Seller prior to such date, have been in
compliance with all, and within all applicable statute of limitations
periods have not violated any, applicable Environmental Laws and
Regulations, and none of the Seller, any Subject Company or any
Subsidiary of any Subject Company has received during the time that
Seller has directly or indirectly owned a Subject Company or a Subsidiary
of a Subject Company, or to the Knowledge of the Seller prior to such
time, from any Governmental Authority specific written notification that
properties or operations of or affecting such Subject Company or
Subsidiary are not in compliance with all, or are subject to liability
under any, applicable Environmental Laws and Regulations, (ii) none of
the Subject Companies or their Subsidiaries or any of their properties or
operations are subject to any existing or, to the Knowledge of the
Seller, subject to or affected by any threatened action, suit,
investigation, inquiry or proceeding by or before any Court or
Governmental Authority under any applicable Environmental Laws and
Regulations, (iii) no Authorizations required to be obtained by a Subject
Company or any of its Subsidiaries under any applicable Environmental
Laws and Regulations in connection with the Business conducted by them
have not been obtained or are not valid and currently in full force and
effect except those for which filings are currently pending and which the
Subject Company or Subsidiary seeking such Authorization reasonably
believes will be timely obtained and (iv) since May 18, 1999 (or, if
later, the date on which the Seller acquired its direct or indirect
-21-
interest in such Subject Company or Subsidiary), and to the Knowledge of
the Seller prior to such date, there has been no Release of any Hazardous
Substance which has created a condition for which the Seller, a Subject
Company or any of its Subsidiaries has or may have liability or other
obligation under any applicable Environmental Laws and Regulations; (v)
to the Knowledge of the Seller, no Hazardous Substance is present at any
of the Owned Real Property or at or affecting any of the operations of
any Subject Company or any Subsidiary thereof under conditions that are
reasonably likely to result in any liability or other obligation under
any applicable Environmental Laws and Regulations, and (vi) there is no
adopted, final requirement of any Environmental Laws and Regulations,
including any Authorization pursuant to any Environmental Laws and
Regulations, applicable to any Subject Company or any Subsidiary thereof
or any of their operations, which any Subject Company or any Subsidiary
thereof or any of their operations will be initially required to comply
with after the date hereof, nor since May 18, 1999 (or, if later, the
date on which the Seller acquired its direct or indirect interest in such
Subject Company or Subsidiary), or to the Knowledge of the Seller prior
to such date, has any Governmental Authority provided any written notice
to any Subject Company or any Subsidiary thereof that it is evaluating or
proposing any change in or addition to any requirement of any
Environmental Laws and Regulations, including any Authorization pursuant
to any Environmental Laws and Regulations applicable to any Subject
Company or any Subsidiary thereof or to any of their operations.
(b) Schedule 4.14(b) to the Seller's Disclosure Letter contains a
list of all Environmental Reports (in each case relevant to a Subject
Company or a Subsidiary of a Subject Company) prepared by or for the
Seller, or prepared since May 18, 1999 (or, if later, the date on which
the Seller first acquired its direct or indirect interest in such Subject
Company or Subsidiary) by or for a Subject Company or any Subsidiary of a
Subject Company, and complete copies of all such Environmental Reports
have been provided to the Buyer. To the Knowledge of the Seller, all
Environmental Reports that are otherwise within the possession or control
of a Subject Company or any of its Subsidiaries, that in any case relate
to any material Owned Real Property or identify conditions or
circumstances that could reasonably be expected to affect any of the
Businesses, have been made available to the Buyer.
Section 4.15. Litigation. There are no actions, suits, arbitrations,
investigations, claims or proceedings (including arbitration proceedings)
pending or, to the Knowledge of the Seller, threatened against a Subject
Company or any of its Subsidiaries or against any asset, interest or right of
a Subject Company or any of its Subsidiaries, at law, in equity or under
otherwise applicable Law or Regulation, including any involving a claim for
indemnification pursuant to any statute, organizational document or contract
relating to any other action, suit, arbitration, investigation or proceeding,
in any Court or before or by any Governmental Authority, except actions,
suits, arbitrations, investigations, claims or proceedings (including
arbitration proceedings) disclosed pursuant to Section 4.14 or that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Businesses.
-22-
Section 4.16. Material Adverse Changes.
(a) Except as disclosed in Schedule 4.16 to the Seller's Disclosure
Letter, since December 31, 2000, (i) each Subject Company and each of its
Subsidiaries have conducted its Business in the ordinary course and (ii)
during such time, no event has occurred and no circumstance has arisen
(except for such changes or effects resulting from changes in general
economic, regulatory, political or climatic conditions in the nation or
nations in which a Subject Company and its Subsidiaries, or the Business
related thereto, is located and changes that affect generally the water
and wastewater services industry in the United States and Canada) that
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Businesses.
(b) Except as disclosed in Schedule 4.16 to the Seller's Disclosure
Letter, during the period from December 31, 2000 to the date of this
Agreement, none of the Subject Companies or any Subsidiary of a Subject
Company has engaged in any conduct that is proscribed by Section 6.02(b).
Section 4.17. Intellectual Property.
(a) Each Subject Company and its Subsidiaries own or possess
adequate licenses or other rights to the Subject Company Intellectual
Property Rights, except for such licenses or rights the failure of which
to own or possess would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Businesses. Schedule
4.17(a) to the Seller's Disclosure Letter contains a correct list of all
issued patents and patent applications pending as of the date of this
Agreement, U.S. and state trademark and service xxxx registrations and
applications for trademark and service xxxx registrations pending as of
the date of this Agreement, and U.S. copyright registrations and
applications for copyright registrations pending as of the date of this
Agreement, in each case relating to a Subject Company, a Subsidiary of a
Subject Company or the Businesses. All Subject Company Intellectual
Property Rights are held of record in a Subject Company's or one of its
Subsidiary's names. No claim or demand has been made or, to the Knowledge
of Seller, threatened against the Seller, a Subject Company or any of its
Subsidiaries alleging that such Subject Company or any of its
Subsidiaries does not own any right, title or interest in and to or have
the right to use any part of the Subject Company Intellectual Property
Rights.
(b) To the Knowledge of the Seller, the conduct of the Business of
each Subject Company and its Subsidiaries as conducted as of the date of
this Agreement does not infringe any patents, trademarks, trade names,
service marks or copyrights of others, except such conduct as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Businesses. The Seller has no Knowledge of
any claim that any of the Subject Company Intellectual Property Rights or
any past or current operations of the Subject Companies or their
-23-
respective Subsidiaries (since the date on which the Seller acquired its
direct or indirect interest in such Subject Company or Subsidiary)
infringes on any patents, trademarks, trade names, service marks or
copyrights of any Person, except such conduct as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Businesses. None of the Seller, the Subject Companies or
their Subsidiaries have received notice, and the Seller has no Knowledge,
that any Person is infringing upon any of the Subject Company
Intellectual Property Rights. Except as provided in Section 7.01 of this
Agreement or as disclosed in Schedule 4.17(b) to the Seller's Disclosure
Letter, the consummation of the transactions contemplated hereby will not
result in the loss or impairment of any Subject Company Intellectual
Property Rights, except such loss or impairment as would not,
individually or in the aggregate, reasonably be expected have a Material
Adverse Effect on the Businesses.
Section 4.18. Transactions with Affiliates. Except as set forth in
Schedule 4.18 to the Seller's Disclosure Letter, no member of the Seller
Company Group and none of the officers, directors or employees (or any
relative or spouse of any of the foregoing persons who has the same home as
such person or any other associate of any of the foregoing persons) of a
Subject Company, has any interest, directly or indirectly, in any lease, Lien,
contract, license, encumbrance, loan or other agreement or commitment to which
a Subject Company or any Subsidiary of a Subject Company is a party, or any
property or asset used or owned by, or any interest in any supplier of, a
Subject Company or any Subsidiary of a Subject Company (any of the foregoing,
a "Related Party Contract"), other than the employment agreements and
Retention Bonus and Divestiture Agreements set forth in Schedule 4.13(a) to
the Seller's Disclosure Letter and any Related Party Contract that has an
aggregate value of $10,000 or less or may be terminated by the Subject Company
or Subsidiary of a Subject Company that is a party thereto upon not more than
30 days' notice to the other party or parties thereto. Except as set forth in
Schedules 4.13(a) or 4.18 to the Seller's Disclosure Letter and except for the
Intercompany Indebtedness and wages and employee benefits owed in the ordinary
course of business, neither a Subject Company nor any of its Subsidiaries is
indebted, directly or indirectly, to (a) the Seller (other than in respect of
items (and amounts) fully disclosed in the AIC Financial Statements and XXX
Financial Statements) or (b) any officer, director or employee of a Subject
Company or any Subsidiary (or any associate of a person described in clauses
(a) or (b)) for any liability or obligation, whether arising by reason of
stock ownership, oral or written agreement or understanding or otherwise.
Section 4.19. SEC Filings. All forms, reports and documents filed with
the United States Securities and Exchange Commission (the "SEC") by the Seller
since June 9, 1999, to the extent (and only to the extent) that they contain
disclosure regarding the Subject Companies and their Subsidiaries, did not, at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
-24-
of the circumstances under which they were made, not misleading. None of the
Subject Companies or any of their Subsidiaries is required to file any forms,
reports or other documents with the SEC.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES REGARDING BUYER
The Buyer represents and warrants to the Seller that:
Section 5.01. Organization and Qualification. The Buyer is a legal entity
duly organized, validly existing and in good standing under the Laws of
Delaware.
Section 5.02. Authorization of Agreement. The Buyer has all requisite
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Buyer of this Agreement
and the performance by the Buyer of its obligations hereunder have been duly
and validly authorized by all requisite corporate action on the part of the
Buyer and no other corporate proceedings on the part of the Buyer are
necessary to consummate the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by the Buyer and (assuming due
authorization, execution and delivery hereof by the Seller and the Parent)
constitutes the legal, valid and binding obligations of the Buyer, enforceable
against the Buyer in accordance with its terms, except as enforcement hereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar Laws relating to or affecting the
enforcement of creditors' rights generally and legal principles of general
applicability governing the availability of equitable remedies (whether
considered in a proceeding in equity, at law or under otherwise applicable
Law).
Section 5.03. Approvals and Consents. Except for Legal Requirements set
forth in Schedule 5.03 to the Buyer's Disclosure Letter or those Legal
Requirements the noncompliance with which would be immaterial or would not
prevent the Buyer from performing this Agreement in all material respects, no
filing or registration with, no waiting period imposed by and no Authorization
of any Governmental Authority is required under any Legal Requirement
applicable to the Buyer to permit the Buyer to execute, deliver or perform
this Agreement or to consummate the transactions contemplated hereby. Except
as set forth in Schedule 5.03 to the Buyer's Disclosure Letter, no Third
Person Consent is required to permit the Buyer to execute, deliver and perform
this Agreement or to consummate the transactions contemplated hereby, other
than immaterial consents.
Section 5.04. No Violation. Upon effectuation of all filings and
registrations with, termination or expiration of any applicable waiting
periods imposed by and receipt of all Authorizations of any Governmental
Authority as set forth in Schedule 5.03 to the Buyer's Disclosure Letter, and
the receipt of all Third Person Consents set forth in Schedule 5.03 to the
Buyer's Disclosure Letter, neither the execution and delivery by the Buyer of
this Agreement nor the performance by the Buyer of its obligations hereunder
(a) (i) violates or breaches or causes a default or gives rise to any right of
termination, purchase or amendment under any of the terms of any Legal
Requirement applicable to the Buyer, (ii) contravenes the certificate of
-25-
incorporation, bylaws or any other organizational document of the Buyer or
(iii) violates or breaches or causes the default under any of the terms,
conditions or provisions of any indenture, loan, credit agreement, contract,
agreement, written commitment, license or other instrument to which the Buyer
or any of its Subsidiaries is a party or by which the Buyer or any of its
Subsidiaries or any of their properties or assets are bound or affected or (b)
will, with the passage of time, the giving of notice or the taking of any
action by a third Person, have any of the effects set forth in clause (a) of
this Section 5.04, except in any such case for any matters described in this
Section 5.04 that would be immaterial or would not prevent the Buyer from
performing this Agreement in all material respects.
Section 5.05. Financing Commitments. At the Closing, the Buyer or the
Parent will have sufficient funds to pay the Estimated Purchase Price in the
manner set forth in Section 2.04(b) and to deposit the Escrow Amount in the
manner set forth in Section 2.04(b) and thereafter to pay any Purchase Price
Adjustment Amount (including interest) in the manner set forth in Section
2.06(d).
Section 5.06. No Brokers. No broker, finder or investment banker (other
than Xxxxxxx, Sachs & Co.) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Buyer. All fees
and expenses of the Buyer incurred pursuant to the engagement of Xxxxxxx,
Xxxxx & Co. will be discharged by the Buyer, and Buyer shall indemnify and
hold the members of the Seller Company Group harmless from any claims by
Xxxxxxx, Sachs & Co. in respect of such fees and expenses. This
indemnification shall be in addition to the indemnification provided pursuant
to Article X and shall not be subject to the thresholds, deductibles and other
limitations on amount set forth in Section 10.02(a).
Section 5.07. Investment in Subject Company Stock. The Buyer is acquiring
the Subject Company Stock for its own account and not with a view to a
distribution thereof within the meaning of that term as used in the U.S.
Securities Act of 1933, as amended.
ARTICLE VI.
COVENANTS OF THE SELLER
Section 6.01. Affirmative Covenants Regarding Operation of the
Businesses. The Seller hereby covenants and agrees that, prior to and on the
Closing, unless otherwise contemplated by this Agreement or consented to in
writing by the Buyer, it will cause each Subject Company and its Subsidiaries:
(i) to operate in the usual and ordinary course consistent with
past practices;
(ii) to use commercially reasonable efforts to preserve
substantially in tact their business organization, to maintain their
rights, privileges and immunities, to retain the services of their key
-26-
employees and to maintain their relationships with their customers and
suppliers and others having business relations with each Subject Company
and its Subsidiaries;
(iii) to use commercially reasonable efforts consistent with
past practice to maintain and to keep their properties and assets in as
good repair and condition as at present, ordinary wear and tear excepted;
and
(iv) to use commercially reasonable efforts to keep in full
force and effect insurance comparable in amount and scope of coverage to
that currently maintained as provided in Schedule 4.10 to the Seller's
Disclosure Letter.
Section 6.02. Negative Covenants Regarding the Operation of the
Businesses.
(a) The Seller covenants and agrees that, except as set forth in
Schedule 6.02(a) to the Seller's Disclosure Letter, as contemplated by
this Agreement, or as otherwise consented to in writing by the Buyer,
from the date of this Agreement until the Closing, it will not sell,
transfer or otherwise dispose of, or grant any Lien with respect to, any
Subject Company Stock.
(b) The Seller covenants and agrees that, except as set forth in
Schedule 6.02(b) to the Seller's Disclosure Letter, which exceptions
shall be categorized by the applicable line of Business, or as
contemplated by this Agreement, or as otherwise consented to in writing
by the Buyer, from the date of this Agreement until the Closing, it will
not permit a Subject Company or a Subsidiary of a Subject Company to do
any of the following:
(i) (A) increase the compensation payable to or to become
payable to any director or executive officer or materially increase the
compensation payable to or to become payable to any other employee,
(B) grant any severance or termination pay that would be likely to become
due as a result of the transactions contemplated hereby, (C) amend or
take any other actions to increase the amount of, or accelerate the
payment or vesting of, any benefit under any Benefit Plan or (D)
contribute, transfer or otherwise provide any amount of cash, securities
or other property to any grantee, trust, escrow or other arrangement that
has the effect of providing or setting aside assets for benefits payable
pursuant to any termination, severance or other change in control
agreement; except (x) pursuant to any contract, agreement or other legal
obligation existing at March 31, 2001 of a Subject Company or any
Subsidiary of a Subject Company or (y) in the case of severance or
termination payments, pursuant to the severance policy existing at the
date of this Agreement of a Subject Company or a Subsidiary of a Subject
Company.
(ii) (A) enter into any employment or severance agreement with
any director executive officer or employee, either individually or as
part of a class of similarly situated persons, or (B) establish, adopt or
enter into any new Benefit Plan, except providing current welfare and
-27-
pension Benefit Plans for the benefit of any newly employed employees in
accordance with the ordinary course of business consistent with past
practice, in which case the terms of such Benefit Plans shall be
reasonably consistent with those existing at the date of this Agreement,
and in no event shall a Subject Company or its Subsidiaries enter into an
agreement for, or commit to or authorize the payment of severance, a
bonus or any other type of payment upon consummation of the transactions
contemplated herein;
(iii) declare or pay any dividend on, or make any other
distribution in respect of, outstanding Equity Securities, except for
dividends or distributions by a Subsidiary of a Subject Company to the
Subject Company or to another wholly owned Subsidiary of the Subject
Company;
(iv) (A) redeem, purchase or acquire, or offer to purchase or
acquire, any outstanding Equity Securities of a Subject Company or a
Subsidiary of a Subject Company other than any such acquisition by the
Subject Company or any of its wholly owned Subsidiaries directly from any
wholly owned Subsidiary of the Subject Company, (B) effect any
reorganization or recapitalization or (C) split, combine or reclassify
any of the capital stock of, or other Equity Securities of, the Subject
Company or any of its Subsidiaries;
(v) (A) offer, sell, issue or grant, or authorize the offering,
sale, issuance or grant, of any Equity Securities of a Subject Company or
any Subsidiary of a Subject Company to any Person other than a Subject
Company or a Subsidiary of a Subject Company, except as may be required
by Section 6.04 of this Agreement, or (B) grant any Lien with respect to
any Equity Securities of any Subsidiary of a Subject Company;
(vi) acquire, whether by merger or consolidation, by purchasing
an equity interest or otherwise, any business or any corporation,
partnership, association or other business organization or division
thereof;
(vii) enter into a lease for or acquire any assets or properties
other than in the ordinary course of business and consistent with past
practice;
(viii) sell, transfer, rent or lease to a Person that is not a
member of a Subject Company Group or exchange or otherwise dispose of any
of the material assets or inventories of a Subject Company and its
Subsidiaries, except in the ordinary course of business consistent with
past practice;
(ix) incur, create, assume or suffer to exist any Lien on any
of the assets of a Subject Company or a Subsidiary of a Subject Company
or their respective properties and assets, except Permitted Encumbrances;
-28-
(x) adopt any amendments to its charter or bylaws or other
organizational documents of a Subject Company or Subsidiary of a Subject
Company;
(xi) (A) make any change in any of its methods of accounting in
effect at December 31, 2000, except as may be required to comply with
GAAP, (B) make or rescind any election relating to any Taxes (other than
any election that must be made periodically and that is made consistent
with past practice), (C) amend any material Tax Return or (D) settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to any material Taxes;
(xii) incur any other obligation or liability, absolute or
contingent, except in the ordinary course of business and consistent with
past practice or except as provided in this Agreement;
(xiii) waive or permit the loss of any substantial right;
(xiv) guarantee or become a co-maker or accommodation maker or
otherwise become or remain contingently liable in connection with any
liability or obligation of any Person other than a Subject Company or a
Subsidiary of a Subject Company;
(xv) loan, advance funds or make an investment in or capital
contribution to any Person other than a Subject Company or a Subsidiary
of a Subject Company;
(xvi) take any action or omit to take any action that would
cause a default under any Material Contract, which default would permit
any other party thereto to terminate such Material Contract;
(xvii) incur any obligations for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, except (A)
purchase money indebtedness in the ordinary course of business and
consistent with past practices, (B) drawings under credit lines existing
at the date of this Agreement, (C) borrowings evidenced by obligations
having a term of up to five years issued in the ordinary course of
business consistent with past practice, (D) Intercompany Indebtedness
incurred in the ordinary course of business consistent with past
practice, (E) letters of credit, performance bonds or bid bonds issued
pursuant to agreements existing as of the date of this Agreement or in
replacement or renewal of existing letters of credit, performance bonds
or bid bonds, (F) performance bonds and bid bonds listed in Schedule
6.02(b)(xvii) to the Seller's Disclosure Letter, and (G) performance
bonds and bid bonds not described in clauses (E) or (F) and issued in the
ordinary course of business consistent with past practice, in amounts not
greater than $3 million individually or $10 million in the aggregate;
-29-
(xviii) enter into any material agreement with any third Person
that provides such third Person with an exclusive arrangement to provide
goods or services to a Subject Company or any of its Subsidiaries;
(xix) enter into any Material Contract, provided that the Buyer
shall not unreasonably withhold its consent to enter into any such
Material Contract; and provided, further, that the Buyer's consent shall
not be required to enter into any Material Contract in respect of any
project listed in Schedule 6.02(b)(xix) to the Seller's Disclosure Letter
but the Seller shall consult with the Buyer before entering into any such
Material Contract;
(xx) make any individual capital expenditure in an amount in
excess of $50,000 or, once the aggregate amount of all capital
expenditures made after the date of this Agreement exceeds $2,500,000,
make any individual capital expenditure in an amount in excess of
$25,000; provided that (A) the Buyer shall not unreasonably withhold its
consent to any such capital expenditure, (B) the Buyer shall, within
seven days of the date hereof, designate any individual with authority to
provide the Buyer's response to any request for approval hereunder for a
capital expenditure, (C) nothing herein shall restrict the Subject
Companies or their Subsidiaries from making a capital expenditure in
response to any emergency situation that threatens bodily injury or
damage to property, and (D) the Buyer shall respond to any request for
approval hereunder within seven days of such request, and if no rejection
has been received by the requesting Subject Company or Subsidiary thereof
within this seven day period, the request shall be deemed approved; or
(xxi) agree in writing or otherwise to do, or authorize, any
of the foregoing.
Section 6.03. Access to Information.
(a) The Seller covenants and agrees that, subject to any limitations
on disclosures to which the Seller and the Buyer agreed in the
Confidentiality Agreement and subject to any nondisclosure obligations to
third Persons, from the date of this Agreement until the Closing, the
Seller shall use reasonable efforts to cause each of the Subject
Companies and its Subsidiaries (i) to afford to the Buyer and its
Representatives access during normal business hours upon reasonable prior
notice, to the officers, employees, agents, accountants, properties,
offices and other facilities and operations of such Subject Company and
its Subsidiaries and to their books, records, Tax Returns (or extracts
therefrom) and contracts and (ii) to furnish promptly to the Buyer and
its Representatives such information concerning the properties,
contracts, records and personnel (including financial, operating and
other data and information) related to the Businesses as may be
reasonably requested, from time to time, by or on behalf of the Buyer;
provided that Buyer and its Representatives (A) comply with the
provisions of the Confidentiality Agreement, (B) comply with all
applicable safety and other rules of conduct of the facility and (C) do
-30-
not unreasonably interfere with the operation of the facility or the
personnel involved.
(b) All information provided to the Buyer and its Representatives
pursuant to this Section 6.03(a) and all information made available to
the Buyer in any data room (including the internet data room) pertaining
to the Subject Companies and their Subsidiaries shall be deemed to be
"Evaluation Material" as that term is defined in the Confidentiality
Agreement.
Section 6.04. Conversion of Intercompany Indebtedness. Prior to the
Closing, the Seller shall convert all Intercompany Indebtedness held by the
Seller to equity or Equity Securities of a Subject Company or a Subsidiary of
a Subject Company.
Section 6.05. Employees. Schedule 6.05 to the Seller's Disclosure Letter
contains a list of the names and positions of certain of the employees of the
Seller or other members of the Seller Company Group, which employees are not
accounted for in the XXX Financial Statements or the AIC Financial Statements
and have been seconded to the Subject Companies and their Subsidiaries. Prior
to the Closing, the Seller shall transfer, or shall cause the appropriate
member of the Seller Company Group to transfer, to the Subject Companies and
their Subsidiaries those employees designated in Schedule 6.05 to the Seller's
Disclosure Letter to be transferred.
Section 6.06. Covenants Not to Compete.
(a) In consideration of the Buyer entering into this Agreement and
in order that the Buyer may enjoy the full benefits of the Businesses,
the Seller covenants and agrees that, for two years after the Closing
Date, the Seller shall not directly or indirectly, whether as principal,
agent, partner, officer, director, stockholder, employee, consultant or
otherwise (except as provided below), whether alone or in association
with any other Person, own, manage, operate, control, participate in,
perform services for, or otherwise carry on, a business which designs,
produces, manufactures, markets, distributes or sells products or
services that are identical or substantially similar to products or
services designed, produced, manufactured, marketed, distributed or sold,
as the case may be, or proposed as of the Closing Date to be designed,
produced, manufactured, marketed, distributed or sold by the Subject
Companies or any of their Subsidiaries in the operation of the Businesses
in the geographic areas within the United States and Canada in which the
Subject Companies and their Subsidiaries are conducting the Businesses as
of the date of this Agreement. The Seller and Buyer agree that the
foregoing covenant is intended to prohibit the Seller from engaging in
such activities, as the case may be, as owner, creditor (except as a
trade creditor in the ordinary course of business), partner, stockholder
or lender (except as a holder of equity or debt securities in a
corporation a class of whose securities is publicly traded on any stock
exchange or recognized over-the-counter market, and then only to the
extent of owning not more than five percent of the issued and outstanding
debt or equity securities of such corporation), contractor or agent for
any Person.
-31-
(b) The Seller further covenants and agrees that for a period of two
years after the Closing Date, it shall not, either directly or
indirectly, on its own behalf or in the service or on behalf of others,
solicit, hire or attempt to solicit or hire any employee of the Buyer;
provided, however, that the Seller shall not be precluded from hiring any
employee of the Buyer who (i) initiates discussions regarding employment
with the Seller without any direct or indirect solicitation or
encouragement by the Seller, (ii) responds to any advertisement to the
general public placed by the Seller, or (iii) has been terminated, or has
been notified that he or she will be terminated, by the Buyer prior to
the commencement of employment discussions between the Seller and such
employee.
(c) The Seller acknowledges and agrees that the remedy at law for
any breach, or threatened breach, of any of the provisions of this
Section 6.06 will be inadequate and, accordingly, the Seller covenants
and agrees that the Buyer shall, in addition to any other rights and
remedies which the Buyer may have, be entitled to equitable relief,
including injunctive relief, and to the remedy of specific performance
with respect to any breach or threatened breach of such covenant, as may
be available from any court of competent jurisdiction. Such right to
obtain equitable relief may be exercised, at the option of the Buyer,
concurrently with, prior to, after, or in lieu of, the exercise of any
other rights or remedies which the Buyer may have as a result of any such
breach or threatened breach.
(d) In the event that the provisions of this Section 6.06 shall be
determined by a court of competent jurisdiction to be unenforceable under
applicable Law as to that jurisdiction (the parties agreeing that such
decision shall not be binding, res judicata or collateral estoppel in any
other jurisdiction) for any reason whatsoever, then any such provision or
provisions shall not be deemed void, but the parties hereto agree that
said limits may be modified by the court and that said covenant contained
in this Section 6.06 shall be amended in accordance with said
modifications, it being specifically agreed by the Seller and Buyer that
it is their continuing desire that this covenant be enforced to the full
extent of its terms and conditions or if a court finds the scope of the
covenant unenforceable, the court should redefine the covenant so as to
comply with applicable Law.
Section 6.07. Insurance. To the extent that (a) there are third-party
insurance policies maintained by the Seller and its Affiliates ("Seller's
Insurance Policies") covering any loss, liability, damage, expense or other
risk relating to the assets, businesses, operations, conduct, products and
employees (including former employees) of any of the Businesses (all such
losses, liabilities, claims, damages, expenses or risks, regardless of the
availablility of insurance coverage, are herein referred to collectively as
the "Liabilities") and relating to or arising out of occurrences prior to the
Closing, and (b) the Seller's Insurance Policies continue to permit claims
after the Closing ("Claims") to be made with respect to such Liabilities
relating to or arising out of occurrences prior to the Closing, the Seller
agrees to cooperate and cause its Affiliates to cooperate with the Buyer and
the Subject Companies in submitting, and to submit and cause its Affiliates to
-32-
submit, Claims on behalf of the Buyer or the Businesses under the Seller's
Insurance Policies with respect to such Liabilities relating to or arising out
of occurrences prior to the Closing, provided that the Buyer shall bear the
burden of all deductibles related to any such Claims. From and after the
Closing Date, the Seller shall, and shall cause its Affiliates to, pay over to
the Buyer, or reimburse the Subject Companies and their Subsidiaries, for all
amounts actually paid to the Seller or an Affiliate of the Seller on behalf of
the Subject Companies and their Subsidiaries following the Closing under the
Seller's Insurance Policies and relating to periods ending on or prior to the
Closing (excluding any refunds of premium payments). From and after the
Closing Date, the Seller and its Affiliates shall be entitled to retain, or
the Buyer and its Affiliates shall pay over to the Seller and its Affiliates,
any refunds of premium payments payable or attributable to the Subject
Companies and their Subsidiaries following the Closing under the Seller's
Insurance Policies and relating to periods ending on or prior to the Closing.
ARTICLE VII.
COVENANTS OF THE BUYER
Section 7.01. Corporate Name. The Buyer shall not acquire, nor shall a
Subject Company or any of its Subsidiaries retain, any right or license to the
name "Azurix" or "Enron" (or any variation thereof) or any trademarks, trade
names or symbols related thereto. As soon as reasonably practicable after the
Closing (and in any event, not later than the 120th day thereafter with
respect to the matters in clause (a) below and not later than the 180th day
thereafter with respect to the matters in clause (b) below), the Buyer will
cause each Subject Company and each Subsidiary of a Subject Company (a) to
amend its organizational documents to the extent necessary to remove the
"Azurix" and "Enron" names (and any variation thereof) from the name of such
Subject Company or Subsidiary, and (b) to remove all trademarks, trade names
and symbols related to the names "Azurix" and "Enron" from the properties and
assets (including all signs) of such Subject Company or Subsidiary and
otherwise to cease all use of or right to use the terms "Azurix" and "Enron"
and any marks or names which include other of such terms, or any other terms
which are confusingly similar thereto.
Section 7.02. Guarantees. The Buyer acknowledges the list of Guarantees
set forth on Schedule 4.12(b) to the Seller's Disclosure Letter and agrees,
(i) in the case of any such Guarantee that is a letter of credit, to
substitute for the existing letter of credit a letter of credit issued by a
financial institution selected by the Buyer and acceptable to the beneficiary
of the existing letter of credit and (ii) in the case of any such Guarantee
that is not a letter of credit, to use its commercially reasonable efforts
prior to the Closing to cooperate with the Seller to terminate such Guarantee
(including offering to substitute a guarantee of the Buyer or one of its
Subsidiaries for such Guarantee) and procure from the existing obligee the
release of the member of the Seller Company Group that is a party to such
Guarantee from any and all liability from and under such Guarantee, which
release shall be acceptable to the existing obligee and shall take effect at
the Closing. To the extent that the Seller is not able to terminate any such
Guarantee (other than a letter of credit) and obtain any such release prior to
the Closing in accordance with clause (ii) of the preceding sentence, the
Buyer agrees (a) to continue to use its commercially reasonable efforts
thereafter to effect such a termination and release and (b) to provide to the
-33-
Seller at the Closing a letter of credit issued by a financial institution
reasonably acceptable to the Seller against which the appropriate members of
the Seller Company Group may draw to the extent of any Losses that such
members of the Seller Company Group may incur or suffer as a result of being
required to perform any obligations under, or to defend against any claim made
or threatened to be made in connection with, any such Guarantees from and
after the Closing. To the extent that any such letter of credit is
insufficient to cover any such Losses, the Buyer agrees to defend, indemnify
and hold harmless, from and after the Closing, the Seller Company Group of,
from and against any such Losses. This indemnification shall be in addition to
the indemnification provided pursuant to Article X and shall not be subject to
the thresholds, deductibles or other limitations on amount set forth in
Section 10.02(a).
Section 7.03. Employee Benefits.
(a) For one year after the Closing Date, the Buyer shall maintain,
or shall cause the Subject Companies and their respective Subsidiaries to
maintain, compensation, severance and employee benefit plans and
arrangements for employees of the Subject Companies and their respective
Subsidiaries that are no less favorable than those provided pursuant to
the Benefit Plans in effect as of the date hereof and set forth in
Schedule 4.13(c) to the Seller's Disclosure Letter, provided that to the
extent permitted by applicable Law, the Buyer, the Subject Companies and
their respective Subsidiaries shall have the same right to modify, amend
or terminate such compensation, severance or employee benefit plan or
arrangements, or to terminate the employment of any employee, as the
Seller, the Subject Companies or their respective Subsidiaries have on
the date of this Agreement. For purposes of eligibility, accrual of
benefits (providing that such service shall not be taken into account for
purposes of determining accrual of benefits under any defined benefit
pension plan maintained by Buyer), participation and vesting under
compensation, severance and employee benefit plans provided by the Buyer
or, after the Closing, the Subject Companies and their respective
Subsidiaries to employees of the Subject Companies and their respective
Subsidiaries, service as an employee of a Subject Company, a Subsidiary
of a Subject Company or a member of the Seller Company Group (which
service shall include service as an employee of a predecessor of any such
entity) shall be deemed to be service as an employee of the Buyer or,
after the Closing, the Subject Companies and their respective
Subsidiaries.
(b) The Buyer shall assume and honor those employment agreements and
Divestiture and Retention Bonus Agreements set forth in Schedule 4.13(a)
to the Seller's Disclosure Letter.
-34-
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.01. Appropriate Action; Consents; Filings. The covenants in
this Section 8.01 shall apply to the parties hereto from and after the date of
this Agreement until the Closing:
(a) Each party shall use commercially reasonable efforts to take, or
to cause to be taken, all actions and to do, or to cause to be done, all
things, including the making of all necessary filings and thereafter any
other required submissions, that are necessary, proper or advisable under
applicable Legal Requirements or otherwise are reasonably required to
obtain, (i) in the case of the Seller, the Authorizations set forth in
Schedule 3.03 or Schedule 4.03 to the Seller's Disclosure Letter and (ii)
in the case of the Buyer, the Authorizations set forth in Schedule 5.03
to the Buyer's Disclosure Letter. Each party shall cooperate with the
others in connection with the making of all such filings, including
providing copies of all such documents to the nonfiling parties and their
advisors prior to filing and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. Each
party shall furnish or cause to be furnished all information required for
any application or other filing to be made in connection with obtaining
any such Authorizations.
(b) Each party shall timely give, and shall cause their respective
Subsidiaries, as applicable, to give, any notices to third Persons and
shall use, and cause their respective Subsidiaries, as applicable, to
use, commercially reasonable efforts to obtain, (i) in the case of the
Seller, the Third Person Consents set forth in Schedule 3.03 or Schedule
4.03 to the Seller's Disclosure Letter and (ii) in the case of the Buyer,
the Third Person Consents set forth in Schedule 5.03 to the Buyer's
Disclosure Letter.
(c) Each party shall give prompt notice to each other party of (i)
any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated hereby, (ii) any notice or other communication
from any Governmental Authority in connection with the transactions
contemplated hereby, (iii) any actions, suits, claims, investigations or
proceedings commenced or threatened in writing against, relating to or
involving or otherwise affecting the Seller, the Buyer, the Parent, a
Subject Company or any Subsidiary of a Subject Company that relate to the
consummation of the transactions contemplated hereby and (iv) the
occurrence or nonoccurrence of any event that would be likely to cause
any of the Closing Conditions of any other party not to be satisfied or
of any other change that is reasonably likely to cause a breach of the
covenants of such party under this Agreement or to delay or impede the
ability of any party to consummate the transactions contemplated by this
Agreement or to fulfill their respective obligations set forth herein. No
delivery of any notice pursuant to clause (iv) of this subsection (c)
shall cure any breach of any representation or warranty of the party
giving such notice contained in this Agreement or otherwise limit or
affect the remedies available hereunder to the party receiving such
notice.
-35-
(d) Each party hereto agrees to cooperate with the others and to use
commercially reasonable efforts vigorously to contest and resist any
action, including legislative, administrative or judicial action, and to
have vacated, lifted, reversed or overturned any Order (whether
temporary, preliminary or permanent) of any Court or Governmental
Authority that is in effect and that restricts, prevents or prohibits the
consummation of the transactions contemplated by this Agreement,
including the vigorous pursuit of all available avenues of administrative
and judicial appeal and all available legislative action.
(e) The Seller and the Buyer each agree that the terms and
provisions of the Confidentiality Agreement are hereby incorporated
herein by reference and that such terms and provisions shall continue in
full force and effect until the Closing, except as otherwise provided in
Section 11.02(c).
Section 8.02. Public Announcements. Each party shall consult with each
other party before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to such
consultation with and approval from the others. No party shall permit any of
its Subsidiaries to make any press release or public statement with respect to
the transactions contemplated hereby. Notwithstanding the foregoing, this
Section 8.02 shall not preclude a party from issuing press releases or making
other public statements, including filings with or applications to
Governmental Authorities, that such party in good faith reasonably believes to
be required under applicable Legal Requirements, in which case such party
shall consult with the others prior to issuing such press release or making
such statement.
Section 8.03. Taxes.
(a) Transfer Taxes. Each party hereto shall cooperate with the other
party in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer and stamp taxes, any
transfer, recording, registration and other fees and any similar taxes
that become payable as a direct result of the sale of the Subject Company
Stock by the Seller to the Buyer in the manner contemplated by this
Agreement ("Transfer Taxes"), and each of the Buyer and the Seller shall
be responsible for, and shall timely pay, 50% of the total amount of such
Transfer Taxes. The party responsible for such preparation, and filing of
such documents shall be determined as required by Law or consistent with
local custom in the jurisdiction in which such filing is to occur.
(b) Allocation of Tax Liability. The Buyer and the Seller shall,
unless prohibited by applicable Law, close the taxable period of each
Subject Company and Subsidiary of a Subject Company as of the close of
the Closing Date. In any case where applicable Law prohibits a Subject
Company or Subsidiary of a Subject Company from closing its taxable
period on the Closing Date, any Taxes attributable to a taxable period
that includes but does not end on the Closing Date will be allocated for
the account of the Seller for the period up to and including the Closing
-36-
Date and for the account of the Buyer for the period subsequent to the
Closing Date, on the basis of an interim closing of the books of each
Subject Company and Subsidiary of a Subject Company as of the close of
the Closing Date. All transactions occurring on the Closing Date but
after the Closing shall have occurred shall be reported on the Buyer's
consolidated United States federal income Tax Return to the extent
permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) and shall
be similarly reported on other Tax Returns of the Buyer or its
Affiliates. Notwithstanding anything to the contrary herein, (i) property
Taxes shall be allocated between the Seller and the Buyer on a daily
basis over the period beginning on the date that ownership of the
property results in imposition of the Tax and ending on the day before
the next date that ownership of the property results in imposition of the
Tax; and (ii) franchise, doing business and capital Taxes shall be
allocated between the Buyer and the Seller on a daily basis over the
period for which payment of the Tax provides the right to engage in
business.
(c) Tax Sharing Agreements. The Seller and each Subject Company
shall cause each tax sharing agreement, arrangement or practice between
any of the Subject Companies and their Subsidiaries, on the one hand, and
the Seller Company Group, on the other hand (collectively, the "Tax
Sharing Agreements"), to be terminated as of the Closing Date as it
pertains to any of the Subject Companies and their Subsidiaries, and
thereafter the obligations of the parties and their Affiliates, as
related to the Subject Companies and their Subsidiaries, shall be
governed exclusively by this Agreement.
(d) Tax Returns.
(i) For all taxable periods of the U.S. Companies ending on or
prior to the Closing Date, the Seller shall cause the U.S. Companies to
join in the Seller's consolidated federal income Tax Returns and, with
respect to any taxing authority requiring or permitting combined
reporting with the Seller or any of its Affiliates, to join in combined
Tax Returns for such jurisdictions, in accordance with current practices
(unless the Buyer, in its sole discretion, consents to any changes from
current practices), and the Seller shall pay or cause to be paid all
Taxes with respect to such taxable periods. Except as required by Section
8.03(g), in no event shall the Seller take any position on such Tax
Returns that could have the effect of increasing the Buyer's Taxes after
the Closing Date without the Buyer's consent, which consent shall not be
unreasonably withheld.
(ii) The Seller shall prepare or cause to be prepared and shall
file or cause to be filed all other Tax Returns of each Subject Company
and Subsidiary of a Subject Company for taxable periods ending on or
before the Closing Date that are filed after the Closing Date, and shall
pay or cause to be paid all Taxes with respect to such taxable periods.
The Buyer shall make available to the Seller such books and records of
-37-
the Subject Companies and their Subsidiaries as are reasonably necessary
to file such Tax Returns, and the Buyer shall cause authorized officers
of the Subject Companies and their Subsidiaries to execute such Tax
Returns, where required, provided that such Tax Returns have been
prepared in accordance with applicable Law. Except as required by Section
8.03(g), in no event shall the Seller take any position on such Tax
Returns that could have the effect of increasing the Buyer's Taxes after
the Closing Date without the Buyer's consent, which consent shall not be
unreasonably withheld.
(iii) The Buyer shall cause the Subject Companies and their
Subsidiaries to file all Tax Returns for their taxable periods ending
after the Closing Date. To the extent that any such Tax Return is to be
filed with respect to a taxable period of any such Subject Company or
Subsidiary of a Subject Company that begins before and ends after the
Closing Date (a "Straddle Period"), the Buyer shall provide such Tax
Return (a "Straddle Period Tax Return") to the Seller for the Seller's
review at least 30 days prior to the deadline for filing such Tax Return.
With respect to each Straddle Period Tax Return, the Buyer and the Seller
shall work in good faith to determine the portion of the Tax attributable
to the period prior to and including the Closing Date (the "Pre-Closing
Tax") and the portion of the Tax attributable to the period after the
Closing Date (the "Post-Closing Tax"). Not later than five days prior to
the due date for filing such Straddle Period Tax Return, the Seller shall
pay to the Buyer the amount of the Pre-Closing Tax determined to be owed
with respect to such Straddle Period Tax Return.
(e) Refunds. If after the Closing Date the Buyer or any Subject
Company or Subsidiary of a Subject Company or any of their Affiliates
receives a refund of any Tax attributable to a taxable period (or portion
thereof) ending on or before the Closing Date, the Buyer shall pay to the
Seller within 15 days after such receipt an amount equal to such refund
received (or so much of such refund as relates to the portion of the
taxable period ending on or before the Closing Date), together with any
interest received or credited thereon. The Seller shall cooperate with
the Buyer and the Subject Companies, to the extent reasonably requested,
in filing claims for refunds of Taxes (other than Taxes attributable to a
consolidated, combined or unitary Tax Return which included a Subject
Company or Subsidiary of a Subject Company for a Pre-Closing Tax Period)
relating to the carryback of a net operating loss or other Tax attribute
from a Tax period ending after the Closing Date; provided that all costs
related to the filing of such a claim for refund shall be borne by the
Buyer and any claims for Taxes for a Pre-Closing Tax Period arising from
or attributable to such carryback shall be the obligation of the Buyer
and shall not be subject to indemnification by the Seller.
(f) Section 338(h)(10) Elections. The Seller and Buyer shall make a
joint election under section 338(h)(10) of the Code and any similar
election under any applicable state income tax law (collectively, the
"Section 338(h)(10) Elections") with respect to the Buyer's purchase of
the Subject Company Stock. Within 90 days after the Closing Date, the
Buyer and the Seller, working together in good faith, shall agree upon an
-38-
allocation of the Purchase Price and the liabilities of the Subject
Companies (plus other relevant items) in accordance with Treasury
Regulations promulgated under Section 338 of the Code (the "Purchase
Price Allocation"). Not later than 120 days after the Closing Date, the
Buyer shall prepare, consistent with the Purchase Price Allocation, and
deliver to the Seller an Internal Revenue Service Form 8023 and any
similar form under applicable state income tax law (the "Forms") with
respect to the Section 338(h)(10) Elections, together with any completed
schedules required to be attached thereto. The Seller shall have 20 days
following receipt thereof to review and comment on the Forms and
schedules. Not later than 10 days after such review and comment has been
completed or, if any changes are required to be made to the Forms, not
later than 10 days after receipt of the final versions of such Forms, the
Seller shall return such Forms to the Buyer, which Forms shall have been
duly executed by an authorized person for the Seller. The Buyer shall
cause the Forms to be duly executed by an authorized person for the
Buyer, shall provide a copy of the executed Forms to the Seller, and
shall duly and timely file the Forms as prescribed by Treasury Regulation
1.338(h)(10)-1 or the corresponding provisions of applicable state income
tax law. The Seller and the Buyer agree to file all Tax Returns and
information reports in a manner consistent with the Purchase Price
Allocation.
(g) Consistency. Any Tax Return to be prepared pursuant to the
provisions of Section 8.03(d) shall be prepared in a manner consistent
with practices followed in prior years with respect to similar Tax
Returns, except for changes required by changes in Law or fact.
(h) Resolution of Disputes. If the Seller and the Buyer are unable
to agree upon (i) the amount of the Pre-Closing Tax owed with respect to
a Straddle Period Tax Return prior to the date that is 15 days prior to
the due date for filing such Straddle Period Tax Return, or (ii) the
allocation of the Purchase Price and liabilities of the Subject Companies
(plus other relevant items) within the time specified in subparagraph (f)
hereof, the parties shall submit such matter to the Accounting Mediator,
as defined in Section 2.06(b), or if no Accounting Mediator has been
selected, the parties shall select such an Accounting Mediator for this
purpose in the manner provided in Section 2.06(b), and the decision of
such Accounting Mediator shall be binding on the parties. Each of the
Seller and the Buyer shall bear 50% of the fees and other costs charged
by such Accounting Mediator with respect to such matter.
Section 8.04. Expenses. Except as otherwise expressly provided herein,
all costs and expenses incurred prior to the Closing Date by the Seller and
the Subject Companies and their Subsidiaries in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Seller and the
Subject Companies and their Subsidiaries, and all costs and expenses incurred
by the Buyer and the Parent, respectively, in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Buyer and the
Parent, respectively.
-39-
Section 8.05. Post-Closing Matters.
(a) From and after the Closing, each party hereto agrees to execute
such further instruments or documents as any other party may from time to
time reasonably request in order to confirm or carry out the transactions
contemplated by this Agreement; provided, however, that no such
instrument or document shall increase a party's liability beyond that
contemplated hereby.
(b) From and after the Closing, the Buyer shall cause the Subject
Companies and their Subsidiaries to maintain copies of all Books and
Records in the possession of the Subject Companies and their Subsidiaries
at the time of the Closing and shall prevent the Subject Companies and
their Subsidiaries from destroying any of such Books and Records for a
period of five years following the Closing without first allowing the
Seller, at the Seller's expense, to make copies of the same. During that
period, the Buyer shall cause the Subject Companies and their
Subsidiaries, (i) to grant to the Seller and its Representatives
reasonable cooperation and access at all reasonable times and upon
reasonable notice to all of such Books and Records relating to the period
prior to the Closing (including workpapers and correspondence with taxing
authorities) that are not otherwise protected by legal privilege, (ii) to
afford the Seller and its Representatives the right, at the Seller's
expense, to take extracts therefrom and to make copies thereof and (iii)
to have access to the employees of the Subject Companies and their
Subsidiaries, all to the extent reasonably necessary or appropriate for
general business purposes, including the preparation of interim financial
statement reviews, year end financial statement audits and Tax Returns
and the handling of tax audits, disputes and litigation; provided,
however, that such requested cooperation, access and assistance shall not
unreasonably interfere with the normal operations of the Subject
Companies and their Subsidiaries.
(c) To the extent that the Buyer shall, directly or indirectly, sell
or otherwise transfer its interests in a Subject Company or any
Subsidiary of a Subject Company subsequent to the Closing, the Buyer
agrees to use all reasonable efforts to obtain from the transferee of
such interests an obligation to comply with the provisions of subsection
(b) of this Section, which obligation shall be enforceable by the Seller
as a third party beneficiary.
(d) If any party shall fail to obtain prior to the Closing any Third
Person Consent set forth, (i) in the case of the Seller, in Schedule 3.03
or Schedule 4.03 to the Seller's Disclosure Letter and (ii) in the case
of the Buyer, in Schedule 5.03 to the Buyer's Disclosure Letter, such
party shall thereafter use all reasonable efforts, and shall take any
such actions reasonably requested by any other party, to limit the
adverse effect upon the parties, their respective Subsidiaries and the
Businesses or that would be likely to result after the Closing from the
failure to obtain such consent; provided that the provisions of this
Section 8.05(d) shall not apply to the failure of Seller to obtain the
consent of the City to this transaction, it being agreed that the sole
consequences of such failure under this Agreement shall be as provided in
Section 10.02(e) and in the Escrow Agreement.
-40-
ARTICLE IX.
CONDITIONS TO CLOSING
Section 9.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of the parties to consummate the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing (and shall remain satisfied at and as of the Closing) of
the following conditions, any or all of which may be waived by the parties
hereto in their sole discretion, in whole or in part, to the extent permitted
by applicable Law:
(a) No Governmental Authority or Court shall have enacted, issued,
promulgated, enforced or entered any Legal Requirement (whether
temporary, preliminary or permanent) that is in effect and prohibits or
renders illegal the transactions contemplated hereby to the extent that
they involve the sale and purchase of any of the Subject Company Stock.
(b) The waiting period under any applicable competition Legal
Requirements, as set forth in Schedule 3.03 or Schedule 4.03 to the
Seller's Disclosure Letter or in Schedule 5.03 to the Buyer's Disclosure
Letter, shall have expired or been terminated.
Section 9.02. Conditions to the Seller's Obligations. The obligations of
the Seller to consummate the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Closing (and shall remain satisfied at
and as of the Closing) of the following conditions, any or all of which may be
waived by the Seller in its sole discretion, in whole or in part, to the
extent permitted by applicable Law:
(a) Each of the representations and warranties of each of the Buyer
and the Parent contained in this Agreement that is qualified as to
materiality shall be true and correct, and each of such representations
and warranties that is not so qualified shall be true and correct in all
material respects, as of the date of this Agreement and as of Closing
Date as though made again on and as of the Closing Date.
(b) Each of the Buyer and the Parent shall have performed or
complied in all material respects with all respective agreements and
covenants required by this Agreement to be performed or complied with by
it on or prior to the Closing Date.
(c) The Seller shall have received a certificate of the Chief
Executive Officer and the Chief Financial Officer of each of the Buyer
and the Parent, in each case dated as of the Closing Date, certifying
that the Buyer or the Parent, as the case may be, has satisfied the
Closing Conditions applicable to the Buyer or the Parent, as the case may
be, in Sections 9.01(b) and 9.02(a) and (b).
(d) Unless any of the circumstances described in clause (x)(ii)(A)
of the introductory paragraph of Section 2.04 shall have occurred, the
Escrow Agreement in the form of and to the effect in Annex B hereto shall
have been executed and delivered by all parties thereto (other than the
Seller).
-41-
Section 9.03. Additional Conditions to the Buyer's Obligations. The
obligations of the Buyer to effect the transactions contemplated hereby shall
be subject to the satisfaction at or prior to the Closing (and shall remain
satisfied at and as of the Closing) of the following conditions, any or all of
which may be waived by the Buyer in its sole discretion, in whole or in part,
to the extent permitted by applicable Law:
(a) Each of the representations and warranties of the Seller
contained in this Agreement that is qualified as to materiality shall be
true and correct, and each of such representations and warranties that is
not so qualified shall be true and correct in all material respects, as
of the date of this Agreement and as of the date of Closing as though
made again on and as of the Closing Date.
(b) The Seller shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to
be performed or complied with by it on or prior to the Closing Date.
(c) The Buyer shall have received a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Seller, dated as
of the Closing Date, certifying that the Seller has satisfied the Closing
Conditions set forth in Sections 9.01(b) and 9.03(a) and (b).
(d) The Buyer shall have received the written and signed
resignations of directors and officers of each Subject Company and its
Subsidiaries, effective on or before the Closing Date, as may be
requested by the Buyer in a written notice to the Seller delivered on or
before the fifth day prior to the Closing Date.
(e) The Buyer shall have received from the Seller the minute books,
stock records and corporate seals of each Subject Company and its
Subsidiaries, which books, records and seals shall be delivered at the
corporate offices of such Subject Company or Subsidiary.
(f) Unless any of the circumstances described in clause (x)(ii)(A)
of the introductory paragraph of Section 2.04 shall have occurred, the
Escrow Agreement in the form of and to the effect in Annex B hereto shall
have been executed and delivered by all parties thereto (other than the
Buyer).
(g) The Buyer shall have received a certificate duly executed by the
Seller and in a form reasonably satisfactory to the Buyer certifying that
the Seller is not a foreign person and is exempt from withholding under
Section 1445 of the Code.
-42-
ARTICLE X.
INDEMNIFICATION
Section 10.01. Survival of Representations, Warranties, Covenants and
Agreements.
(a) Except as set forth in subsection 10.01(b) and Article XI of
this Agreement, the representations, warranties, covenants and agreements
of each party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other party
hereto, any Person controlling any such party or any of their
Representatives whether prior to or after the execution of this
Agreement.
(b) The representations and warranties of the Seller contained in
Articles III and IV, those of the Buyer contained in Article V and those
of the Parent contained in Section 12.02 shall survive the Closing and
any investigation by the parties with respect thereto but shall terminate
and be of no further force or effect after the expiration of 18 months
after the Closing Date, except that such time limitation shall not apply
to: (i) the representations and warranties in Section 4.05(a) (regarding
the beneficial ownership of Equity Securities), which shall survive
through the applicable statute of limitations or (ii) the representations
and warranties in Sections 4.11, 4.13 and 4.14, which shall survive until
the fourth anniversary of the Closing Date. Notwithstanding the
foregoing, any such representation or warranty as to which a bona fide
claim relating thereto is asserted in writing (which states with
specificity the basis therefor) in accordance with Section 10.03 during
such survival period shall, with respect only to such claim, continue in
force and effect beyond such survival period pending resolution of the
claim. The covenants and agreements in this Article X shall survive the
Closing and shall remain in full force and effect for such period as is
necessary to resolve any bona fide claim made with respect to any
representation or warranty contained in this Agreement during the
applicable survival period thereof. The remaining covenants and
agreements of the parties hereto contained in this Agreement (other than
those covenants and agreements that are expressly required to remain in
full force and effect only until the Closing or until some other
specified time) shall survive the Closing without any contractual
limitation on the period of survival.
Section 10.02. General Indemnification.
(a) If the transactions contemplated hereby to occur at the Closing
are effected and subject to the provisions of Section 10.01(b), each of
the Buyer and the Parent, on the one hand, and the Seller, on the other
hand, hereby agrees (each, in such capacity, an "Indemnifying Party"),
from and after the Closing, to indemnify and hold harmless the others and
their respective officers, directors and Affiliates (each, in such
capacity, an "Indemnified Party") against any single or series of related
demands, claims, audits, investigations, hearings, complaints, suits,
proceedings, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses and judgments, and amounts paid in
settlement (including interest, fines and penalties and reasonable
attorneys' fees incurred in connection therewith) (collectively,
"Losses") that such Indemnified Party shall actually incur, to the extent
-43-
that such Losses (or actions, suits or proceedings in respect thereof and
any appeals therefrom ("Proceedings")):
(i) arise out of or are based upon a breach of any
representation or warranty made herein in Articles III or IV by the
Seller (other than any representation or warranty set forth in Section
4.11, the sole remedy for any breach of which is provided in Section
10.02(b)) which are all for the benefit of the Buyer (in which case the
Seller shall be the Indemnifying Party), in Article V by the Buyer which
are all for the benefit of the Seller (in which case the Buyer shall be
the Indemnifying Party) or in Section 12.02 by the Parent which are all
for the benefit of the Seller (in which case the Parent shall be the
Indemnifying Party);
(ii) arise out of or are based upon a breach of any covenant or
agreement made herein for the benefit of the Indemnified Party by the
Indemnifying Party; or
(iii) result from a demand, claim, investigation, hearing,
complaint, suit, proceeding, action or cause of action asserted or
threatened in writing by a Governmental Authority or other third party to
the extent based on events or circumstances that would have constituted a
breach of a representation or warranty set forth in Section 4.14(a)
without regard to the limitations contained in Section 4.14(a) based on
the Knowledge of the Seller;
provided, however, that the Seller shall be liable for Losses under
clauses (i) and (iii) above relating to Section 4.14(a) and incurred for
an investigation, cleanup, remediation, removal, modification,
installation, replacement or restoration of property, equipment or
improvements only to the extent that such Losses are incurred in a
reasonably cost-effective manner to comply with, or prudently manage
obligations under, any applicable Environmental Laws and Regulations (it
being understood that the foregoing proviso shall not preclude or
diminish any liability by the Seller for any Loss incurred in a
reasonably cost-effective manner to satisfy any judicial, administrative
or arbitration judgment, decree, order, award or other resolution).
Notwithstanding the foregoing, the Indemnifying Party shall not have any
liability to the Indemnified Party under this Section 10.02(a) unless and
until the aggregate amount of all Recoverable Losses (as defined below)
exceeds $1,000,000, in which event only the amount in excess of
$1,000,000, shall be recoverable; and the liability of the Indemnifying
Party under this Section 10.02(a) shall not exceed 35% of the Purchase
Price in the aggregate. The amount of any Loss incurred by an Indemnified
Party hereunder shall be calculated without regard to any materiality or
"Material Adverse Effect" qualifier contained in the representations and
warranties in this Agreement, and shall be offset by (i) the proceeds of
any insurance received by the Indemnified Party with respect thereto and
(ii) the amount of any income tax benefit actually realized by the
-44-
Indemnified Party with respect thereto; provided that, the determination
of the amount of any Tax benefit actually realized with respect to a Loss
by an Indemnified Party shall be made by the Indemnified Party in its
sole discretion, acting in good faith. Notwithstanding anything to the
contrary in this Agreement, a "Recoverable Loss" shall mean any single
Loss or related series of Losses arising out of any single act, omission,
event or circumstance if such single Loss or related series of Losses
exceeds $50,000 (and, if such a single Loss or related series of Losses
is incurred, the entire amount of such single Loss or related series of
Losses shall be a Recoverable Loss).
(b) In addition to the foregoing, the Seller agrees, from and after
the Closing, to indemnify and hold harmless the Buyer and its officers,
directors and Affiliates against any Losses to or of the Buyer and its
officers, directors and Affiliates to the extent such Losses arise out of
or are based upon (i) any Taxes of any Subject Company or Subsidiary of a
Subject Company attributable to or apportioned to any Pre-Closing Tax
Period, whether such Taxes become due prior to, on, or after the Closing
Date; (ii) any Tax liability attributable to the making of the Section
338(h)(10) Elections pursuant to Section 8.03(f) of this Agreement; (iii)
any Tax liability of any Person other than a Subject Company or
Subsidiary of a Subject Company with respect to which any Subject Company
or Subsidiary of a Subject Company (A) is severally liable for any Taxes
of any consolidated, combined, unitary, or similar Tax group of which any
Subject Company or Subsidiary of a Subject Company was a member on or
before the Closing Date pursuant to Treasury Regulationss.1.1502-6 or any
analogous state, local, or foreign tax provision, (B) is liable to such
Person pursuant to any agreement or arrangement, or (C) is a successor to
such Person by merger, liquidation or other transaction and (iv) the
breach of a representation or warranty set forth in Section 4.11. This
indemnification shall be the sole and exclusive remedy after the Closing
for all Losses relating to Taxes, including for a breach of the
representations and warranties in Section 4.11, and shall not be subject
to the thresholds, deductibles and other limitations on an amount set
forth in Section 10.02(a).
(c) Notwithstanding any provision of this Section 10.02 to the
contrary, the Seller shall not be liable for any Losses resulting from a
breach of any of the representations and warranties set forth in Article
III or IV of this Agreement to the extent that:
(i) the liability for such breach occurs or is increased as a
result of the adoption or imposition of any Law or Regulation not in
force at the date of this Agreement or as a result of any increase in
rates of taxation after the date of this Agreement (it being understood
that this shall not relieve the Seller of any liability arising under
Section 4.14(a)(vi) it may have regarding any Law or Regulation in effect
on or prior to the date of this Agreement, compliance with which will be
initially required after the date hereof); or
-45-
(ii) the Losses would not have arisen but for a change in
accounting policy or practice of the Buyer, the Parent or any member of
any Subject Company Group after Closing.
(d) Except as otherwise provided in this Agreement, and to the
fullest extent permitted by Law, the Buyer hereby agrees, from and after
the Closing, to indemnify and hold harmless each member of the Seller
Company Group and its Representatives against any Losses incurred by such
Person to the extent that such Losses arise out of or are based upon the
ownership and operation of the Subject Companies and their Subsidiaries
from and after the Closing Date and not resulting from any condition or
circumstance for which the Buyer would be entitled to indemnification
under Section 10.02(a) without regard to any of the thresholds or
deductibles or other limitations on amount set forth in Section 10.02(a).
This indemnification shall be in addition to the indemnification provided
under Section 10.02(a) and shall not be subject to the thresholds,
deductibles and other limitations on amount set forth in Section
10.02(a).
(e) In addition to the foregoing, the Seller agrees, from and after
the Closing, to indemnify and hold harmless the Buyer, the Subject
Companies and their Subsidiaries against any Losses incurred in any
Proceeding brought by the City to the extent that such Losses arise out
of or are based upon a breach of Section 21.01 of the Xxxxxxxx-Xxxxxxxxx
Agreement. This indemnification shall be in addition to the
indemnification provided under Section 10.02(a) and shall not be subject
to the thresholds, deductibles and other limitations on amount set forth
in Section 10.02(a).
Section 10.03. Procedures.
(a) Promptly after receipt by the Indemnified Party under Section
10.02 of notice of a Loss or the commencement of any Proceeding against
which it believes it is indemnified under this Article, the Indemnified
Party shall, if a claim in respect thereto is to be made against the
Indemnifying Party under this Article, notify the Indemnifying Party in
writing of the commencement thereof; provided, however, that the omission
to notify the Indemnifying Party shall not relieve it from any liability
that it may have to the Indemnified Party to the extent that the
Indemnifying Party is not prejudiced by such omission.
(b) The Indemnifying Party shall, on or before the 30th day after
receipt of a notice of Loss or Proceeding given pursuant to subsection
(a) of this Section, either (i) acknowledge liability, as between the
Indemnifying Party and the Indemnified Party, for such Loss or the amount
in controversy in such Proceeding and pay the Indemnified Party the
amount of such Loss or the amount in controversy in such Proceeding in
immediately available funds (or establish by agreement with the
Indemnified Party an alternative payment arrangement), (ii) acknowledge
liability, as between the Indemnifying Party and the Indemnified Party,
for such Loss or the amount in controversy in such Proceeding but disavow
the validity of the Loss or Proceeding or the amount thereof and, in the
case of a Proceeding to the extent that it shall so desire in accordance
-46-
with subsection (d) of this Section, assume the legal defense thereof or
(iii) object (or reserve the right to object until additional information
is obtained) to the claim for indemnification or the amount thereof,
setting forth the grounds therefor in reasonable detail. If the
Indemnifying Party does not respond to the Indemnified Party as provided
in this subsection within such 30-day period, the Indemnifying Party
shall be deemed to have acknowledged its liability for such
indemnification claim in accordance with clause (i) of this subsection
and the Indemnified Party may exercise any and all of its rights under
applicable Law to collect such amount.
(c) An Indemnifying Party will not, without the prior written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened Proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the Indemnified Party is an actual or potential party to such Proceeding)
unless such settlement, compromise or consent includes an unconditional
release of the Indemnified Party from all liability arising out of such
Proceeding. If the Indemnifying Party has responded to the Indemnified
Party pursuant to clause (i) of subsection (b) of this Section, the
Indemnified Party may settle or compromise or consent to the entry of any
judgment with respect to the Proceeding that was the subject of notice to
the Indemnifying Party pursuant to subsection (b) of this Section without
the consent of the Indemnifying Party (but no such settlement, compromise
or consent shall increase the indemnification obligation of the
Indemnifying Party to which it has consented pursuant to clause (i) of
subsection (b) of this Section). Except as otherwise provided in the
immediately preceding sentence and in subsection (d) of this Section, an
Indemnified Party will not, without the prior written consent of the
Indemnifying Party (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened Proceeding, but, if such Proceeding is
settled or compromised or if there is entered any judgment with respect
to any such Proceeding, in either case with the consent of the
Indemnifying Party, or if there be a final judgment for the plaintiff in
any such Proceeding, the Indemnifying Party agrees to indemnify and hold
harmless any Indemnified Party from and against any loss or liability by
reason of such settlement, compromise or judgment.
(d) If a Proceeding shall be brought against an Indemnified Party
and it shall notify the Indemnifying Party thereof in accordance with
subsection (a) of this Section, the Indemnifying Party shall, if it shall
have responded to such notice in accordance with clause (ii) of
subsection (b) of this Section be entitled to assume the legal defense
thereof. The Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Indemnifying Party, (ii)
the Indemnifying Party shall have failed to assume the defense of such
action or (iii) the named parties to any such Proceeding (including any
impleaded parties) include both the Indemnified Party and the
-47-
Indemnifying Party, and the Indemnified Party shall have been advised by
such counsel that there is one or more legal defenses available to it
that are different from or additional to those available to the
Indemnifying Party. In any such case, the Indemnifying Party shall not,
in connection with any one action or separate but substantially similar
or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (in addition to any local
counsel) for the Indemnified Party. Except as aforesaid, after notice
from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or such action, the Indemnifying Party
shall not be liable to the Indemnified Party under this Section for any
attorneys' fees or other expenses (except reasonable costs of
investigation) subsequently incurred by the Indemnified Party in
connection with the defense thereof. If the Indemnifying Party does not
or cannot assume the defense of a Proceeding as to which it has
acknowledged liability, as between itself and the Indemnified Party,
pursuant to clause (ii) of subsection (b) of this Section, the
Indemnified Party may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorneys' fees and expenses and reasonable out-of-pocket expenses
incurred in the defense thereof and the Indemnifying Party shall be bound
by the result obtained with respect thereto by the Indemnified Party.
(e) In the case of a Loss as to which the Indemnifying Party shall
have responded pursuant to clause (iii) of subsection (b) above, the
parties shall attempt in good faith to resolve their differences for a
period of 60 days following receipt by the Indemnified Party or Parties
of the response of the Indemnifying Party pursuant to subsection (b)
above and, if the parties are unable to resolve their differences within
such period, the Indemnified Party or Parties may submit the matter to
judicial proceedings.
Section 10.04. Consequential Damages. Except to the extent any such
damages may arise from a third party claim with respect to which a party
hereto is entitled to indemnification under this Agreement, no party to this
Agreement nor any of its Representatives shall be liable to any other party
hereto or any of its Representatives for claims for punitive special,
exemplary or consequential damages, including damages for loss of profits,
loss of use or revenue or losses by reason of cost of capital, arising out of
or relating to this Agreement or the transactions contemplated hereby,
regardless of whether a claim is based on contract, tort (including
negligence), strict liability, violation of any applicable deceptive trade
practices act or similar Law or any other legal or equitable principle, and
each party releases the other and its Representative from liability for any
such damages. No party shall be entitled to rescission of this Agreement as a
result of breach of any other party's representations, warranties, covenants
or agreements, or for any other matter.
Section 10.05. Sole Remedy. From and after the Closing, the provisions of
this Article X and the indemnification provisions set forth in Sections 3.05,
5.06 and 7.02 of this Agreement, in each case subject to the limitations set
forth therein, shall be the sole and exclusive remedy of each party hereto for
(i) any breach of a party's representations or warranties contained in this
Agreement or (ii) any breach of a party's covenants or agreements contained in
-48-
this Agreement. The Buyer, the Seller and the Parent are the only parties
entitled to exercise any remedy provided by this Article X.
Section 10.06. Tax Effect of Payments. The parties agree that any
indemnification payment made pursuant to this Article X shall be treated for
Tax purposes as an adjustment of the Purchase Price unless otherwise required
by applicable Law.
ARTICLE XI.
TERMINATION, AMENDMENT AND WAIVER
Section 11.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by written consent of the Buyer and the Seller;
(b) by notice of termination from the Seller to the Buyer:
(i) upon a breach by the Buyer or the Parent of a
representation or warranty of the Buyer set forth in Article V of this
Agreement or of the Parent set forth in Section 12.02 of this Agreement,
which representation or warranty contains a reference to "Material
Adverse Effect" or is otherwise qualified as to materiality, or
(ii) upon a material breach by the Buyer or the Parent of any
other representation or warranty of the Buyer set forth in Article V of
this Agreement or of the Parent set forth in Section 12.02 of this
Agreement or of any covenant or agreement of the Buyer or the Parent set
forth in this Agreement,
in any case such that the Closing Conditions set forth in Sections
9.02(a) or 9.02(b) would not be satisfied, provided that subject to
Section 11.01(d) herein, such breach has not been cured on or before the
30th day (or, if the breach reasonably requires more than 30 days to
cure, such longer period of time reasonably required to cure the breach
so long as at all times during such longer period the Buyer or the
Parent, as the case may be, has commenced and is diligently pursuing the
cure) after the earlier of receipt by the Seller of notice from the Buyer
or the Parent, as the case may be, of such breach in accordance with
Sections 8.01(c)(iv) and 13.01 of this Agreement or receipt by the Buyer
or the Parent, as the case may be, of notice from the Seller of such
breach;
(c) by notice of termination from the Buyer to the Seller:
(i) upon a breach by the Seller of a representation or warranty
of the Seller set forth in Articles III or IV of this Agreement, which
representation or warranty contains a reference to "Material Adverse
Effect" or is otherwise qualified as to materiality, or
-49-
(ii) upon a material breach by the Seller of any other
representation or warranty of the Seller set forth in Article III or IV
of this Agreement or of any covenant or agreement of the Seller set forth
in this Agreement,
in any case such that the Closing Conditions set forth in Sections
9.03(a) or 9.03(b) would not be satisfied, provided that subject to
Section 11.01(d) herein, such breach has not been cured on or before the
30th day (or, if the breach reasonably requires more than 30 days to
cure, such longer period of time reasonably required to cure the breach
so long as at all times during such longer period the Seller has
commenced and is diligently pursuing the cure) after the earlier of
receipt by the Buyer of notice from the Seller of such breach in
accordance with Sections 8.01(c)(iv) and 13.01 of this Agreement or
receipt by the Seller of notice from the Buyer of such breach; or
(d) by notice of termination from either the Seller or the Buyer to
the other if, notwithstanding anything to the contrary contained herein,
the transactions contemplated hereby shall not have been consummated
before November 30, 2001; provided, however, a party seeking termination
pursuant to this Section 11.01(d) shall in no event be the party that
causes such transactions to not be consummated by such date due to an
inability to satisfy its Closing Conditions because it, and, in the case
of the Buyer, it or the Parent, willfully and intentionally breached its
representations, warranties, covenants or agreements contained in this
Agreement to prevent the consummation of the transactions contemplated
herein.
Section 11.02. Effect of Termination.
(a) Except as set forth in Sections 11.02(b) and 11.02(c), in the
event of the termination of this Agreement pursuant to Section 11.01,
this Agreement shall become null and void and be of no further force or
effect and there shall be no liability or obligation hereunder on the
part of any party or any of its Subsidiaries or Representatives to any
other party.
(b) Upon a termination by the Seller under Section 11.01(b) or by
the Buyer or the Parent under Section 11.01(c), if the breach giving rise
to the right to terminate was committed willfully and intentionally by a
party to prevent the consummation of the transactions contemplated
herein, the terminating party shall be entitled to all remedies available
at Law or in equity, subject to Section 10.04.
(c) The provisions of this Section 11.02 and of Sections 1.01, 1.02,
3.05, 5.06, 8.02, 8.04 and 10.04 and of Articles XII and XIII shall
survive any termination under Section 11.01. In addition, the
Confidentiality Agreement shall remain in full force and effect in
accordance with its terms. Upon request of the other party, each party
shall return to the other party all documents and other materials
furnished by the other party relating to the transaction contemplated
hereby, whether such documents or materials were furnished before or
after the date of this Agreement.
-50-
Section 11.03. Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party, (b) waive any inaccuracies in the representations and
warranties of any other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance by any other party with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party
making such extension or waiver.
ARTICLE XII.
FINANCIAL SUPPORT
Section 12.01. Guarantee of Parent. The Parent hereby unconditionally and
irrevocably guarantees to the Seller the due and punctual payment by the Buyer
(and its permitted assigns) of all amounts payable to the Seller under Article
II and Section 7.02 of this Agreement. If the Buyer shall fail or be unable to
pay such amounts as and when the same shall become due and payable, the Parent
shall be obligated to pay or cause to be paid such amounts to the Seller in
accordance with the terms hereof. This guaranty is a guaranty of payment,
performance and compliance and not of collectibility and is in no way
conditioned or contingent upon any attempt to collect from or enforce
performance or compliance by the Buyer or upon any other event or condition
whatsoever.
Section 12.02. Representation and Warranties Regarding Parent. The Parent
represents and warrants to the Seller that:
(a) Organization and Qualification; Capitalization. The Parent is a
legal entity duly organized, validly existing and in good standing under
the Laws of Delaware. The Parent is the beneficial owner of all of the
issued and outstanding Equity Securities of the Buyer.
(b) Authorization of Agreement. The Parent has all requisite
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Parent of this
Agreement and the performance by the Parent of its obligations hereunder
have been duly and validly authorized by all requisite corporate action
on the part of the Parent and no other corporate proceedings on the part
of the Parent are necessary to consummate the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by
the Parent and (assuming due authorization, execution and delivery hereof
by the Seller and the Buyer) constitutes the legal, valid and binding
obligations of the Parent, enforceable against the Parent in accordance
with its terms, except as enforcement hereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar Laws relating to or affecting the enforcement of
creditors' rights generally and legal principles of general applicability
governing the availability of equitable remedies (whether considered in a
proceeding in equity, at law or under otherwise applicable Law).
-51-
(c) Approvals and Consents. Except for Legal Requirements the
noncompliance with which would not prevent the Parent from performing
this Agreement in all material respects, no filing or registration with,
no waiting period imposed by and no Authorization of any Governmental
Authority is required under any Legal Requirement applicable to the
Parent to permit the Parent to execute, deliver or perform this Agreement
or to consummate the transactions contemplated hereby. No Third Person
Consent is required to permit the Parent to execute, deliver and perform
this Agreement or to consummate the transactions contemplated hereby.
(d) No Violation. Upon effectuation of all filings and registrations
with, termination or expiration of any applicable waiting periods imposed
by and receipt of all Authorizations of any Governmental Authority,
neither the execution and delivery by the Parent of this Agreement nor
the performance by the Parent of its obligations hereunder (i)(A)
violates or breaches or causes a default under any of the terms of any
Legal Requirement applicable to the Parent, (B) contravenes the
certificate of incorporation, bylaws or any other organizational document
of the Parent or (C) violates or breaches or causes a default or gives
rise to any right of termination, purchase or amendment under any of the
terms, conditions or provisions of any indenture, loan, credit agreement
contract, agreement, written commitment, license or other instrument to
which the Parent or any of its Subsidiaries is a party or by which the
Parent or any of its Subsidiaries or any of its properties or assets are
bound or affected or (ii) will, with the passage of time, the giving of
notice or the taking of any action by a third Person, have any of the
effects set forth in clause (i) of this Section 12.02(d), except in any
such case for any matters described in this Section 12.02(d) that would
not prevent the Parent from performing this Agreement.
Section 12.03. Financial Support of Seller. If at any time after the
Closing and prior to the fourth anniversary of the Closing Date, (a) any
Person other than the Seller or one of its Subsidiaries shall become the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of a
majority or more of the outstanding securities of Wessex, (b) the Seller shall
sell all or substantially all of the assets of Wessex to a Person other than a
wholly owned Subsidiary of the Seller (other than in connection with a bona
fide financing transaction involving the retention of operations and control
of such assets by Seller or a Subsidiary of Seller that does not materially
dilute the benefits to the Buyer set forth in this Section 12.03), (c) a
liquidation or dissolution shall occur with respect to Wessex or (d) the
credit ratings assigned to the debt of Wessex by any of Standard & Poor's,
Xxxxx'x Investors Service and Fitch, Inc. as of the Closing Date shall have
been downgraded to a credit rating below BBB+, A3 and A-, respectively, then
the Seller shall promptly provide as financial support for its obligations
under this Agreement, at its sole election, either (i) a letter of credit
issued by a financial institution reasonably acceptable to the Buyer in an
amount equal to 35% of the Purchase Price less any amounts previously paid to
the Buyer pursuant to Section 10.02(a) of this Agreement as of the date of
first occurrence of an event specified in clauses (a), (b), (c) or (d) and
through the fourth anniversary of the Closing Date, or (ii) a guaranty from
Enron Corp. of the Seller's obligations under this Agreement substantially
similar to the guarantee provided in Section 12.01.
-52-
ARTICLE XIII.
MISCELLANEOUS
Section 13.01. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given (i) on the date delivered if delivered personally to the parties, (ii)
on the date delivered if sent by registered or certified mail (return receipt
requested), (iii) on the date of delivery by a reputable internationally
recognized overnight courier service or (iv) on the date of transmission if
sent by electronic transmission to the telecopier number specified below:
If to the Seller, to:
Azurix Corp.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
Telecopy: (000) 000-0000
Copy to:
Xxxxxx & Xxxxxx L.L.P.
2300 First City Tower
0000 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxx
Telecopy: (000) 000-0000
If to the Buyer or the Parent, to:
American Water Services, Inc.
c/o American Water Works Company, Inc.
0000 Xxxxxx Xxx Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Attention: W. Xxxxxxx Xxxx
General Counsel and Secretary
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
-53-
Copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
or to such other address or telecopier number as such party may, from time to
time, designate in a notice given in a like manner.
Section 13.02. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
Section 13.03. Entire Agreement. This Agreement (together with the
Annexes hereto, the Seller's Disclosure Letter and the Buyer's Disclosure
Letter) constitutes the entire agreement of the parties, and supersedes all
prior agreements and undertakings, both written and oral, among the parties,
with respect to the subject matter hereof (other than the Confidentiality
Agreement which is incorporated by reference in Section 8.01(e) of this
Agreement and shall continue in full force and effect in accordance with
Section 8.01(e) or Section 11.02(c), as applicable).
Section 13.04. Assignment. This Agreement and the rights of any party
hereto may not be assigned, and the obligations of any party hereto may not be
delegated, in whole or in part, without the prior written consent of the other
party, which consent shall not be withheld unreasonably; provided, however,
that the Buyer may assign this Agreement, or any interest herein, and may
delegate any duty or obligation hereunder, without the consent of the Seller,
to one or more Affiliates of the Buyer if the Buyer reasonably ensures that,
at the time of such assignment or delegation, any such Affiliate is adequately
capitalized and appropriately staffed to be able to discharge the duties and
obligations so assigned or delegated; and provided, further, that,
notwithstanding any such assignment or delegation, the Buyer and the Parent
shall not be released from any, and shall remain liable for all, of their
respective obligations under this Agreement and the guaranty under Section
12.01 shall apply to the applicable obligations of the assignee. This
Agreement may also be assigned by operation of Law. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Any purported assignment of this
Agreement in violation of this Section 13.04 shall be null and void.
-54-
Section 13.05. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
Section 13.06. Failure or Indulgence Not Waiver. No failure or delay on
the part of any party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty, covenant or agreement herein, nor
shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
Section 13.07. Disclosure Letters. Each of the Seller's Disclosure Letter
and the Buyer's Disclosure Letter has been arranged in paragraphs or schedules
corresponding to the relevant Sections of this Agreement. Any matter disclosed
by a party in its Disclosure Letter pursuant to any Section or subsection of
this Agreement shall be deemed to have been disclosed by such party for
purposes of each other Section or subsection of this Agreement to which the
relevance is readily apparent on its face.
Section 13.08. Governing Law. This Agreement shall be construed (both as
to validity and performance) and enforced in accordance with, and governed by,
the laws of the State of New York applicable to agreements made and to be
performed wholly within such jurisdiction.
Section 13.09. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 13.10. Amendment. This Agreement may be amended only by a written
instrument executed by the parties.
Section 13.11. Disclaimer. Except for the representations and warranties
expressly contained in Articles III and IV of this Agreement, the Seller does
not make any express or implied representation or warranty, including with
respect to the Seller, the Subject Companies and their Subsidiaries, the
Businesses or the Subject Company Stock. The Seller and the Buyer agree that,
to the extent required by applicable Law to be effective, the disclaimers of
the representations and warranties contained in this section are
"conspicuous."
-55-
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
AZURIX CORP.
By: /s/ Xxxxxx Xxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxx
---------------------------------------
Title: Executive Director and President,
North America
---------------------------------------
AMERICAN WATER SERVICES, INC.
By: /s/ Xxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxx Xxxxxxxx
---------------------------------------
Title: President
---------------------------------------
AMERICAN WATER WORKS COMPANY, INC.
By: /s/ Xxxxx X. Xxxx
---------------------------------------
Name: Xxxxx X. Xxxx
---------------------------------------
Title: Vice President and Chief
Financial Officer
---------------------------------------
-56-
ANNEX A
DEFINITIONS
"AAA Arbitration" shall mean arbitration under the Commercial
Arbitration Rules of the American Arbitration Association.
"Accounting Mediator" shall have the meaning ascribed to such term in
subsection (b) of Section 2.06.
"Adjusted GAAP Principles" shall have the meaning ascribed to such
term in subsection (a) of Section 2.06.
"Affiliate" shall mean a Person controlling, controlled by or under
common control with another Person. For this purpose, control shall mean the
ability to direct the management and affairs of a Person, whether through
ownership of securities, by contract or otherwise. For purposes of this
Agreement, other than Section 6.07 and Section 10.02(a), Enron Corp. and its
Subsidiaries (other than the Seller and its Subsidiaries) are deemed not to be
Affiliates of the Seller and its Subsidiaries.
"Agreement" shall have the meaning ascribed to such term in the
introductory paragraph of this agreement.
"AIC" shall mean Azurix Industrials Corp., a Delaware corporation.
"AIC Balance Sheet" shall mean the balance sheet as of March 31, 2001
included in the AIC Financial Statements.
"AIC Financial Statements" shall mean the unaudited consolidated
balance sheet of AIC and its Subsidiaries as of March 31, 2001 and the
unaudited consolidated statements of results of operations of AIC and its
Subsidiaries for the period then ended, as prepared in the ordinary course of
the Seller's business for the Seller's internal use.
"XXX" shall mean Azurix North America Corp., a Delaware corporation.
"XXX Balance Sheet" shall mean the balance sheet as of December 31,
2000 included in the XXX Financial Statements.
"XXX Financial Statements" shall mean (a) the unaudited consolidated
balance sheet of XXX and its Subsidiaries as of March 31, 2001 and the
unaudited consolidated statement of results of operations of XXX and its
Subsidiaries for the period then ended, and (b) the audited consolidated
balance sheet of XXX and its Subsidiaries as of December 31, 2000 and the
audited consolidated statements of results of operations and cash flows for
XXX and its Subsidiaries for the year then ended, together with the notes
related thereto and the report of independent accountants as to the results of
their audit of such financial statements.
"Authorization" shall mean any franchise, permit, license,
authorization, order, certificate, registration or other consent or approval
granted by any Governmental Authority.
B-1
"Benefit Plan" shall mean any pension, profit sharing, retirement,
life, health, accident, disability, stock bonus, stock ownership, stock
option, stock purchase, stock appreciation rights, phantom stock, severance,
employment, change-in-control, deferred compensation, bonus or incentive
compensation plan, agreement, program or policy (whether written or oral)
sponsored, maintained or contributed to by a Subject Company or any of its
Subsidiaries for the benefit of any of their present or former directors,
officers, employees, agents, consultants or other similar representatives;
provided, however, that such term shall not include (a) routine employment
policies and procedures developed and applied in the ordinary course of
business and consistent with past practice, including wage, vacation, holiday
and sick or other leave policies, (b) programs mandated by applicable Law and
(c) directors and officers' liability insurance.
"Books and Records" shall mean all books and records of a Person
relating to that Person's business, operations and activities, including all
contracts and agreements to which such Person is a party or by which it is
bound, its general and other ledgers, records of corporate or organizational
proceedings, tax records, financial statements, documents of title to
real/immovable and personal/movable property, personnel records, salary and
wage records, inventory records and sales documentation.
"Business" shall mean, with respect to a Subject Company and its
Subsidiaries, the assets, properties, operations and businesses, subject to
the liabilities and obligations related thereto, conducted by a Subject
Company and its Subsidiaries, taken as a whole. The term "Businesses" shall
mean all the Businesses of the Subject Companies and their respective
Subsidiaries, taken as a whole.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday unless such day shall be a day when financial institutions in the
City of New York are authorized by Law to close.
"Buyer" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Buyer's Disclosure Letter" shall mean that letter, together with the
associated schedules, of even date herewith from the Buyer to the Seller
setting forth, as required hereby, the information called for herein and the
discrepancies from the representations, warranties and covenants of the Buyer
contained herein.
"CERCLA" shall mean the United States Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, and all Regulations and
Orders implementing the same, as currently in effect.
"City" shall mean Xxx Xxxx xx Xxxxxxxx, Xxxxxxx, Xxxxxx.
"Claims" shall have the meaning ascribed to such term in Section
6.07.
"Closing" shall have the meaning ascribed to such term in Section
2.04.
"Closing Conditions" shall mean those conditions to the closing of
the transactions contemplated hereby contained in Article IX.
B-2
"Closing Balance Sheet" shall have the meaning ascribed to such term
in subsection (a) of Section 2.06.
"Closing Date" shall have the meaning ascribed to such term in
Section 2.04.
"Closing Date 338(h)(10) Value" shall mean the amount equal to 50% of
the present value of the Step-Up Amount, assuming (i) the amortization of the
basis of all assets of the U.S. Companies that are members of the Seller Group
over a 15-year period, (ii) a 35% effective tax rate, and (iii) a discount
rate of 6%.
"Closing Date Indebtedness" shall mean, on an aggregate basis for the
Subject Companies and their Subsidiaries, (i)(A) the aggregate outstanding
principal balance of all debt, whether or not evidenced by a promissory note
or other security, including the current portion of any principal payment
obligation with respect to any long term debt, plus (B) the aggregate amount
of all capital leases, minus (ii) the aggregate outstanding principal balance
of all notes receivable.
"Closing Date Working Capital" shall mean, on an aggregate basis for
the Subject Companies and their Subsidiaries, (i) the total current assets
less (ii) the total current liabilities; provided, however, that Closing Date
Working Capital shall not include (A) liabilities relating to pension or other
post-retirement benefits or severance payments, (B) Taxes (including deferred
Taxes) or (C) any amount otherwise included in Closing Date Indebtedness; and
provided, further, that for purposes of this definition, current liabilities
shall include all long-term liabilities not accrued as of December 31, 2000
associated with (w) pre-1999 acquisition contingencies, (x) loss contracts,
(y) purchase price earn-outs related to past acquisitions and (z) divestiture
bonuses.
"Code" shall have the meaning ascribed to such term in subsection (f)
of Section 4.13.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement dated April 23, 2001 between the Seller and American Water Works
Company, Inc. (parent of the Buyer), as amended or supplemented from time to
time.
"Court" shall mean any court or arbitration tribunal established and
functioning under the Laws of any nation or state, including the United States
of America and Canada, or any political subdivision thereof, including any
state of the United States of America and any province of Canada.
"Differences" shall have the meaning ascribed to such term in
subsection (b) of Section 2.06.
"Environmental Laws and Regulations" shall mean any and all Laws,
Regulations, or Orders of any Governmental Authority pertaining to health or
the environment, and all other environmental conservation or protection Laws,
Regulations or Orders.
"Environmental Report" shall mean any report, study, assessment,
audit, or other similar document that addresses any issue of actual or
potential noncompliance with, actual or potential liability under or cost
arising out of, or actual or potential impact on business in connection with,
B-3
any Environmental Laws and Regulations or any proposed or anticipated change
in or addition to any Environmental Laws and Regulations.
"Equity Securities" shall mean the shares of capital stock of a
corporation, the partnership interests in a limited partnership or the equity
or similar securities of any other legal entity.
"ERISA" shall have the meaning ascribed to such term in subsection
(e) of Section 4.13.
"ERISA Affiliate" shall mean any employer other than the Seller, a
Subject Company or any Subsidiary of a Subject Company that is or at any
relevant time was, together with the Seller, any Subject Company or any
Subsidiary of a Subject Company, treated as a single employer under section
414(b), 414(c) or 414(m) of the Code.
"Escrow Agent" shall mean that certain federal banking institution
selected by the Buyer and reasonably acceptable to the Seller to serve as
escrow agent under the Escrow Agreement.
"Escrow Agreement" shall mean the escrow agreement in the form
attached hereto as Annex B relating to the agreement between the Buyer and the
Seller with respect to the Xxxxxxxx-Xxxxxxxxx Agreement.
"Escrow Amount" shall mean $10,000,000 of the Purchase Price to be
deposited with the Escrow Agent in accordance with the terms and conditions of
the Escrow Agreement.
"Estimated Closing Date Indebtedness" shall have the meaning ascribed
to such term in Section 2.03.
"Estimated Closing Date Working Capital" shall have the meaning
ascribed to such term in Section 2.03.
"Estimated Purchase Price" shall have the meaning ascribed to such
term in Section 2.03.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final Payment Date" shall have the meaning ascribed to such term in
subsection (d) of Section 2.06.
"Forms" shall have the meaning ascribed to such term in subsection
(f) of Section 8.03.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
"Governmental Authority" shall mean any national, federal, regional,
state, provincial, territorial, local, foreign or other governmental agency,
authority, administrative agency, regulatory body, commission or
B-4
instrumentality (other than a Court), including any multinational authority
having governmental or quasi-governmental powers.
"Guarantees" shall mean a contract or agreement under which the
Seller or any member of the Seller Company Group shall have agreed to act as
guarantor or surety with respect to any obligation of any of the Subject
Companies or their Subsidiaries, whether by guaranty, suretyship contract,
letter of credit, indemnity agreement, performance bond or otherwise.
"Xxxxxxxx-Xxxxxxxxx Agreement" shall mean that certain Plant
Operations Agreement dated as of December 30, 1994 by and among the City (as
successor to The Regional Municipality of Xxxxxxxx-Xxxxxxxxx, Ontario,
Canada), Xxxxxx Utilities Management Corporation and Xxxxxx Environmental, as
amended by the First Amending Agreement dated as of January 4, 1995, the
Second Amending Agreement dated as of May 20, 1997, the Third Amending
Agreement dated as of January 1, 1997 and the Fourth Amending Agreement dated
as of May 17, 1999.
"Hazardous Substance" shall mean any hazardous substance or waste,
including "hazardous substance" as specified in CERCLA; provided, however,
that, to the extent the Laws of the state or locality in which the relevant
substance or waste is located establish a meaning for "Hazardous Substance"
that is broader than that specified in CERCLA, such broader meaning shall
apply, and the term "Hazardous Substance" shall include all dehydration and
treating wastes, waste (or spilled) petroleum and any fractions thereof, and
waste (or spilled) petroleum products, and (to the extent regulated by
Environmental Laws and Regulations) radioactive material, even if such are
specifically exempt from classification as Hazardous Substances pursuant to
CERCLA or the analogous statutes of any jurisdiction in which the relevant
substance or waste is located.
"Indemnified Party" shall have the meaning ascribed to such term in
subsection (a) of Section 10.02.
"Indemnifying Party" shall have the meaning ascribed to such term in
subsection (a) of Section 10.02.
"Independent Public Accounting Firm" shall mean an independent
accounting firm that is not presently and has not in the past five years
performed any services for or on behalf of the Buyer, the Seller, a Subject
Company or any of their respective Affiliates.
"Intercompany Indebtedness" shall mean any accounts payable or
indebtedness, regardless of whether such indebtedness is evidenced by a
promissory note or other security, owed by any member of any Subject Company
Group to the Seller.
"Knowledge" shall mean, with respect to the Seller, the actual
knowledge of Xxxx X. Xxxxxxxx, J. Xxxxxxx Xxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxxx
Xxxxx, Xxxx X. Ale and all directors and senior officers of the Subject
Companies.
"Law" shall mean any law, statute and ordinance of any nation or
state, including the United States of America and Canada, and any political
subdivision thereof, including any state of the United States of America and
B-5
any province in Canada, including all decisions of Courts having the effect of
law in any such jurisdiction.
"Leased Personal Property" shall have the meaning ascribed to such
term in Section 4.06.
"Leased Property" shall have the meaning ascribed to such term in
Section 4.06.
"Leased Real Property" shall have the meaning ascribed to such term
in Section 4.06.
"Legal Requirements" shall mean the obligations applicable to a
specific Person imposed by Laws, Regulations and Orders.
"Liabilities" shall have the meaning ascribed to such term in Section
6.07.
"Lien" shall mean any mortgage, pledge, security interest, adverse
claim, encumbrance, lien, tenancy, encroachment, right-of-way, or charge of
any kind (including any agreement to give any of the foregoing), any
conditional sale or other title retention agreement, any lease in the nature
thereof or the filing of or agreement to give any financing statement under
the Laws of any jurisdiction.
"Loss" shall have the meaning ascribed to such term in subsection (a)
of Section 10.02.
"Material Adverse Effect" shall mean any condition, change or effect,
individually or in the aggregate, that would be material to and adverse to the
business, assets, properties, results of operations or financial condition of
a Person and its Subsidiaries, if any, taken as a whole, or, with respect to
any party, to the ability of such party to consummate the transactions
contemplated herein; provided, however, that, when used with reference to the
Business of a Subject Company, the term shall apply to the Business of such
Subject Company and its Subsidiaries taken as a whole, and, when used with
reference to the Businesses, the term shall apply to the Business of all
Subject Companies and their respective Subsidiaries taken as a whole.
"Material Contract" shall mean any contract reasonably expected as of
the date hereof to generate aggregate revenues or aggregate expenses during
the term of such contract of $2 million or more to which a Subject Company or
any of its Subsidiaries is a party and any other Scheduled Material Contract.
"Order" shall mean any judgment, order or decree of any Court or
Governmental Authority of competent jurisdiction.
"Other Designated Contract" shall mean any contract, other than a
Material Contract, reasonably expected as of the date hereof to generate
aggregate revenues or aggregate expenses during the term of such contract of
$1 million or more to which a Subject Company or any of its Subsidiaries is a
party.
"Owned Personal Property" shall have the meaning ascribed to such
term in Section 4.06.
B-6
"Owned Property" shall have the meaning ascribed to such term in
Section 4.06.
"Owned Real Property" shall have the meaning ascribed to such term in
Section 4.06.
"Parent" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Permitted Encumbrances" shall mean, with respect to a Subject
Company and its Subsidiaries, the following:
(1) Liens for taxes, assessments and other governmental
charges not delinquent or which are currently being contested in good
faith by appropriate proceedings; provided that, in the latter case,
the Subject Company or one of its Subsidiaries shall have set aside
on its books adequate reserves with respect thereto;
(2) mechanics' and materialmen's Liens not filed of record
and similar charges not delinquent or which are filed of record but
are being contested in good faith by appropriate proceedings;
provided that, in the latter case, the Subject Company or one of its
Subsidiaries shall have set aside on its books adequate reserves with
respect thereto;
(3) Liens in respect of judgments or awards with respect to
which the Subject Company or one of its Subsidiaries shall in good
faith currently be prosecuting an appeal or other proceeding for
review and with respect to which such Subject Company or such
Subsidiary shall have secured a stay of execution pending such appeal
or such proceeding for review; provided that, such Subject Company or
such Subsidiary shall have set aside on its books adequate reserves
with respect thereto;
(4) easements, leases, reservations or other rights of
others in, or minor defects and irregularities in title to, property
or assets of the Subject Company or any of its Subsidiaries; provided
that, such easements, leases, reservations, rights, defects or
irregularities do not materially impair the use of such property or
assets for the purposes for which they are held; and
(5) any Lien or privilege vested in any lessor, licensor or
permittor for rent or other obligations of the Subject Company or any
of its Subsidiaries thereunder so long as the payment of such rent or
the performance of such obligations is not delinquent.
"Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization, or any other form of business or
professional entity, but shall not include a Court or Governmental Authority.
"Pre-Closing Tax Period" means any taxable period, or the portion
thereof, ending on or before the Closing Date.
"Pre-Closing Tax" shall have the meaning ascribed to such term in
subsection (d)(iii) of Section 8.03.
B-7
"Post-Closing Tax" shall have the meaning ascribed to such term in
subsection (d)(iii) of Section 8.03.
"Proceedings" shall have the meaning ascribed to such term in
subsection (a) of Section 10.02.
"Purchase Price" shall have the meaning ascribed to such term in
Section 2.02.
"Purchase Price Adjustment Amount" shall have the meaning ascribed to
such term in Section 2.05.
"Purchase Price Allocation" shall have the meaning ascribed to such
term in subsection (f) of Section 8.03.
"Recoverable Loss" shall have the meaning ascribed to such term in
subsection (a) of Section 10.02.
"Regulation" shall mean any rule or regulation of any Governmental
Authority having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as a national securities exchange in the
United States of America.
"Related Party Contract" shall have the meaning ascribed to such term
in Section 4.18.
"Release" shall mean any release, threatened release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment,
including, without limitation, the movement of Hazardous Substances through
air, soil, surface water, ground water, wetlands, land or subsurface strata.
"Representatives" shall mean, with respect to a Person, its
Affiliates, officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives.
"Scheduled Material Contract" shall mean any contract reasonably be
expected as of the date hereof to generate aggregate revenues or aggregate
expenses during the term of such contract of $3 million or more to which a
Subject Company or any of its Subsidiaries is a party and any other contract
set forth in Schedule 4.12(a) to the Seller's Disclosure Letter.
"SEC" shall have the meaning ascribed to such term in Section 4.19.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Seller Company Group" shall mean the Seller and each of the
Subsidiaries of the Seller other than any member of any Subject Company Group.
B-8
"Seller's Disclosure Letter" shall mean that letter, together with
the associated schedules, of even date herewith from the Seller to the Buyer
setting forth, as required hereby, the information called for herein and the
discrepancies from the representations, warranties and covenants of the Seller
contained herein.
"Seller Group" shall have the meaning ascribed to such term in
subsection (g) of Section 4.11.
"Seller's Insurance Policies" shall have the meaning ascribed to such
term in Section 6.07.
"Step-Up Amount" shall mean the amount equal to (i) the sum of (A)
70% of the Purchase Price and (B) the liabilities for U.S. federal income tax
purposes of the U.S. Companies that are members of the Seller Group as of the
beginning of the day after the Closing Date, less (ii) the aggregate adjusted
tax basis for U.S. federal income tax purposes of the assets of the U.S.
Companies that are members of the Seller Group as of the close of business on
the Business Day immediately preceding the Closing Date. The Step-Up Amount
shall be determined using an iterative calculation.
"Straddle Period" shall have the meaning ascribed to such term in
subsection (d)(iii) of Section 8.03.
"Straddle Period Tax Returns" shall have the meaning ascribed to such
term in subsection (d)(iii) of Section 8.03.
"Subject Company" shall mean each of XXX and AIC.
"Subject Company Group" shall mean, with respect to each Subject
Company, such Subject Company and each Subsidiary owned, directly or
indirectly, by such Subject Company.
"Subject Company Intellectual Property Rights" shall mean the
existing software (including software under development), trade secrets and
confidential information, know-how, customer lists, marketing and customer
information, and materials which are the subject matter of copyright (e.g.,
manuals, documentation, etc.), intangible intellectual property rights,
including applications for patents or issued patents, trademarks, service
marks, trade names, or trade dress, and pending or issued registrations
thereof, all copyrights and applications and registrations thereof, and
written or oral agreements with third parties, in each case relating to a
Subject Company or a Subsidiary of a Subject Company.
"Subject Company Stock" shall mean all of the issued and outstanding
Equity Securities of the Subject Companies.
"Subsidiary" shall mean, with respect to a specified Person, any
corporation, partnership, limited liability company, joint venture or other
legal entity of which the specified Person (either alone or through or
together with any other Subsidiary) owns, directly or indirectly, more than 50
percent of the stock or other equity or partnership interests the holders of
B-9
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"Tax" or "Taxes" shall mean all forms of taxation imposed by any
federal, state, provincial, territorial, local, foreign or other taxing
authority, including income, capital, goods and services, alternative or
minimum, franchise, property, sales, use, excise, employment, unemployment,
payroll, social security, estimated, value added, ad valorem, transfer,
recapture, withholding and other taxes of any kind, including any imposts,
rates, assessments and government fees, charges or dues lawfully levied,
assessed or imposed by or on behalf of any Governmental Authority (including
Canada Pension Plan and Employment Insurance premiums), and including any
interest, fines, penalties and additions thereto.
"Tax Items" shall have the meaning ascribed to such term in
subsection (a) of Section 4.11.
"Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any taxing authority
with respect to Taxes, including any amendment made with respect thereto.
"Tax Sharing Agreements" shall have the meaning ascribed to such term
in subsection (c) of Section 8.03.
"Third Person Consents" shall mean any approval, consent, amendment
or waiver of or notice to a Person, other than a wholly owned Subsidiary of
the Seller or the Buyer, that is required in order to effect the transactions
contemplated hereby or any part thereof.
"Transfer Taxes" shall have the meaning ascribed to such term in
subsection (a) of Section 8.03.
"U.S. Company" shall mean any Subject Company or Subsidiary of a
Subject Company that is incorporated under the laws of any state of the
United States.
"Wessex" shall mean Wessex Water Services Limited, a company that is
incorporated in England and Wales that is a wholly-owned indirect Subsidiary
of the Seller.
B-10
