AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CALIFORNIA WATER SERVICE GROUP,
CALIFORNIA WATER SERVICE COMPANY
AND
XXXXXXXXX SERVICES CORPORATION
DATED: NOVEMBER 13, 1998
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Effect of Merger and Surviving Corporation. . . . . . . . . . 7
2.2 Stock of DSC. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Conversions of DSC Stock. . . . . . . . . . . . . . . . . . . 7
2.4 Effect on CWSG Stock. . . . . . . . . . . . . . . . . . . . . 8
2.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . 8
2.7 Directors of Surviving Corporation and CWSG . . . . . . . . .10
2.8 Officers and Employees of Surviving Corporation and CWSG. . .10
2.9 Form of the Transaction . . . . . . . . . . . . . . . . . . .11
ARTICLE III THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . .11
3.1 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . .11
3.2 Execution of Agreements . . . . . . . . . . . . . . . . . . .11
3.3 Further Assurances. . . . . . . . . . . . . . . . . . . . . .11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DSC . . . . . . . . . . . .12
4.1 Incorporation, Standing and Power . . . . . . . . . . . . . .12
4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . .12
4.3 DSC Subsidiaries. . . . . . . . . . . . . . . . . . . . . . .12
4.4 Financial Statements. . . . . . . . . . . . . . . . . . . . .13
4.5 Reports and Filings . . . . . . . . . . . . . . . . . . . . .13
4.6 Authority of DSC. . . . . . . . . . . . . . . . . . . . . . .13
4.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.8 Personal Property . . . . . . . . . . . . . . . . . . . . . .14
4.9 Title to Properties and Assets. . . . . . . . . . . . . . . .14
4.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .15
4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.12 Compliance with Laws and Regulations. . . . . . . . . . . . .17
4.13 Performance of Obligations. . . . . . . . . . . . . . . . . .19
4.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.15 Brokers and Finders . . . . . . . . . . . . . . . . . . . . .19
4.16 Material Contracts. . . . . . . . . . . . . . . . . . . . . .19
4.17 Certain Material Changes. . . . . . . . . . . . . . . . . . .21
4.18 Licenses and Permits. . . . . . . . . . . . . . . . . . . . .21
4.19 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . .22
4.20 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . .22
4.21 Corporate Records . . . . . . . . . . . . . . . . . . . . . .24
4.22 Accounting Records. . . . . . . . . . . . . . . . . . . . . .24
i
TABLE OF CONTENTS (CONT.)
PAGE
4.23 Offices . . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.24 Investment Securities . . . . . . . . . . . . . . . . . . . .24
4.25 Power of Attorney . . . . . . . . . . . . . . . . . . . . . .24
4.26 Facts Affecting Regulatory Approvals. . . . . . . . . . . . .24
4.27 Accounting and Tax Matters. . . . . . . . . . . . . . . . . .25
4.28 Indemnification . . . . . . . . . . . . . . . . . . . . . . .25
4.29 Derivative Transactions . . . . . . . . . . . . . . . . . . .25
4.30 Disclosure Documents and Applications . . . . . . . . . . . .25
4.31 Year 2000 Plan and Compliance . . . . . . . . . . . . . . . .25
4.32 Accuracy and Currentness of Information Furnished . . . . . .25
4.33 Standard. . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.34 Warn Act. . . . . . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CWSG. . . . . . . . . . . .26
5.1 Incorporation, Standing and Power . . . . . . . . . . . . . .26
5.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . .26
5.3 Financial Statements. . . . . . . . . . . . . . . . . . . . .27
5.4 Reports and Filings . . . . . . . . . . . . . . . . . . . . .27
5.5 Authority . . . . . . . . . . . . . . . . . . . . . . . . . .27
5.6 CWSG Subsidiaries . . . . . . . . . . . . . . . . . . . . . .29
5.7 Brokers and Finders . . . . . . . . . . . . . . . . . . . . .29
5.8 Certain Material Changes. . . . . . . . . . . . . . . . . . .29
5.9 Licenses and Permits. . . . . . . . . . . . . . . . . . . . .30
5.10 Corporate Records . . . . . . . . . . . . . . . . . . . . . .30
5.11 Accounting Records. . . . . . . . . . . . . . . . . . . . . .30
5.12 Facts Affecting Regulatory Approvals. . . . . . . . . . . . .30
5.13 Accounting and Tax Matters. . . . . . . . . . . . . . . . . .30
5.14 Disclosure Documents and Applications . . . . . . . . . . . .30
5.15 New York Stock Exchange Listing . . . . . . . . . . . . . . .31
5.16 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .31
5.17 Compliance with Laws and Regulations. . . . . . . . . . . . .31
5.18 Performance of Obligations. . . . . . . . . . . . . . . . . .33
5.19 Material Contracts. . . . . . . . . . . . . . . . . . . . . .33
5.20 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . .35
5.21 Year 2000 Plan and Compliance . . . . . . . . . . . . . . . .35
5.22 Accuracy and Currentness of Information Furnished . . . . . .35
5.23 Standard. . . . . . . . . . . . . . . . . . . . . . . . . . .35
ii
TABLE OF CONTENTS (CONT.)
PAGE
ARTICLE VI COVENANTS OF DSC PENDING EFFECTIVE TIME OF THE MERGER . . . .35
6.1 Limitation on DSC's Conduct Prior to Effective Time of the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
6.2 Affirmative Conduct of DSC and DSC Subsidiaries Prior to
Effective Time of the Merger. . . . . . . . . . . . . . . . .40
6.3 Access to Information . . . . . . . . . . . . . . . . . . . .41
6.4 Review by Accountants . . . . . . . . . . . . . . . . . . . .42
6.5 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . .42
6.6 Notices; Reports. . . . . . . . . . . . . . . . . . . . . . .43
6.7 DSC Shareholders' Meeting . . . . . . . . . . . . . . . . . .43
6.8 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .43
6.9 Applications. . . . . . . . . . . . . . . . . . . . . . . . .43
6.10 Affiliates and Five Percent Shareholder Agreements. . . . . .44
6.11 Coordination of Dividends . . . . . . . . . . . . . . . . . .44
6.12 D&O Coverage. . . . . . . . . . . . . . . . . . . . . . . . .44
ARTICLE VII COVENANTS OF CWSG PENDING EFFECTIVE TIME OF THE MERGER. . . .45
7.1 Limitation on CWSG's Conduct Prior to Effective Time of the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
7.2 Affirmative Conduct of CWSG and CWSG Subsidiaries Prior to
Effective Time of the Merger. . . . . . . . . . . . . . . . .46
7.3 Access to Information . . . . . . . . . . . . . . . . . . . .47
7.4 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . .47
7.5 Applications. . . . . . . . . . . . . . . . . . . . . . . . .47
7.6 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . . . . .48
7.7 Sales and Net Income Reports. . . . . . . . . . . . . . . . .48
7.8 Securities Act and Exchange Act Filings . . . . . . . . . . .48
7.9 Notices; Reports. . . . . . . . . . . . . . . . . . . . . . .48
7.10 Removal of Conditions . . . . . . . . . . . . . . . . . . . .49
ARTICLE VIII ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . .49
8.1 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . .49
8.2 Public Announcements. . . . . . . . . . . . . . . . . . . . .49
8.3 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.4 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.5 Confidentiality and Non-Disclosure. . . . . . . . . . . . . .49
8.6 Return of Materials . . . . . . . . . . . . . . . . . . . . .50
iii
TABLE OF CONTENTS (CONT.)
PAGE
ARTICLE IX CONDITIONS PRECEDENT TO THE MERGER. . . . . . . . . . . . . .51
9.1 Shareholder Approval. . . . . . . . . . . . . . . . . . . . .51
9.2 No Judgments or Orders. . . . . . . . . . . . . . . . . . . .51
9.3 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . .51
9.4 Securities Laws . . . . . . . . . . . . . . . . . . . . . . .51
9.5 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . .51
9.6 Tax Opinions. . . . . . . . . . . . . . . . . . . . . . . . .51
9.7 Pooling of Interests. . . . . . . . . . . . . . . . . . . . .51
ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DSC. . . . . . . .52
10.1 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . .52
10.2 Representations and Warranties; Performance of Covenants. . .52
10.3 Authorization of Merger . . . . . . . . . . . . . . . . . . .52
10.4 Absence of Certain Changes. . . . . . . . . . . . . . . . . .53
10.5 Officers' Certificate . . . . . . . . . . . . . . . . . . . .53
10.6 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . .53
10.7 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .53
ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF CWSG AND
WATER COMPANY . . . . . . . . . . . . . . . . . . . . . . . .53
11.1 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . .53
11.2 Representations and Warranties; Performance of Covenants. . .53
11.3 Authorization of Merger . . . . . . . . . . . . . . . . . . .54
11.4 Third Party Consents. . . . . . . . . . . . . . . . . . . . .54
11.5 Absence of Certain Changes. . . . . . . . . . . . . . . . . .54
11.6 Officers' Certificate . . . . . . . . . . . . . . . . . . . .54
11.7 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .54
11.8 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .54
11.9 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .54
11.10 Affiliates Agreements . . . . . . . . . . . . . . . . . . . .54
11.11 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . .54
11.12 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . .55
11.13 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .55
11.14 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .55
11.15 [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . .55
11.16 Termination of DSC Stock Option Plans . . . . . . . . . . . .55
iv
TABLE OF CONTENTS (CONT.)
PAGE
ARTICLE XII EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . .55
12.1 Employee Benefits . . . . . . . . . . . . . . . . . . . . . .55
ARTICLE XIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . .56
13.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . .56
13.2 Termination Date. . . . . . . . . . . . . . . . . . . . . . .56
13.3 Effect of Termination . . . . . . . . . . . . . . . . . . . .57
13.4 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . .57
ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .57
14.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .57
14.2 Liquidated Damages; Bust-up Fees. . . . . . . . . . . . . . .58
14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .59
14.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . .60
14.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .60
14.6 Effect of Representations and Warranties. . . . . . . . . . .60
14.7 Third Parties . . . . . . . . . . . . . . . . . . . . . . . .60
14.8 Lists, Exhibits; Integration. . . . . . . . . . . . . . . . .60
14.9 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . .60
14.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .60
14.11 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . .61
14.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . .61
14.13 Waiver and Modification; Amendment. . . . . . . . . . . . . .61
14.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . .61
14.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . .61
14.16 Other Rights and Remedies . . . . . . . . . . . . . . . . . .61
EXHIBIT A - Agreement of Merger
EXHIBIT B - Form of Affiliate Agreement
v
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into as of the 13th day of November, 1998, by and among CALIFORNIA WATER
SERVICE GROUP, a California corporation ("CWSG"), CALIFORNIA WATER SERVICE
COMPANY, a California corporation and wholly-owned subsidiary of CWSG ("Water
Company"), and XXXXXXXXX SERVICES CORPORATION, a California corporation ("DSC").
WHEREAS, the Boards of Directors of CWSG, Water Company and DSC deem
advisable and in the best interests of their respective shareholders the merger
of DSC with and into Water Company (the "Merger") upon the terms and conditions
set forth herein and in accordance with the California General Corporation Law
(the "CGCL") (Water Company, following the effectiveness of the Merger, being
hereinafter sometimes referred to as the "Surviving Corporation"); and
WHEREAS, the Boards of Directors of CWSG, Water Company and DSC have
approved the Merger pursuant to this Agreement and pursuant to the Agreement of
Merger by and among CWSG, Water Company and DSC (the "Agreement of Merger"), in
substantially the form of EXHIBIT A attached hereto, pursuant to which DSC will
merge with and into Water Company and each outstanding share of DSC common
stock, one dollar ($1) par value ("DSC Stock") excluding any DSC Perfected
Dissenting Shares (as defined below), will be converted into the right to
receive a specified amount of CWSG common stock, no par value ("CWSG Stock"),
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual covenants, agreements, representations and warranties contained
herein, the parties hereto do covenant and agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or unless the
context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:
"X.X. Xxxxxxx Agreement" means the letter agreement dated May 26, 1998
between X.X. Xxxxxxx & Sons and CWSG.
"Affiliate" of, or a person "Affiliated" of, or a person Affiliated with,
a specific person(s) is a person that directly or indirectly, through one or
more intermediaries controls, or is controlled by, or is under common control
with, the person(s) specified.
"Agreement of Merger" means the Agreement of Merger substantially in the
form attached hereto as "EXHIBIT A."
"Xxxxxx Xxxxxxxx" means Xxxxxx Xxxxxxxx, LLP, DSC's independent
accountants.
"Benefit Arrangements" has the meaning set forth in Section 4.20(b).
"Business Day" means any day other than a Saturday, Sunday or day on which
a bank chartered under the laws of the State of California is closed.
"CGCL" means California General Corporation Law.
"Closing" means the consummation of the Merger provided for in Article III
of this Agreement on the Closing Date (as defined herein) at the offices of
Nossaman, Guthner, Xxxx & Xxxxxxx, LLP, San Francisco, California, or at such
other place as the parties may agree upon.
"Closing Date" means the date which falls on the fifth business day
following the last to occur of (i) the approval of this Agreement and the
transactions contemplated hereby by the shareholders of DSC, (ii) the receipt of
all permits, authorizations, approvals and consents specified in Section 9.3
hereof, (iii) the expiration of all applicable waiting periods under the law,
and (iv) the expiration of the 30 day period following the mailing by DSC to its
shareholders of a notice of approval of the Merger by the outstanding shares
pursuant to Section 1301 of the CGCL; provided, however, that the Closing Date
shall not be later than the Drop Dead Date, unless otherwise agreed to by a
majority of the Boards of Directors of each of the parties hereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Public Utilities Commission of the State of
California.
"Competing Transaction" has the meaning set forth in Section 6.1(n).
"Conversion Ratio" has the meaning set forth in Section 2.3(a).
"Covered Person" has the meaning set forth in Section 4.28.
"CWSG 401(k) Plan" means the CWSG 401(k) Profit Sharing Plan.
"CWSG Average Closing Price" means the average of the daily closing price
of a share of CWSG Stock reported on the New York Stock Exchange during the 20
consecutive trading days ending at the end of the third trading day immediately
preceding the Effective Time of the Merger.
"CWSG Conflicts and Consents List" has the meaning set forth in
Section 5.5.
"CWSG Contract List" has the meaning set forth in Section 5.19.
"CWSG Environmental Compliance List" has the meaning set forth in Section
5.17.
2
"CWSG Filings" has the meaning set forth in Section 5.4.
"CWSG Filings List" has the meaning set forth in Section 5.4.
"CWSG Litigation List" has the meaning set forth in Section 5.16.
"CWSG Scheduled Contracts" has the meaning set forth in Section 5.19.
"CWSG Short Term Borrowings List" has the meaning set forth in Section
5.19(i).
"CWSG Stock" means the common stock, no par value, of CWSG.
"CWSG Subsidiaries" has the meaning set forth in Section 5.6.
"CWSG Supplied Information" has the meaning set forth in Section 5.14.
"CWSG Undisclosed Liabilities List" has the meaning set forth in Section
5.20.
"CWSG Year 2000 Exceptions List" has the meaning set forth in Section 5.21.
"Drop Dead Date" means November 13, 1999; provided that if Commission
approval of the Merger is pending when all of the following events have
occurred: (i) the approval of this Agreement and the transactions contemplated
hereby by the shareholders of DSC, (ii) the receipt of all permits,
authorizations, approvals (with the exception of Commission approval) and
consents specified in Section 9.3 hereof, (iii) the expiration of all applicable
waiting periods under the law, and (iv) the expiration of the 30 day period
following the mailing by DSC of a notice of approval of the Merger by the
outstanding shares pursuant to Section 1301 of the CGCL, then the Drop Dead Date
is August 13, 2000.
"DSC 401(k) Plan" means the DSC 401(k) Plan.
"DSC Asset Transfers List" has the meaning set forth in Section 4.9.
"DSC Bonus Plan" has the meaning set forth in Section 6.1(f).
"DSC Conflicts and Consents List" has the meaning set forth in Section 4.6.
"DSC Contract List" has the meaning set forth in Section 4.16.
"DSC Dissenting Shares" means any shares of DSC Stock held by "dissenting
shareholders" within the meaning of Chapter 13 of the CGCL.
"DSC Employee Plan List" has the meaning set forth in Section 4.20.
"DSC Employment/Labor Issues List" has the meaning set forth in Section
4.14.
"DSC Environmental Compliance List" has the meaning set forth in
Section 4.12.
3
"DSC Filings" has the meaning set forth in Section 4.5.
"DSC Filings List" has the meaning set forth in Section 4.5.
"DSC Indemnification List" has the meaning set forth in Section 4.28.
"DSC Insurance List" has the meaning set forth in Section 4.7.
"DSC Investment Securities List" has the meaning set forth in
Section 4.24.
"DSC List" means any list required to be furnished by DSC to CWSG
herewith.
"DSC Litigation List" has the meaning set forth in Section 4.10.
"DSC Offices List" has the meaning set forth in Section 4.23.
"DSC Option List" has the meaning set forth in Section 4.2.
"DSC Pending Acquisitions List" has the meaning set forth in Section
6.1(a).
"DSC Perfected Dissenting Shares" means DSC Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as DSC
Dissenting Shares.
"DSC Personal Property List" has the meaning set forth in Section 4.8.
"DSC Real Property List" has the meaning set forth in Section 4.9.
"DSC Scheduled Contracts" has the meaning set forth in Section 4.16.
"DSC Shareholders' Meeting" means the meeting of DSC's shareholders
referred to in Section 6.7.
"DSC Short Term Borrowings List" has the meaning set forth in Section
4.16(i).
"DSC Stock" means the common stock, one dollar ($1) par value, of DSC.
"DSC Stock Option" means any option issued pursuant to the DSC Stock Option
Plan.
"DSC Stock Option Plan" means the DSC 1997 Stock Option Plan.
"DSC Subsidiaries" has the meaning set forth in Section 4.3.
"DSC Supplied Information" has the meaning set forth in Section 4.30.
"DSC Tax List" has the meaning set forth in Section 4.11.
"DSC Undisclosed Liabilities List" has the meaning set forth in Section
4.19.
4
"DSC Year 2000 Exceptions List" has the meaning set forth in Section 4.31.
"Effective Time of the Merger" means the date upon which the Merger is
consummated and the Agreement of Merger is filed with the Secretary of State of
the State of California.
"Employee Plans" has the meaning set forth in Section 4.20(a).
"Encumbrance" shall mean any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, understanding, law or otherwise.
"Environmental Regulations" has the meaning set forth in Section 4.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Evaluation Material" has the meaning set forth in Section 8.5(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Boston Equiserve or such other person designated by
the parties.
"Exchange Fund" has the meaning set forth in Section 2.6(a) hereof.
"Financial Statements of CWSG" means the audited consolidated financial
statements of CWSG or its predecessor in interest consisting of the consolidated
balance sheets as of December 31, 1994, 1995, 1996 and 1997, the related
consolidated statements of income, common stockholders' equity and cash flows
for the years then ended and the related notes thereto and related independent
accountants' opinions thereon for the years then ended and CWSG's or its
predecessor in interests' unaudited consolidated balance sheet and consolidated
statements of income and cash flows as of and for the nine month period ended
September 30, 1998.
"Financial Statements of DSC" means the audited consolidated financial
statements of DSC consisting of the consolidated balance sheets as of December
31, 1994, 1995, 1996 and 1997, the related statements of operations, common
stockholders' equity and cash flows for the years then ended and the related
notes thereto and related independent accountants' opinions thereon for the
years then ended and DSC's unaudited consolidated balance sheet and statements
of operations and cash flows as of and for the nine month period ended September
30, 1998.
"Governmental Entity" shall mean any court or tribunal in any jurisdiction
or any United States federal, state, municipal, domestic, foreign or other
administrative authority or instrumentality.
"Hazardous Materials" has the meaning set forth in Section 4.12(b).
"Immediate Family" means a person's spouse, parents, in-laws, children
and siblings.
5
"Investment Security" means any equity security or debt security as defined
in Statement of Financial Accounting Standards No. 15.
"IRS" means the Internal Revenue Service.
"KPMG Peat Marwick" means KPMG Peat Marwick LLP, CWSG's independent
auditors and accountants.
"Material Adverse Effect" means with respect to CWSG or DSC, any effect
that, individually or in the aggregate (a) is material and adverse to the
business, financial condition or results of operation of CWSG and the CWSG
Subsidiaries taken as a whole or DSC and the DSC Subsidiaries taken as a whole,
respectively, or (b) would materially impair the ability of either CWSG or DSC
to consummate the Merger and the other transactions contemplated by this
Agreement prior to the Drop Dead Date, PROVIDED that a Material Adverse Effect
shall not be deemed to have occurred as a result of a change in general economic
conditions or a change in laws or regulations.
"Merger" means the merger of DSC with and into Water Company pursuant to
this Agreement and the Agreement of Merger.
"PaineWebber Agreement" means the letter agreement dated August 10, 1998
between PaineWebber, Incorporated and DSC.
"Person" means any individual, corporation, association, partnership,
trust, joint venture, limited liability company, other entity, unincorporated
body, government or governmental department or agency.
"Proxy Statement and Prospectus" means the Proxy Statement and Prospectus
that is included as part of the Registration Statement on Form S-4 (as defined
herein) and used to solicit proxies for the DSC Shareholders' Meeting (as
defined herein) and to offer and sell the shares of CWSG Stock to be issued in
connection with the Merger.
"Related Group of Persons" means Affiliates, members of an Immediate Family
or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC (as defined herein).
"Registration Statement on Form S-4" means the Registration Statement on
Form S-4, and such amendments thereto, that is filed with the SEC to register
the shares of CWSG Stock to be issued in the Merger under the Securities Act and
to clear use of the Proxy Statement and Prospectus in connection with the DSC
Shareholders' Meeting pursuant to the regulations promulgated under the Exchange
Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
6
"Surviving Corporation" means the California corporation created by the
Merger of DSC with and into Water Company.
"Tank" has the meaning set forth in Section 4.12(b).
"Tax" has the meaning set forth in Section 4.11(j).
"Tax Return" has the meaning set forth in Section 4.11(j).
"Transaction Expenses" means expenses incurred by DSC in connection with
the Merger which expenses are not in excess of one million five hundred thousand
dollars ($1,500,000) in the aggregate for the entire transaction being
contemplated by and between CWSG and DSC.
"Warn Act" means the Worker Adjustment and Retraining Notification Act, as
codified at 29 U.S.C. Section 2102-2109, as amended.
ARTICLE II
TERMS OF MERGER
2.1 EFFECT OF MERGER AND SURVIVING CORPORATION. At the Effective Time of
the Merger, DSC will be merged with and into Water Company pursuant to the
terms, conditions and provisions of the Agreement of Merger and in accordance
with the applicable provisions of the CGCL. By virtue of the Merger, all the
rights, privileges, powers and franchises and all property and assets of every
kind and description of Water Company and DSC shall be vested in and be held and
enjoyed by the Surviving Corporation, without further act or deed, and all the
interests of every kind of Water Company and DSC, including all debts due to
either of them on whatever account, shall be the property and obligation of the
Surviving Corporation as they were of Water Company and DSC and the title to any
interest in real property and any interest in personal property vested by deed
or otherwise in either Water Company or DSC shall not revert or be in any way
impaired by reason of the Merger; and all rights of creditors and liens upon any
property of Water Company and DSC shall be preserved unimpaired and all debts,
liabilities and duties of Water Company and DSC shall be debts, liabilities and
duties of the Surviving Corporation and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it.
2.2 STOCK OF DSC. Each share of common stock, one dollar ($1) par value,
of DSC issued and outstanding immediately prior to the Effective Time of the
Merger shall, without any further action on the part of DSC or the holder of
such shares, be converted pursuant to the terms of the Agreement of Merger as
set forth in Section 2.3. From and after the Effective Time of the Merger, each
certificate that, prior to the Effective Time of the Merger, represented shares
of DSC shall evidence ownership of shares of CWSG on the basis set forth above.
2.3 CONVERSIONS OF DSC STOCK. (a) On the Effective Time of the Merger,
pursuant to the Agreement of Merger, each outstanding share of DSC Stock
excluding, if any, DSC Perfected Dissenting Shares or shares of DSC Stock held
by CWSG shall, without any further action on the
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part of DSC or the holders of any such shares, be converted into 1.18 shares
of CWSG Stock (the "Conversion Ratio").
(b) DSC Perfected Dissenting Shares shall not be converted into shares
of CWSG Stock but shall, after the Effective Time of the Merger, be entitled
only to such rights as are granted them by Chapter 13 of the CGCL. Each
dissenting shareholder who is entitled to payment for his shares of DSC Stock
shall receive such payment in an amount as determined pursuant to Chapter 13 of
the CGCL.
(c) Each outstanding share of DSC Stock held by CWSG shall be
canceled.
(d) If, prior to the Effective Time of the Merger, CWSG shall declare
a stock dividend or distribution upon or subdivide, split up, reclassify or
combine the CWSG Stock, or make a distribution on the CWSG Stock in any security
convertible into CWSG Stock, as of a record date prior to the Effective Time of
the Merger, appropriate adjustment or adjustments (rounded to four digits to the
right of the decimal point) will be made to the Conversion Ratio.
(e) If any DSC Stock Options which are exercisable at the date of this
Agreement, or become exercisable prior to the Closing, are exercised prior to
the Closing, the shares of DSC Stock issued upon such exercise shall be
converted to the right to receive shares of CWSG Stock at the Closing.
2.4 EFFECT ON CWSG STOCK. On the Effective Time of the Merger, each
outstanding share of CWSG Stock shall remain an outstanding share of CWSG Stock
and shall not be converted or otherwise affected by the Merger.
2.5 FRACTIONAL SHARES. No fractional shares of CWSG Stock shall be issued
in the Merger. In lieu thereof, each holder of DSC Stock who would otherwise be
entitled to receive a fractional share shall receive an amount in cash equal to
the product (calculated to the nearest hundredth) obtained by multiplying (a)
the CWSG Average Closing Price times (b) the fraction of the share of CWSG Stock
to which such holder would otherwise be entitled. No such holder shall be
entitled to dividends or other rights in respect of any such fraction.
2.6 EXCHANGE PROCEDURES.
(a) As of the Effective Time of the Merger, CWSG shall have deposited
with the Exchange Agent for the benefit of the holders of shares of DSC Stock,
for exchange in accordance with this Section 2.6 through the Exchange Agent,
certificates representing the shares of CWSG Stock issuable pursuant to
Section 2.3 in exchange for shares of DSC Stock outstanding immediately prior to
the Effective Time of the Merger, and funds in an amount not less than the
amount of cash payable in lieu of fractional shares of CWSG Stock which would
otherwise be payable in connection with Section 2.3 hereof but for the operation
of Section 2.5 of this Agreement (collectively, the "Exchange Fund").
(b) CWSG shall direct the Exchange Agent to mail, promptly after the
Effective Time of the Merger, to each holder of record of a certificate or
certificates which immediately
8
prior to the Effective Time of the Merger represented outstanding shares of
DSC Stock (the "Certificates") whose shares were converted into the right to
receive shares of CWSG Stock pursuant to Section 2.3 hereof, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as CWSG and DSC may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of CWSG Stock. Upon surrender
of a Certificate for cancellation to the Exchange Agent or to such other
agent or agents as may be appointed by CWSG, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor that amount of cash and a certificate
representing that number of whole shares of CWSG Stock which such holder has
the right to receive pursuant to the provisions of Sections 2.3 and 2.5
hereof, and the Certificate so surrendered shall forthwith be canceled. In
the event a certificate is surrendered representing DSC Stock, the transfer
of ownership which is not registered in the transfer records of DSC, a
certificate representing the proper number of shares of CWSG Stock may be
issued to a transferee if the Certificate representing such DSC Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.6, each Certificate shall be deemed at any time after the Effective
Time of the Merger to represent only the right to receive upon such surrender
the certificate representing shares of CWSG Stock and cash in lieu of any
fractional shares of stock as contemplated by this Section 2.6.
Notwithstanding anything to the contrary set forth herein, if any holder of
shares of DSC should be unable to surrender the Certificates for such shares,
because they have been lost or destroyed, such holder may deliver in lieu
thereof such affidavit or bond in form and substance and with surety
reasonably satisfactory to CWSG and shall be entitled to receive the
certificate representing the proper number of shares of CWSG Stock and cash
in lieu of fractional shares in accordance with Sections 2.3 and 2.5 hereof.
(c) No dividends or other distributions declared or made after the
Effective Time of the Merger with respect to CWSG Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of CWSG Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.5 until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of CWSG
Common Stock issued in exchange thereof, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
CWSG Stock to which such holder is entitled pursuant to Section 2.5 and the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole shares
of CWSG Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time of the Merger
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of CWSG Stock.
9
(d) All shares of CWSG Stock issued upon the surrender for exchange of
DSC Stock in accordance with the terms hereof (including any cash paid pursuant
to Section 2.5) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of DSC Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of DSC Stock which were outstanding immediately prior
to the Effective Time of the Merger. If, after the Effective Time of the
Merger, Certificates are presented to CWSG for any reason, they shall be
canceled and exchanged as provided in this Agreement.
(e) Any portion of the Exchange Fund which remains undistributed to
the shareholders of DSC following the passage of six months after the Effective
Time of the Merger shall be delivered to CWSG, upon demand, and any shareholders
of DSC who have not theretofore complied with this Section 2.6 shall thereafter
look only to CWSG for payment of their claim for CWSG Stock, any cash in lieu of
fractional shares of CWSG Stock and any dividends or distributions with respect
to CWSG Stock.
(f) Neither CWSG, Water Company nor DSC shall be liable to any holder
of shares of DSC Stock for such shares (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the shares of CWSG Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares of CWSG
Stock for the account of the Persons entitled thereto.
2.7 DIRECTORS OF SURVIVING CORPORATION AND CWSG. Immediately after the
Effective Time of the Merger, the Board of Directors of the Surviving
Corporation shall be comprised of the persons serving as directors of Water
Company immediately prior to the Effective Time of the Merger, or, if unable to
serve, such other persons designated by CWSG. Such persons shall serve until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified. Immediately after the Effective Time of the
Merger, the Board of Directors of CWSG shall be comprised of the persons serving
as directors of CWSG immediately prior to the Effective Time of the Merger, or,
if unable to serve, such other person designated by CWSG, plus one additional
person from the Board of Directors of DSC to be designated by the Board of
Directors of CWSG immediately before Closing. Such persons shall serve until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified.
2.8 OFFICERS AND EMPLOYEES OF SURVIVING CORPORATION AND CWSG.
Immediately after the Effective Time of the Merger, the executive officers of
CWSG shall be comprised of the persons serving as executive officers of CWSG
immediately prior to the Effective Time of the Merger. Such persons shall
serve until the earlier of their resignation or removal. Immediately after
the Effective Time of the Merger, the executive officers of the Surviving
Corporation shall be comprised of the persons serving as executive officers
of Water Company immediately prior to
10
the Effective Time of the Merger. CWSG and DSC shall offer equivalent
employment to all employees of DSC who are employed by DSC immediately prior
to the Effective Time of the Merger. Those employees of DSC who are offered
employment requiring a transfer of more than fifty (50) miles and who also
decide not to accept employment with CWSG shall receive severance packages
consistent with DSC's past practices and acceptable to CWSG in accordance
with the provisions of a letter dated November 13, 1998 from Xxxxx X. Xxxxxx,
President and Chief Executive Officer of Water Company, to Xxxxx X. Xxxxx,
Chairman of the Board of DSC. The terms and conditions for the continued
employment or other relationship between CWSG and Xxxxx X. Xxxxx, the Chief
Executive Officer of DSC, and Xxxx X. Xxxxxx, the Chief Financial Officer of
DSC, including, but not limited to, covenants not to compete and
non-solicitation provisions are contained in offer letters dated November 13,
1998 from Xxxxx X. Xxxxxx, President and Chief Executive Officer of Water
Company to Xxxxx X. Xxxxx, the Chief Executive Officer of DSC, and dated
November 13, 1998 from Xxxxx X. Xxxxxx, President and Chief Executive Officer
of Water Company to Xxxx X. Xxxxxx, the Chief Financial Officer of DSC,
respectively.
2.9 FORM OF THE TRANSACTION. The form of the transaction set forth above
is intended to achieve a tax free reorganization. If for regulatory or other
reasons, CWSG determines that another form of the transaction is necessary or
preferable, the parties agree that the form of the transaction may be modified
by CWSG, provided the transaction does not result in a different amount of
consideration to DSC and does not affect the status of the transaction as a tax
free reorganization.
ARTICLE III
THE CLOSING
3.1 CLOSING DATE. The Closing shall take place on the Closing Date.
3.2 EXECUTION OF AGREEMENTS. As soon as practicable after execution of
this Agreement, the Agreement of Merger together with all other agreements
necessary to consummate the transactions described herein shall be executed by
CWSG, Water Company and DSC. On the Closing Date, the Agreement of Merger,
together with all requisite certificates, shall be duly filed with the Secretary
of State of the State of California as required by applicable law and
regulations.
3.3 FURTHER ASSURANCES. At the Closing, the parties hereto shall deliver,
or cause to be delivered, such documents or certificates as may be necessary in
the reasonable opinion of counsel for any of the parties, to effectuate the
transactions contemplated by this Agreement. From and after the Effective Time
of the Merger, each of the parties hereto covenants and agrees, without the
necessity of any further consideration whatsoever, to execute, acknowledge and
deliver any and all other documents and instruments and take any and all such
other action as may be reasonably necessary or desirable to more effectively
carry out the intent and purpose of this Agreement and the Agreement of Merger.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DSC
DSC represents and warrants to CWSG with respect to DSC and the DSC
Subsidiaries as follows:
4.1 INCORPORATION, STANDING AND POWER. DSC and each of the DSC
Subsidiaries are California corporations duly organized, validly existing and in
good standing under the laws of the State of California. DSC and each of the
DSC Subsidiaries have all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as presently
conducted. Neither the scope of the business of DSC and each of the DSC
Subsidiaries nor the location of any of its respective properties requires that
DSC or any of the DSC Subsidiaries be licensed to do business in any
jurisdiction other than the State of California where the failure to be so
licensed would, individually or in the aggregate, have a Material Adverse Effect
on DSC. DSC has delivered to CWSG true and correct copies of the Articles of
Incorporation and Bylaws, as amended, and in effect as of the date hereof, of
DSC and each of the DSC Subsidiaries.
4.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of DSC consists of 4,000,000 shares of one dollar ($1.00) par
value Common Stock, of which 1,506,512 shares are outstanding (approximately
60,624 shares of the Common Stock are to be issued upon consummation of pending
acquisitions, which acquisitions are anticipated to be consummated prior to the
Closing), 30,000 shares of Class A Preferred Stock, par value $25 per share,
none of which are outstanding, and 100,000 shares of Class B Preferred Stock,
par value $10 per share, none of which are outstanding. All of the outstanding
shares of DSC Common Stock are duly authorized, validly issued, fully paid and
nonassessable. Except for DSC Options covering approximately 40,740 shares of
DSC Stock granted pursuant to the DSC Stock Option Plan, there are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of DSC Common or Preferred Stock nor any securities convertible into such
stock, and DSC is not obligated to issue any additional shares of its Common or
Preferred Stock or any additional options, warrants or other rights in or with
respect to the unissued shares of such stock or any other securities convertible
into such stock. DSC has furnished CWSG a list (the "DSC OPTION LIST") setting
forth the name of each holder of a DSC Option, the number of shares of DSC Stock
covered by each such option, the vesting schedule of such option, the exercise
price per share and the expiration date of each such DSC Option.
4.3 DSC SUBSIDIARIES. Other than DSC Water Company and its wholly owned
Subsidiaries, Kernville Domestic Water Company, Arden Water Company, Lakeland
Water Company and Redwood Valley Water Company, and DSC Investments and a twenty
percent (20%) equity interest in Chemical Services Company which is not a
subsidiary of DSC, DSC does not own, directly or indirectly, more than one
percent (1%) of the outstanding stock or equity or other voting interest in any
corporation, partnership, joint venture or other entity.
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4.4 FINANCIAL STATEMENTS. DSC has previously furnished to CWSG a copy of
the Financial Statements of DSC. The Financial Statements of DSC: (a) present
fairly and in all material respects the consolidated financial condition of DSC
and the DSC Subsidiaries as of the respective dates indicated and its
consolidated results of operations and statement of cash flows, for the
respective periods then ended, subject, in the case of the unaudited interim
financial statements, to normal recurring adjustments; (b) have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as otherwise indicated therein); and (c) are based upon the books and
records of DSC.
4.5 REPORTS AND FILINGS. Except as set forth in a list (the "DSC FILINGS
LIST"), since the later of December 31, 1994, or the date which any DSC
Subsidiary became a DSC Subsidiary, DSC and each DSC Subsidiary has filed all
reports, returns, registrations and statements (such reports and filings
referred to as "DSC Filings"), together with any amendments required to be made
with respect thereto, that were required to be filed with the Commission and any
other applicable Governmental Entity, including taxing authorities, except where
the failure to file such reports, returns, registrations or statements has not
had and is not reasonably expected to have a Material Adverse Effect on DSC on a
consolidated basis. No administrative actions have been taken or orders issued
in connection with such DSC Filings. As of their respective dates, each of such
DSC Filings (y) complied in all material respects with all laws and regulations
enforced or promulgated by the Governmental Entity with which it was filed (or
was amended so as to be in compliance promptly following discovery of any such
noncompliance); and (z) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Any financial statement contained in any of such DSC
Filings fairly presented the financial position of DSC on a consolidated basis
and was prepared in accordance with generally accepted accounting principles
consistently applied, except as stated therein, during the periods involved.
DSC has furnished CWSG with true and correct copies of all DSC Filings filed by
DSC since 1994.
4.6 AUTHORITY OF DSC. The execution and delivery by DSC of this Agreement
and of the Agreement of Merger and, subject to the requisite approval of the
shareholders of DSC of this Agreement and the transactions contemplated hereby,
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action on the part of
DSC, and this Agreement is, and the Agreement of Merger will be, upon due
execution and delivery by the respective parties thereto, a valid and binding
obligation of DSC enforceable in accordance with their respective terms, except
as the enforceability thereof may be limited by bankruptcy, liquidation,
receivership, conservatorship, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and by general equitable principles.
Except as set forth in a list furnished by DSC to CWSG (the "DSC CONFLICTS AND
CONSENTS LIST"), neither the execution and delivery by DSC of this Agreement or
the Agreement of Merger, the consummation of the transactions contemplated
herein or therein, nor compliance by DSC with any of the provisions hereof or
thereof, will: (a) conflict with or result in a breach of any provision of its
Articles of Incorporation, as amended, or Bylaws, as amended; (b) constitute a
breach of or result in a default (or give rise to any rights of termination,
cancellation or acceleration, or any right to acquire any securities or assets)
under any of the
13
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to
which DSC or any DSC Subsidiary is a party, or by which DSC or any DSC
Subsidiary or any of its respective properties or assets is bound, or require
the approval or consent of any third party; (c) result in the creation or
imposition of any Encumbrance on any of the properties or assets of DSC or
any DSC Subsidiary; or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to DSC or any DSC Subsidiary or any of
their respective properties or assets. Except as set forth in the DSC
Conflicts and Consents List, no consent of, approval of, notice to or filing
with any Governmental Entity having jurisdiction over any aspect of the
business or assets of DSC, and no consent of, approval of or notice to any
other Person, is required in connection with the execution and delivery by
DSC of this Agreement, the Agreement of Merger or the consummation by DSC of
the Merger or the transactions contemplated hereby or thereby, except (i) the
approval of this Agreement and the Agreement of Merger and the transactions
contemplated hereby and thereby by the shareholders of DSC; (ii) such
approvals as may be required by the Commission; (iii) the filing of the Proxy
Statement and Prospectus and Registration Statement on Form S-4 with the SEC;
(iv) the filing of the Agreement of Merger with the Secretary of State, an
(v) the filing of pre-merger notification reports by DSC and CWSG under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act (1976), as amended.
4.7 INSURANCE. DSC and each of the DSC Subsidiaries has policies of
insurance and bonds with respect to its assets and business against such
casualties and contingencies and in such amounts, types and forms as are
customarily appropriate for its business, operations, properties and assets.
All such insurance policies and bonds are in full force and effect. Except as
set forth in a list furnished by DSC to CWSG (the "DSC INSURANCE LIST"), no
insurer under any such policy or bond has canceled or indicated an intention to
cancel or not to renew any such policy or bond or generally disclaimed liability
thereunder. Except as set forth in the DSC Insurance List, DSC and each of the
DSC Subsidiaries is not in default under any such policy or bond and all
material claims thereunder have been filed in a timely fashion. Set forth in
the DSC Insurance List is a list of all policies of insurance carried and owned
by DSC and each of the DSC Subsidiaries showing the name of the insurance
company, the nature of the coverage, the policy limit, the annual premiums and
the expiration dates. There has been delivered to CWSG a copy of each such
policy of insurance.
4.8 PERSONAL PROPERTY. DSC and each of the DSC Subsidiaries has good and
marketable title to all its material properties and assets other than real
property owned or stated to be owned by DSC or any of the DSC Subsidiaries, free
and clear of all Encumbrances except: (a) as set forth in the Financial
Statements of DSC, (b) for Encumbrances for current taxes not yet due; (c) for
Encumbrances incurred in the ordinary course of business; (d) for Encumbrances
that are not substantial in character, amount or extent and that do not
materially detract from the value, or interfere with present use, of the
property subject thereto or affected thereby, or otherwise materially impair the
conduct of business of DSC or any of the DSC Subsidiaries; or (e) as set forth
in a list furnished by DSC to CWSG (the "DSC PERSONAL PROPERTY LIST." )
4.9 TITLE TO PROPERTIES AND ASSETS. DSC has furnished CWSG a list of real
property, including leaseholds and all other interests in real property (other
than security interests), owned
14
by DSC or any of the DSC Subsidiaries (the "DSC REAL PROPERTY LIST"). DSC
and each of the DSC Subsidiaries has duly recorded or caused to be recorded,
in the appropriate county, all recordable interests in such real property.
DSC and the DSC Subsidiaries have good and defensible title to, or valid
leasehold interests in, their respective material real properties, whether
owned or leased, including, without limitation, (a) those used in their
respective businesses, and (b) those reflected in the consolidated unaudited
balance sheet of DSC as of September 30, 1998 most recently delivered to CWSG
(except as since sold or otherwise disposed of in the ordinary course of
business and except for defects in title, easements, restrictive covenants
and similar encumbrances or impediments that, individually or in the
aggregate, do not and will not materially interfere with the ability of DSC
or any of the DSC Subsidiaries to use their properties or to conduct their
businesses as currently conducted), in each case subject to no mortgage,
pledge, conditional sales contract, lien, security interest, right of
possession in favor of any third party, claim or other encumbrance
(collectively "Liens"), except for (v) Liens under Department of Water
Resources loans pursuant to the California Safe Drinking Water Bond Act of
1976, which are listed on the DSC Real Property List, (w) the Lien of current
taxes (as hereinafter defined) not yet due and payable, (x) with respect to
leased property, the provisions of such leases, (y) Liens granted to DSC's
lenders under that certain DSC Indenture (the "DSC Indenture") dated August
1, 1954, as amended and supplemented and (z) Liens, that, individually, or in
the aggregate, do not and will not materially interfere with the ability of
DSC or any of the DSC Subsidiaries to conduct business as currently
conducted. Except as described in a list furnished by DSC to CWSG (the "DSC
ASSET TRANSFERS LIST"), subsequent to September 30, 1998, neither DSC nor any
of the DSC Subsidiaries has sold or disposed of any of their respective
properties or assets or obligated themselves to do so. DSC has furnished
CWSG with true and correct copies of all leases included in the DSC Real
Property List and all title insurance policies on real property included in
the DSC Real Property List.
4.10 LITIGATION. Except as set forth in the DSC Filings or in a list
furnished by DSC to CWSG (the "DSC LITIGATION LIST"), there is no private or
governmental suit, claim, action or proceeding pending, nor to DSC's knowledge
threatened, against DSC or any of the DSC Subsidiaries or against any of their
respective directors, officers or employees relating to the performance of their
duties in such capacities or against or affecting any properties of DSC or any
of the DSC Subsidiaries which, if adversely determined, would have a Material
Adverse Effect on DSC or the transactions contemplated hereby, or which could
reasonably be expected to involve a judgment against DSC in excess of $50,000.
Also, except as disclosed in the DSC Filings or in the DSC Litigation List,
there are no material judgments, decrees, stipulations or orders against DSC or
enjoining its directors, officers or employees in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business in any area.
4.11 TAXES.
(a) Except as set forth in the list furnished by DSC to CWSG (the "DSC
TAX LIST"): (i) all Tax Returns required to be filed by or on behalf of DSC or
any of the DSC Subsidiaries have been timely filed or requests for extensions
have been timely filed and any such extension shall have been granted and not
have expired, and all such filed returns are
15
complete and accurate in all material aspects; (ii) DSC and the DSC
Subsidiaries have paid all Taxes (whether or not shown on any Tax Return) for
any period ending on or before the Effective Time of the Merger or adequate
provision has been made for any such Taxes in the financial statements of DSC
and the DSC Subsidiaries (in accordance with generally accepted accounting
principles); (iii) there is no audit examination, deficiency assessment, or
refund litigation currently pending with respect to any Taxes of DSC or any
of the DSC Subsidiaries; (iv) all Taxes due with respect to completed and
settled examinations or concluded litigation relating to DSC or any of the
DSC Subsidiaries have been paid in full or adequate provision has been made
for any such amounts in the financial statements of DSC and the DSC
Subsidiaries (in accordance with generally accepted accounting principles);
(v) no extensions or waivers of statutes of limitations have been given by or
requested with respect to any Taxes of DSC or any of the DSC Subsidiaries;
and (vi) there are no liens for Taxes upon the assets or property of DSC or
the DSC Subsidiaries except for statutory liens for current Taxes not yet due.
(b) Except for the affiliated group among DSC and the DSC
Subsidiaries, DSC has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, or a member of
combined, consolidated or unitary group for state, local or foreign Tax
purposes. DSC has not filed a consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income Tax law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state, local or foreign income Tax
law) apply to any disposition of any asset owned by it. DSC has not made or
will not make a consent dividend election under Section 565 of the Code.
(c) Except as set forth in the DSC Tax List, DSC has not agreed to
make, nor is it required to make, any adjustment under Sections 481(a) or 263A
of the Code or any comparable provision of state or foreign tax laws by reason
of a change in accounting method or otherwise. DSC has taken no action that is
not in accordance with prudent utility practice that could defer a liability for
Taxes of DSC from any taxable period ending on or before the Effective Time of
the Merger to any taxable period ending after such date.
(d) DSC is not a party to any agreement, contract, arrangement or plan
that has resulted or would result, separately or in the aggregate, in connection
with the Merger, any change of control of DSC or any other transaction
contemplated by this Agreement, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(e) DSC is not, and has not been, a United States real property
holding corporation (as defined in Section 897(C)(2) of the Code) during the
applicable period specified in Section 897(C)(l)(A)(ii) of the Code.
(f) [deleted].
(g) DSC does not have and has not had a permanent establishment in any
foreign country, as defined in any applicable Tax treaty or convention between
the United States and such foreign country, and, except as set forth in the DSC
Tax List, DSC has not engaged in a trade or business within any foreign country.
16
(h) DSC is not a party to any joint venture, partnership, or other
arrangement or contract which could reasonably be expected to be treated as a
partnership for federal income tax purposes.
(i) All outstanding options to acquire equity of DSC that purport to
be or were otherwise intended (when issued) to be treated as "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Code (and any
predecessor provision and any similar provision of applicable state, local or
other Tax law) were issued in compliance with such section. All such
outstanding options currently qualify for treatment as ISOs, and are held by
persons who are employees of DSC.
(j) As used in this Agreement, (i) the term "Tax" or "Taxes" means
taxes and other impost, levies, assessments, duties, fees or charges imposed or
required to be collected by any federal, state, county, local, municipal,
territorial or foreign governmental authority or subdivision thereof, including,
without limitation, income, excise, gross receipts, ad valorem, profits, gains,
property, sales, transfer, use, payroll, employment, severance, withholding,
duties, intangible, franchise, personal property, and other taxes, charges,
levies or like assessments, together with all penalties and additions to tax and
interest thereon, and (ii) the term "Tax Return" shall mean any return, report,
information return or other document (including elections, declarations,
disclosures, schedules, estimates and other returns or supporting documents)
with respect to Taxes.
4.12 COMPLIANCE WITH LAWS AND REGULATIONS.
(a) DSC and each of the DSC Subsidiaries is not in default under or in
breach of any provision of its Articles of Incorporation, as amended, or Bylaws,
as amended, or law, ordinance, rule or regulation promulgated by any
Governmental Entity, where such default or breach would have a Material Adverse
Effect on DSC.
(b) Without limiting Section 4.12(a), to the knowledge of DSC and
except as set forth in a list furnished by DSC to CWSG (the "DSC ENVIRONMENTAL
COMPLIANCE LIST") (i) DSC and each of the DSC Subsidiaries is in compliance
with all Environmental Regulations; (ii) there are no Tanks on or about DSC or
any of the DSC Subsidiaries' Property; (iii) except for Hazardous Materials (as
defined below) properly maintained in accordance with Environmental Regulations,
there are no Hazardous Materials on, below or above the surface of, or migrating
to or from DSC Property or any of the DSC Subsidiaries' Property; and (iv)
without limiting Section 4.10 or the foregoing representations and warranties
contained in clauses (i) through (iii), as of the date of this Agreement, there
is no claim, action, suit, or proceeding or notice thereof before any
Governmental Entity pending against DSC or concerning property securing DSC
loans and there is no outstanding judgment, order, writ, injunction, decree, or
award against or affecting DSC Property or property securing DSC loans, relating
to the foregoing representations (i) through (iii), in each case the
noncompliance with which, or the presence of which would have a Material Adverse
Effect on DSC. For purposes of this Section 4.12(b), the term "Environmental
Regulations" shall mean all applicable statutes, regulations, rules, ordinances,
codes, licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and
17
similar items, of all Governmental Entities and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders relating to the
protection of human health or the environment, including, without limitation:
all requirements, including, but not limited to those pertaining to
reporting, licensing, permitting, investigation, and remediation of
emissions, discharges, releases, or threatened releases of Hazardous
Materials, chemical substances, pollutants, contaminants, or hazardous or
toxic substances, materials or wastes whether solid, liquid, or gaseous in
nature, into the air, surface water, groundwater, or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of chemical substances, pollutants, contaminants, or
hazardous or toxic substances, materials, or wastes, whether solid, liquid,
or gaseous in nature and all requirements pertaining to the protection of the
health and safety of employees or the public. "DSC Property" shall mean real
estate currently owned, leased, or otherwise used by DSC, including, without
limitation, properties under foreclosure, but excluding stock investments not
requiring consolidation for accounting or tax purposes. "Tank" shall mean
treatment or storage tanks, sumps, or water, gas or oil xxxxx and associated
piping transportation devices. "Hazardous Materials" shall mean any substance
the presence of which requires investigation or remediation under any
federal, state or local statute, regulation, ordinance, order, action, policy
or common law; or which is or becomes defined as a hazardous waste, hazardous
substance, hazardous material, used oil, pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, withou limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601, ET SEQ.);
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.);
the Clean Air Act, as amended (42 U.S.C. Section 7401, ET SEQ.); the Federal
Water Pollution Control Act, as amended (33 U.S.C. Section 1251, ET SEQ.);
the Toxic Substances Control Act, as amended (15 U.S.C. Section 9601, ET
SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section
651); the Emergency Planning and Community Right-to-Know Act of 1986 (42
U.S.C. Section 11001, ET SEQ.); the Mine Safety and Health Act of 1977, as
amended (30 U.S.C. Section 801, ET SEQ.); the Safe Drinking Water Act (42
U.S.C. Section 300f, ET SEQ.); and all comparable state and local laws,
including without limitation, the Xxxxxxxxx-Xxxxxxx-Xxxxxx Hazardous
Substance Account Act (State Superfund), the Xxxxxx-Cologne Water Quality
Control Act, Section 25140, 25501(j) and (k), 25501.1, 25281 and 25250.1 of
the California Health and Safety Code and/or Article I of Title 22 of the
California Code of Regulations, Division 4, Chapter 30; laws of other
jurisdictions or orders and regulations; or the presence of which causes or
threatens to cause a nuisance trespass or other common law tort upon real
property or adjacent properties or poses or threatens to pose a hazard to the
health or safety of persons or without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls
(PCBs), asbestos or urea formaldehyde foam insulation.
(c) DSC has provided to CWSG phase I environmental assessments with
respect to each interest in real property set forth on the DSC Real Property
List as to which such a phase I environmental investigation has been prepared by
or on behalf of DSC. The DSC Real Property List shall disclose each such
property as to which such an assessment has been prepared on behalf of DSC.
18
4.13 PERFORMANCE OF OBLIGATIONS. DSC and each of the DSC Subsidiaries has
performed in all material respects all of the obligations required to be
performed by it to date and is not in default under or in breach of any term or
provision of any covenant, contract, lease, indenture or any other covenant to
which it is a party, is subject or is otherwise bound, and no event has occurred
that, with the giving of notice or the passage of time or both, would constitute
such default or breach, where such default or breach would have a Material
Adverse Effect on DSC. To DSC's knowledge, no party with whom DSC or any of the
DSC Subsidiaries has an agreement that is of material importance to the business
of DSC or any of the DSC Subsidiaries is in default thereunder.
4.14 EMPLOYEES. Except as set forth on a list furnished by DSC to CWSG
(the "DSC EMPLOYMENT/LABOR ISSUES LIST"), there are no controversies pending
or, to DSC's knowledge, threatened on DSC and any of its employees that are
likely to have a Material Adverse Effect on DSC. DSC is not a party to any
collective bargaining agreement with respect to any of its employees or any
labor organization to which its employees or any of them belong.
4.15 BROKERS AND FINDERS. Except for the obligation to PaineWebber, as set
forth in the PaineWebber Agreement, a copy of which has been delivered to CWSG,
DSC is not a party to or obligated under any agreement with any broker or finder
relating to the transactions contemplated hereby, and neither the execution of
this Agreement nor the consummation of the transactions provided for herein will
result in any liability to any broker or finder.
4.16 MATERIAL CONTRACTS. For the purposes of this Section 4.16, the
contracts, agreements, relationships and commitments referred to in this Section
4.16 include only those contracts, agreements, relationships and commitments
which involve the payment by or to DSC or any of the DSC Subsidiaries, property
of DSC or any of the DSC Subsidiaries, or commitments or expenditures of DSC or
any of the DSC Subsidiaries requiring or having a value of $50,000 or more per
annum. Except as set forth in a list furnished by DSC to CWSG (the "DSC
CONTRACT LIST") hereto (all items listed or required to be listed in such DSC
Contract List being referred to herein as "DSC Scheduled Contracts"), DSC and
each of the DSC Subsidiaries is not a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement, of
more than one year in length of obligation on the part of DSC or any of the DSC
Subsidiaries and is not terminable by DSC or any of the DSC Subsidiaries within
one year without penalty or (ii) requires payment by DSC or any of the DSC
Subsidiaries;
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract requiring payment by DSC or any of the DSC
Subsidiaries;
(c) any contract or agreement that restricts DSC or any of the DSC
Subsidiaries (or would restrict any Affiliate of DSC or the Surviving
Corporation (including CWSG and the CWSG Subsidiaries) after the Effective Time
of the Merger) from competing in any line of business with any Person or using
or employing the services of any Person;
19
(d) any lease of real or personal property providing for annual lease
payments by or to DSC or any of the DSC Subsidiaries other than (i) financing
leases entered into in the ordinary course of business in which DSC or any of
the DSC Subsidiaries is lessor and (ii) leases of real property presently used
by DSC or any of the DSC Subsidiaries as needed in its utility operations;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of DSC or any of the DSC Subsidiaries (other than as mortgagor or pledgor in the
ordinary course of its business or as mortgagee, secured party or deed of trust
beneficiary in the ordinary course of its business) in personal property;
(f) other than as described in the DSC Filings or as set forth in the
DSC Employee Plan List, any stock purchase, stock option, stock bonus, stock
ownership, profit sharing, group insurance, bonus, deferred compensation,
severance pay, pension, retirement, savings or other incentive, welfare or
employment plan or material agreement providing benefits to any present or
former employees, officers or directors of DSC or any of the DSC Subsidiaries;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures except for (i) any agreement or commitment under any DSC
approved planned capital budget program, copies of which have been furnished by
DSC to CWSG and (ii) developer funded projects in accordance with the
Commission's Tariff Rule 15;
(h) other than agreements entered into in the ordinary course of
business, including sales of other real estate owned, any agreement for the sale
of any property or assets in which DSC or any of the DSC Subsidiaries has an
ownership interest or for the grant of any preferential right to purchase any
such property or asset;
(i) any agreement for the borrowing of any money (other than
liabilities or borrowings made in the ordinary course of its business and
reflected in the financial records of DSC and short term bank borrowings which
have been included in a list furnished by DSC to CWSG (the "DSC SHORT TERM
BORROWINGS LIST"));
(j) any restrictive covenant contained in any deed to or lease of
real property owned or leased by DSC or any of the DSC Subsidiaries (as lessee)
that materially restricts the use, transferability or value of such property;
(k) any guarantee or indemnification other than letters of credit or
loan commitments issued in the normal course of business;
(l) any supply contracts that are not terminable by DSC or any of the
DSC Subsidiaries without penalty on 30 days' or less notice;
(m) other than as disclosed with reference to subparagraph (k) of
this Section 4.16, any material agreement which would be terminable other than
by DSC or any of the DSC Subsidiaries as a result of the consummation of the
transactions contemplated by this Agreement;
20
(n) any sales of assets of DSC or any of the DSC Subsidiaries with
recourse of any kind to DSC except the sale of repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary course of
business;
(o) [deleted];
(p) any contract relating to the provision of data processing
services to DSC or any of the DSC Subsidiaries; or
(q) any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items.
True copies of all DSC Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to CWSG.
4.17 CERTAIN MATERIAL CHANGES. Except as specifically required, permitted
or effected by this Agreement, since September 30, 1998, or as disclosed in any
DSC List, there has not been, occurred or arisen any of the following (whether
or not in the ordinary course of business unless otherwise indicated):
(a) Any change in any of the assets, liabilities, permits, methods of
accounting or accounting practices, business, or manner of conducting business,
of DSC and any of the DSC Subsidiaries or any other event or development that
has had or may reasonably be expected to have a Material Adverse Effect on DSC;
(b) Any damage, destruction or other casualty loss (not covered by
insurance) that has had or may reasonably be expected to have a Material Adverse
Effect on DSC;
(c) Any amendment, modification or termination of any existing, or
entry into any new, material contract or permit that has had or may reasonably
be expected to have a Material Adverse Effect on DSC;
(d) Any disposition by DSC of an asset the lack of which has had or
may reasonably be expected to have a Material Adverse Effect on DSC; or
(e) Any direct or indirect redemption, purchase or other acquisition
by DSC of any equity securities or any declaration, setting aside or payment of
any dividend (except, in the case of the declaration, setting aside or payment
of a cash dividend, as disclosed in the Financial Statements of DSC) or other
distribution on or in respect of DSC Stock whether consisting of money, other
personal property, real property or other things of value.
4.18 LICENSES AND PERMITS. DSC and the DSC Subsidiaries have all material
licenses and permits that are necessary for the conduct of its business, and
such licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
Material Adverse Effect on DSC. To DSC's knowledge, the respective properties,
assets, operations and businesses of DSC and each of the DSC Subsidiaries are
and
21
have been maintained and conducted, in all material respects, in compliance
with all applicable licenses and permits. The respective properties and
operations of DSC and each of the DSC Subsidiaries are and have been maintained
and conducted, in all material respects, in compliance with all applicable laws
and regulations.
4.19 UNDISCLOSED LIABILITIES. To DSC's and each of the DSC Subsidiaries'
knowledge, it has no liabilities or obligations, either accrued or contingent,
that are material to DSC and that have not been: (a) reflected or disclosed in
the Financial Statements of DSC; (b) incurred subsequent to December 31, 1997 in
the ordinary course of business; or (c) disclosed in a list furnished by DSC to
CWSG (the "DSC UNDISCLOSED LIABILITIES LIST") or on any other DSC List. To
DSC's knowledge, there exists no basis for the assertion against it of any
liability, obligation or claim (including, without limitation, that of any
regulatory authority) that is likely to result in or cause a Material Adverse
Effect on DSC that is not fairly reflected in the Financial Statements of DSC or
otherwise disclosed in this Agreement.
4.20 EMPLOYEE BENEFIT PLANS.
(a) DSC has previously made available to CWSG copies of each "employee
benefit plan," as defined in Section 3(3) of ERISA, which is subject to any
provision of ERISA and covers any employee, whether active or retired, of DSC,
together with all amendments thereto, all related summary plan descriptions (to
the extent one is required by law), the determination letter from the IRS, and
the annual reports for the most recent three years (Form 5500 including, if
applicable, Schedule B thereto) prepared in connection with any such plan. Such
plans are hereinafter referred to collectively as the "Employee Plans." DSC does
not participate in an employee benefit pension plan that is a "multiemployer
plan" within the meaning of Section 3(37) of ERISA that would subject DSC to a
material amount of liability with respect to any such plan. Each Employee Plan
which is intended to be qualified in form and operation under Section 401(a) of
the Code is so qualified and the associated trust for each such Employee Plan is
exempt from tax under Section 501(a) of the Code. No event has occurred that
will subject such Employee Plans to a material amount of tax under Section 511
of the Code. All amendments required to bring each Employee Plan into
conformity with all of the applicable provisions of ERISA, the Code and all
other applicable laws have been made. Except as disclosed in a list furnished
by DSC to CWSG (the "DSC EMPLOYEE PLAN LIST"), all Employee Plans were in
effect for substantially all of 1997, and there has been no material amendment
thereof (other than amendments required to comply with applicable law) or
increase in the cost thereof or benefits thereunder on or after January 1, 1998.
(b) DSC has previously made available to CWSG copies or descriptions
of each plan or Agreement maintained or otherwise contributed to by DSC which is
not an Employee Plan and which (exclusive of base salary and base wages)
provides for any form of current or deferred compensation, bonus, stock option,
profit sharing, benefit, retirement, incentive, group health or insurance,
welfare or similar plan or arrangement for the benefit of any employee or class
of employees, whether active or retired, of DSC (such plans and arrangements
being collectively referred to herein as "Benefit Arrangements"). Except as
disclosed in the DSC Employee Plan List hereto, all Benefit Arrangements which
are in effect were in effect for
22
substantially all of 1997. There has been no material amendment thereof or
increase in the cost thereof or benefits payable thereunder since January 1,
1998. Except as set forth in the DSC Employee Plan List, there has been no
material increase in the compensation of or benefits payable to any senior
executive employee of DSC since December 31, 1997, nor any employment,
severance or similar contract entered into with any such employee, nor any
amendment to any such contract, since December 31, 1997. There is no
contract, agreement or benefit agreement covering any employee of DSC which
individually or collectively could give rise to the payment of any amount
which would constitute an "excess parachute payment," as such term is defined
in Section 280G of the Code.
(c) With respect to all Employee Plans and Benefit Agreements, DSC is
in material compliance (other than noncompliance the cost or liability for which
is not material) with the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations currently in
effect, including but not limited to ERISA and the Code, applicable to such
plans or arrangements. All material government reports and filings required by
law have been properly and timely filed and all information required to be
distributed to participants or beneficiaries has been distributed with respect
to each Employee Plan. DSC has performed all of its obligations under all such
Employee Plans and Benefit Agreements in all material aspects. There is no
pending or, to the knowledge of DSC, threatened legal action, proceeding or
investigation against or involving any Employee Plan or Benefit Agreement which
could result in a material amount of liability to such Employee Plan. To the
knowledge of DSC, no condition exists that could constitute grounds for the
termination of any Employee Plan under Section 4042 of ERISA; no "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the Code,
has occurred with respect to any Employee Plan, or any other employee benefit
plan maintained by DSC which is covered by Title I of ERISA, which could subject
any person (other than a person for whom DSC is not directly or indirectly
responsible) to a material amount of liability under Title I of ERISA or to the
imposition of a material amount of tax under Section 4975 of the Code which
could have a Material Adverse Effect on DSC; nor has any Employee Plan subject
to Part III of Subtitle B of Title I of ERISA or Section 412 of the Code, or
both, incurred any "accumulated funding deficiency," as defined in Section 412
of the Code, whether or not waived, nor has DSC failed to make any contribution
or pay any amount due and owing as required by the terms of any Employee Plan or
Benefit Arrangement. No "reportable event" as defined in ERISA has occurred
with respect to any of the Employee Plans. To the knowledge of DSC, DSC has not
incurred nor expects to incur, directly or indirectly, a material amount of
liability under Title IV of ERISA arising in connection with the termination of,
or a complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA which could constitute a liability of CWSG or of any of its
affiliates (including DSC) at or after the Effective Time of the Merger.
(d) Except for DSC Scheduled Contracts set forth in the DSC Contract
List or as set forth in the DSC Employee Plan List, as the case may be, each
Employee Plan or Benefit Arrangement and each personal services contract, fringe
benefit, consulting contract or similar arrangement with or for the benefit of
any officer, director, employee or other person can be terminated by DSC within
a period of 30 days following the Effective Time of the Merger,
23
without payment of any amount as a penalty, bonus, premium, severance pay or
other compensation for such termination.
(e) All group health plans of DSC have been operated in compliance
with the group health plan continuation coverage requirements of Section 4980B
of the Code in all material respects.
4.21 CORPORATE RECORDS. The minute books of DSC and each of the DSC
Subsidiaries since the later of January 1, 1994 or the date which any DSC
Subsidiary became a DSC Subsidiary accurately reflect all material actions taken
from year end 1993 to this date by the respective shareholders, board of
directors and committees of DSC and each of the DSC Subsidiaries.
4.22 ACCOUNTING RECORDS. DSC and each of the DSC Subsidiaries maintains
accounting records which fairly and validly reflect, in all material respects,
its transactions, and accounting controls exist sufficient to provide reasonable
assurances that such transactions are, in all material respects, (i) executed in
accordance with its management's general or specific authorization, and (ii)
recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles. Such records, to the
extent they contain important information pertaining to DSC and each of the DSC
Subsidiaries which is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely.
4.23 OFFICES. DSC has furnished to CWSG a list (the "DSC OFFICES LIST")
setting forth the headquarters of DSC (identified as such) and each of the
offices maintained and operated by DSC and the location thereof. Except as set
forth on the DSC Offices List, DSC does not maintain any other office or conduct
business at any other location with the exception of offices or locations
utilized as payment facilities.
4.24 INVESTMENT SECURITIES. DSC has furnished to CWSG a list (the "DSC
INVESTMENT SECURITIES LIST") (i) setting forth a description of each Investment
Security held by DSC on October 31, 1998. The DSC Investment Securities List
sets forth, with respect to each such Investment Security: (i) the issuer
thereof; (ii) the outstanding balance or number of shares; (iii) the maturity,
if applicable; (iv) the title of issue; and (v) the classification under SFAS
No. 115.
4.25 POWER OF ATTORNEY. DSC has not granted any Person a power of attorney
or similar authorization that is presently in effect or outstanding.
4.26 FACTS AFFECTING REGULATORY APPROVALS. To the knowledge of DSC, there
is no fact, event or condition applicable to DSC or any of the DSC Subsidiaries
which will, or reasonably could be expected to, adversely affect the likelihood
of securing the requisite approvals or consents of any Governmental Entity to
the Merger and the transactions contemplated by this Agreement. DSC will file
rate cases with the Commission between the effective date of this Agreement and
the Effective Time of the Merger.
24
4.27 ACCOUNTING AND TAX MATTERS. To the best knowledge of DSC, DSC has
not, through the date hereof, taken or agreed to take any action that would
prevent CWSG from accounting for the business combination to be effected by the
Merger as a pooling-of-interests or would prevent the Merger from qualifying as
a tax-free reorganization under the Code.
4.28 INDEMNIFICATION. Other than pursuant to the provisions of its
Articles of Incorporation or Bylaws and related indemnification agreements
adopted in order to enact those provisions, DSC is not a party to any
indemnification agreement with any of its present officers, directors,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of DSC (a "Covered Person"), and to
the best knowledge of DSC, there are no claims for which any Covered Person
would be entitled to indemnification by DSC if such provisions were deemed in
effect, except as set forth in a list furnished by DSC to CWSG (the "DSC
INDEMNIFICATION LIST").
4.29 DERIVATIVE TRANSACTIONS. DSC is not a party to a transaction in or
involving forwards, futures, options on futures, swaps or other derivative
instruments.
4.30 DISCLOSURE DOCUMENTS AND APPLICATIONS. None of the information
supplied or to be supplied by or on behalf of DSC or any of the DSC Subsidiaries
("DSC Supplied Information") for inclusion in (a) the Registration Statement on
Form S-4 and the Proxy Statement and Prospectus and (b) any other documents to
be filed with the SEC, the Commission or any other Governmental Entity in
connection with the transactions contemplated in this Agreement, will at the
respective times such documents are filed or become effective, or with respect
to the Proxy Statement and Prospectus when mailed, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.31 YEAR 2000 PLAN AND COMPLIANCE. DSC has formulated a plan for
addressing Year 2000 issues (the "Year 2000 Plan"), a copy of which has been
provided to CWSG. Except as disclosed by DSC in a list furnished by DSC to CWSG
(the "DSC YEAR 2000 EXCEPTIONS LIST"), DSC has been and is in material
compliance with the Year 2000 Plan as in effect on the date hereof.
4.32 ACCURACY AND CURRENTNESS OF INFORMATION FURNISHED. The
representations and warranties made by DSC hereby or in the DSC Lists or
schedules hereto do not contain any untrue statement of a material fact or omit
to state any material fact which is necessary under the circumstances under
which they were made to prevent the statements contained herein or therein or in
such schedules from being misleading.
4.33 STANDARD. No representation or warranty of DSC contained in Article
IV shall be deemed untrue or incorrect, and DSC shall not be deemed to have
breached any such representation or warranty, as a consequence of the existence
of any fact, circumstance or event unless such fact, circumstance or event which
constitutes a breach of any such representation or warranty after giving effect
to any materiality standards contained in any representation or warranty,
individually or taken together with all other facts, circumstances or events
constituting
25
such breaches, has had or would reasonably be expected to have a
Material Adverse Effect on DSC.
4.34 WARN ACT. Prior to the date of this Agreement, DSC has not
effectuated (a) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of DSC; or (b) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of DSC. DSC has not been
affected by any transaction or engaged in layoffs or employment termination with
respect to its business sufficient in number to trigger application of any
similar state or local law. None of DSC's employees who are employed in
connection with its business has suffered an "employment loss" (as defined in
the WARN Act).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CWSG
CWSG represents and warrants to DSC with respect to CWSG, its predecessors
in interest and the CWSG Subsidiaries as follows:
5.1 INCORPORATION, STANDING AND POWER. CWSG and each of the CWSG
Subsidiaries have been duly organized, are validly existing and in good standing
as corporations under the laws of the State of California. CWSG intends to
reincorporate into Delaware, which reincorporation is anticipated to occur prior
to the Effective Time of the Merger. CWSG and each of the CWSG Subsidiaries
have all requisite corporate power and authority to own, lease and operate their
respective properties and assets and to carry on their respective businesses as
presently conducted. CWSG and each of the CWSG Subsidiaries are duly qualified
and in good standing as foreign corporations, and are authorized to do business,
in all states or other jurisdictions in which such qualification or
authorization is necessary, except where the failure to be so qualified or
authorized would not, individually or in the aggregate, have a Material Adverse
Effect on CWSG. True and correct copies of the Articles of Incorporation and
Bylaws of each of CWSG and each of the CWSG Subsidiaries have been delivered to
DSC. Such Articles of Incorporation and Bylaws are in full force and effect as
of the date hereof. Water Company has not engaged in any business nor has it
incurred any liabilities or obligations since it was incorporated other than
relating to this Agreement and the transactions contemplated hereby.
5.2 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital stock of
CWSG consists of 25,000,000 shares of Common Stock, of which 12,619,140 shares
are outstanding and 380,000 shares of Preferred Stock, of which 139,000 shares
of $25 par value cumulative, 4.4% Series C preferred shares are outstanding.
All of the outstanding shares of CWSG Stock are duly authorized, validly issued,
fully paid and nonassessable. The CWSG Stock to be used in the Merger will be
duly authorized, validly issued, fully paid and nonassessable.
26
(b) As of the date of this Agreement, the authorized capital stock of
Water Company consists of 8,000,000 shares of Common Stock and 380,000 shares of
preferred stock, of which 6,309,570 shares of the Common Stock are outstanding
and owned of record and beneficially by CWSG. All the outstanding shares of
such Common Stock are duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding options, warrants or other rights in or
with respect to the unissued shares of such Common Stock or any other securities
convertible into such stock, and Water Company is not obligated to issue any
additional shares of its Common Stock or any options, warrants or other rights
in or with respect to the unissued shares of its Common Stock or any other
securities convertible into such stock.
5.3 FINANCIAL STATEMENTS. CWSG has previously furnished to DSC a copy of
the Financial Statements of CWSG. The Financial Statements of CWSG: (a) present
fairly and in all material respects the consolidated financial condition of CWSG
and the CWSG Subsidiaries as of the respective dates indicated and its
consolidated results of operations and statement of cash flows, as applicable,
for the respective periods then ended, subject, in the case of the unaudited
consolidated interim financial statements, to normal recurring adjustments; (b)
have been prepared in accordance with generally accepted accounting principles
consistently applied (except as otherwise indicated therein); and (c) are based
upon the books and records of CWSG.
5.4 REPORTS AND FILINGS. Except as set forth in a list (the "CWSG FILINGS
LIST"), since the later of December 31, 1994, or the date which any CWSG
Subsidiary became a CWSG Subsidiary, CWSG and each CWSG Subsidiary has filed all
reports, returns, registrations and statements (such reports and filings
referred to as "CWSG Filings") together with any amendments required to be made
with respect thereto, that were required to be filed with the SEC, the
Commission, and any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
Material Adverse Effect on CWSG on a consolidated basis. No administrative
actions have been taken or orders issued in connection with such CWSG Filings.
As of their respective dates, each of such CWSG Filings (y) complied in all
material respects with all laws and regulations enforced or promulgated by the
Governmental Entity with which it was filed (or was amended so as to be in such
compliance promptly following discovery of any such noncompliance; and (z) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Any
financial statement contained in any of such CWSG Filings that was intended to
present the financial position of CWSG on a consolidated basis fairly presented
the financial position of CWSG on a consolidated basis and was prepared in
accordance with generally accepted accounting principles consistently applied,
except as stated therein, during the periods involved. CWSG has furnished or
made available to DSC true and correct copies of all CWSG Filings filed by CWSG
since January 1, 1994.
5.5 AUTHORITY.
(a) Of CWSG. The execution and delivery by CWSG of this Agreement and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by
27
all necessary corporate action on the part of CWSG, and this Agreement will
be upon execution and delivery by the respective parties hereto, a valid and
binding obligation of CWSG enforceable in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, liquidation,
receivership, conservatorship, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and by general equitable
principles. Except as set forth in a list furnished by CWSG to DSC (the
"CWSG CONFLICTS AND CONSENTS LIST"), neither the execution and delivery by
CWSG of this Agreement, the consummation of the transactions contemplated
herein, nor compliance by CWSG with any of the provisions hereof or thereof,
will: (a) conflict with or result in a breach of any provision of its
Articles of Incorporation, as amended, or Bylaws, as amended; (b) constitute
a breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or
other instrument or obligation to which CWSG or any CWSG Subsidiary is a
party, or by which CWSG or any CWSG Subsidiary or any of its respective
properties or assets is bound, or require the approval or consent of any
third party; (c) result in the creation or imposition of any Encumbrance on
any of the properties or assets of CWSG or any CWSG Subsidiary; or (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to CWSG or any CWSG Subsidiary or any of their respective
properties or assets. Except as set forth in the CWSG Conflicts and Consents
List, no consent of, approval of, notice to or filing with any Governmental
Entity having jurisdiction over any aspect of the business or assets of CWSG,
and no consent of, approval of or notice to any other Person is required in
connection with the execution and delivery by CWSG of this Agreement or the
Agreement of Merger, or the consummation by CWSG of the Merger or the
transactions contemplated hereby or thereby, except (i) such approvals as may
be required by the SEC, the Commission, the United States Department of
Justice and Federal Trade Commission; (ii) filing of the Agreement of Merger
with the Secretary of State of the State of California; (iii) such approvals
as may be required by the New York Stock Exchange of listing of the CWSG
Stock to be issued in the Merger; and (iv) the filing of pre-merger
notification reports by DSC and CWSG under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act (1976), as amended.
(b) Of Water Company. The execution and delivery by Water Company of
this Agreement and the Agreement of Merger and the consummation of the
transactions contemplated thereby, will be duly and validly authorized by all
necessary corporate action on the part of Water Company, and this Agreement and
the Agreement of Merger will be, upon due execution and delivery by the
respective parties, a valid and binding obligation of Water Company enforceable
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, liquidation, receivership, conservatorship, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles. Neither the consummation of the transactions
contemplated by this Agreement and the Agreement of Merger, nor compliance by
Water Company with any of the provisions hereof or thereof, will: (a) conflict
with or result in a breach of any provision of its Articles of Incorporation, or
Bylaws; (b) constitute a breach of or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which Water Company
28
is a party, or by which Water Company or any of its properties or assets is
bound, or require the approval or consent of any third party; (c) result in
the creation or imposition of any Encumbrance on any of the properties or
assets of Water Company; or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Water Company or any of its
properties or assets. No consent of, approval of, notice to or filing with
any Governmental Entity having jurisdiction over any aspect of the business
or assets of Water Company, and no consent of, approval of or notice to any
other Person, is required in connection with the execution and delivery by
Wate Company of this Agreement or the Agreement of Merger or the consummation
by Water Company of the transactions contemplated hereby or thereby, except
(i) the approval of the Agreement of Merger and the transactions contemplated
hereby by the shareholders and directors of Water Company; (ii) such
approvals as may be required by the SEC, the Commission or any other
Governmental Authority; (iii) filing of the Agreement of Merger with the
Secretary of State of the State of California; and (iv) the filing of
pre-merger notification reports by DSC and CWSG under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act (1976), as amended.
5.6 CWSG SUBSIDIARIES. As of the date of this Agreement, CWSG owns 100% of
the outstanding stock of Water Company and of CWS Utility Services. As of the
date of this Agreement, and except for its investments in CWS Utility Services
and Water Company, CWSG does not own, directly or indirectly, more than one
percent (1%) of the outstanding stock or equity or other voting interest in any
other corporation, partnership, joint venture, limited liability company or
other entity.
5.7 BROKERS AND FINDERS. Except for the obligation to X.X. Xxxxxxx & Sons,
Inc., as set forth in the X.X. Xxxxxxx Agreement, a copy of which has been
delivered to DSC, CWSG is not a party to or obligated under any agreement with
any broker or finder relating to the transactions contemplated hereby, and
neither the execution of this Agreement nor the consummation of the transactions
provided for herein will result in any liability to any broker or finder.
5.8 CERTAIN MATERIAL CHANGES. Except as specifically required, permitted
or effected by this Agreement, or as disclosed in any CWSG Filings, since
September 30, 1998, or as disclosed in any CWSG List, there has not been,
occurred or arisen any of the following (whether or not in the ordinary course
of business unless otherwise indicated):
(a) Any change in any of the assets, liabilities, permits, methods of
accounting or accounting practices, business, or manner or conducting business,
of CWSG and any of the CWSG Subsidiaries or any other event or development that
has had or may reasonably be expected to have a Material Adverse Effect on CWSG;
(b) Any damage, destruction or other casualty loss (not covered by
insurance) that has had or may reasonably be expected to have a Material Adverse
Effect on CWSG;
(c) Any amendment, modification or termination of any existing, or
entry into any new, material contract or permit that has had or may reasonably
be expected to have a Material Adverse Effect on CWSG; or
29
(d) Any disposition by CWSG of an asset the lack of which has had or
may reasonably be expected to have a Material Adverse Effect on CWSG.
5.9 LICENSES AND PERMITS. CWSG and each of the CWSG Subsidiaries have all
material licenses and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect, except
for any failure to be in full force and effect that would not, individually or
in the aggregate, have a Material Adverse Effect on CWSG on a consolidated
basis. To CWSG's knowledge, the respective properties, assets, operations and
businesses of CWSG and each CWSG Subsidiary are and have been maintained and
conducted, in all material respects, in compliance with all applicable licenses
and permits. The properties and operations of CWSG and each of the CWSG
Subsidiaries are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.
5.10 CORPORATE RECORDS. The minute books of CWSG and each of the CWSG
Subsidiaries since the later of January 1, 1994 or the date which any CWSG
Subsidiary became a CWSG Subsidiary accurately reflect all material actions
taken from year end 1993 to this date by the respective shareholders, board of
directors and committees of CWSG and each of the CWSG Subsidiaries.
5.11 ACCOUNTING RECORDS. CWSG and each of the CWSG Subsidiaries maintain
accounting records which fairly and validly reflect, in all material respects,
their transactions, and accounting controls exist sufficient to provide
reasonable assurances that such transactions are, in all material respects, (i)
executed in accordance with their management's general or specific
authorization, and (ii) recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting
principles. Such records, to the extent they contain important information
pertaining to CWSG and each of the CWSG Subsidiaries which is not easily and
readily available elsewhere, have been duplicated, and such duplicates are
stored safely and securely.
5.12 FACTS AFFECTING REGULATORY APPROVALS. To the knowledge of CWSG, there
is no fact, event or condition applicable to CWSG or any of the CWSG
Subsidiaries which will, or reasonably could be expected to, adversely affect
the likelihood of securing the requisite approvals or consents of any
Governmental Entity to the Merger and transactions contemplated by this
Agreement.
5.13 ACCOUNTING AND TAX MATTERS. To the best of CWSG's knowledge, CWSG has
not through the date hereof taken or agreed to take any action that would
prevent it from accounting for the business combination to be effected by the
Merger as a pooling of interests or that would prevent the Merger from
qualifying as a reorganization under Section 368 the Code.
5.14 DISCLOSURE DOCUMENTS AND APPLICATIONS. None of the information
supplied or to be supplied by or on behalf of CWSG or any of the CWSG
Subsidiaries ("CWSG Supplied Information") for inclusion in (a) the
Registration Statement on Form S-4 and the Proxy Statement and Prospectus to be
mailed to the shareholders of DSC in connection with obtaining the approval of
the shareholders of DSC of this Agreement, the Merger and the other transactions
contemplated hereby, and (b) any other documents to be filed with the SEC, the
Commission or
30
any other Governmental Entity in connection with the transactions
contemplated in this Agreement, will, at the respective times such documents
are filed or become effective, or with respect to the Proxy Statement and
Prospectus when mailed, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.15 NEW YORK STOCK EXCHANGE LISTING. As of the date hereof, CWSG Stock is
listed and trades on the New York Stock Exchange under the symbol "CWT". To the
knowledge of CWSG, there is nothing which would prevent the shares to be issued
to DSC's shareholders from being registered and listed on the New York Stock
Exchange.
5.16 LITIGATION. Except as set forth in the CWSG Filings or in a list
furnished by CWSG to DSC (the "CWSG LITIGATION LIST"), there is no private or
governmental suit, claim, action or proceeding pending, nor to CWSG's knowledge
threatened, against CWSG or any of the CWSG Subsidiaries or against any of their
respective directors, officers or employees relating to the performance of their
duties in such capacities or against or affecting any properties of CWSG or any
of the CWSG Subsidiaries which, if adversely determined, would have a Material
Adverse Effect on CWSG or the transactions contemplated hereby, or which could
reasonably be expected to involve a judgment against CWSG in excess of $50,000.
Also, except as disclosed in the CWSG Filings or in the CWSG Litigation List,
there are no material judgments, decrees, stipulations or orders against CWSG or
enjoining its directors, officers or employees in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business in any area.
5.17 COMPLIANCE WITH LAWS AND REGULATIONS.
(a) CWSG and each of the CWSG Subsidiaries is not in default under or
in breach of any provision of its Articles of Incorporation, as amended, or
Bylaws, as amended, or law, ordinance, rule or regulation promulgated by any
Governmental Entity, where such default or breach would have a Material Adverse
Effect on CWSG.
(b) Without limiting Section 5.17(a), to the knowledge of CWSG and
except as set forth on a list furnished by CWSG to DSC (the "CWSG ENVIRONMENTAL
COMPLIANCE LIST") (i) CWSG and each of the CWSG Subsidiaries is in compliance
with all Environmental Regulations; (ii) there are no Tanks on or about CWSG
Property or any of the CWSG Subsidiaries' Property; (iii) except for Hazardous
Materials properly maintained in accordance with Environmental Regulations,
there are no Hazardous Materials on, below or above the surface of, or migrating
to or from CWSG Property or any of the CWSG Subsidiaries' Property; and (iv)
without limiting Section 5.16 or the foregoing representations and warranties
contained in clauses (i) through (iii), as of the date of this Agreement, there
is no claim, action, suit, or proceeding or notice thereof before any
Governmental Entity pending against CWSG or concerning property securing CWSG
loans and there is no outstanding judgment, order, writ, injunction, decree, or
award against or affecting CWSG Property or property securing CWSG loans,
relating to the foregoing representations (i) through (iii), in each case the
noncompliance
31
with which, or the presence of which would have a Material Adverse Effect on
CWSG. For purposes of this Section 5.17(b), the term "Environmental
Regulations" shall mean all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises, and similar items, of all
Governmental Entities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to the protection of human
health or the environment, including, without limitation: all requirements,
including, but not limited to those pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges,
releases, or threatened releases of Hazardous Materials, chemical substances,
pollutants, contaminants, or hazardous or toxic substances, materials or
wastes whether solid, liquid, or gaseous in nature, into the air, surface
water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminants, or hazardous or toxic
substances, materials, or wastes, whether solid, liquid, or gaseous in nature
and all requirements pertaining to the protection of the health and safety of
employees or the public. "CWSG Property" shall mean real estate currently
owned, leased, or otherwise used by CWSG, including, without limitation,
properties under foreclosure, but excluding stock investments not requiring
consolidation for accounting or tax purposes. "Tank" shall mean treatment or
storage tanks, sumps, or water, gas or oil xxxxx and associated piping
transportation devices. "Hazardous Materials" shall mean any substance the
presence of which requires investigation or remediation under any federal,
state or local statute, regulation, ordinance, order, action, policy or
common law; or which is or becomes defined as a hazardous waste, hazardous
substance, hazardous material, used oil, pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, withut limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601, ET SEQ.);
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.);
the Clean Air Act, as amended (42 U.S.C. Section 7401, ET SEQ.); the Federal
Water Pollution Control Act, as amended (33 U.S.C. Section 1251, ET SEQ.);
the Toxic Substances Control Act, as amended (15 U.S.C. Section 9601, ET
SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section
651); the Emergency Planning and Community Right-to-Know Act of 1986 (42
U.S.C. Section 11001, ET SEQ.); the Mine Safety and Health Act of 1977, as
amended (30 U.S.C. Section 801, ET SEQ.); the Safe Drinking Water Act (42
U.S.C. Section 300f, ET SEQ.); and all comparable state and local laws,
including without limitation, the Xxxxxxxxx-Xxxxxxx-Xxxxxx Hazardous
Substance Account Act (State Superfund), the Xxxxxx-Cologne Water Quality
Control Act, Section 25140, 25501(j) and (k), 25501.1, 25281 and 25250.1 of
the California Health and Safety Code and/or Article I of Title 22 of the
California Code of Regulations, Division 4, Chapter 30; laws of other
jurisdictions or orders and regulations; or the presence of which causes or
threatens to cause a nuisance trespass or other common law tort upon real
property or adjacent properties or poses or threatens to pose a hazard to the
health or safety of persons or without limitation, which contains gasoline,
diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls
(PCBs), asbestos or urea formaldehyde foam insulation.
(c) CWSG has provided to DSC phase I environmental assessments with respect
to each interest in real property set forth on the CWSG Real Property List as to
which such a phase I environmental investigation has been prepared by or on
behalf of CWSG. The CWSG Real
32
Property List shall disclose each such property as to which such an
assessment has been prepared on behalf of CWSG.
5.18 PERFORMANCE OF OBLIGATIONS. CWSG and each of the CWSG Subsidiaries
has performed in all material respects all of the obligations required to be
performed by it to date and is not in default under or in breach of any term or
provision of any covenant, contract, lease, indenture or any other covenant to
which it is a party, is subject or is otherwise bound, and no event has occurred
that, with the giving of notice or the passage of time or both, would constitute
such default or breach, where such default or breach would have a Material
Adverse Effect on CWSG. To CWSG's knowledge, no party with whom CWSG or any of
the CWSG Subsidiaries has an agreement that is of material importance to the
business of CWSG or any of the CWSG Subsidiaries is in default thereunder.
5.19 MATERIAL CONTRACTS. For the purposes of this Section 5.19, the
contracts, agreements, relationships and commitments referred to in this Section
5.19 include only those contracts, agreements, relationships and commitments
which involve the payment by or to CWSG or any of the CWSG Subsidiaries,
property of CWSG or any of the CWSG Subsidiaries, or commitments or expenditures
of CWSG or any of the CWSG Subsidiaries requiring or having a value of $500,000
or more per annum. Except as set forth in a list furnished by CWSG to DSC (the
"CWSG CONTRACT LIST") hereto (all items listed or required to be listed in such
CWSG Contract List being referred to herein as "CWSG Scheduled Contracts"), CWSG
and each of the CWSG Subsidiaries is not a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement, of
more than one year in length of obligation on the part of CWSG or any of the
CWSG Subsidiaries and is not terminable by CWSG or any of the CWSG Subsidiaries
within one year without penalty or (ii) requires payment by CWSG or any of the
CWSG Subsidiaries;
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract requiring payment by CWSG or any of the CWSG
Subsidiaries;
(c) any contract or agreement that restricts CWSG or any of the CWSG
Subsidiaries (or would restrict any Affiliate of CWSG or the Surviving
Corporation (including CWSG and the CWSG Subsidiaries) after the Effective Time
of the Merger) from competing in any line of business with any Person or using
or employing the services of any Person;
(d) any lease of real or personal property providing for annual lease
payments by or to CWSG or any of the CWSG Subsidiaries other than (i) financing
leases entered into in the ordinary course of business in which CWSG or any of
the CWSG Subsidiaries is lessor and (ii) leases of real property presently used
by CWSG or any of the CWSG Subsidiaries as needed in its utility operations;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of CWSG or any of the CWSG Subsidiaries (other than as mortgagor or pledgor in
the ordinary course of its business or as
33
mortgagee, secured party or deed of trust beneficiary in the ordinary course
of its business) in personal property;
(f) other than as described in the CWSG Filings, any stock purchase,
stock option, stock bonus, stock ownership, profit sharing, group insurance,
bonus, deferred compensation, severance pay, pension, retirement, savings or
other incentive, welfare or employment plan or material agreement providing
benefits to any present or former employees, officers or directors of CWSG or
any of the CWSG Subsidiaries ;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures except for (i) any agreement or commitment under any CWSG
approved planned capital budget program, copies of which have been furnished by
CWSG to DSC and (ii) developer funded projects in accordance with Commission
Tariff Rule 15;
(h) other than agreements entered into in the ordinary course of
business, including sales of other real estate owned, any agreement for the sale
of any property or assets in which CWSG or any of the CWSG Subsidiaries has an
ownership interest or for the grant of any preferential right to purchase any
such property or asset;
(i) any agreement for the borrowing of any money (other than
liabilities or borrowings made in the ordinary course of its business and
reflected in the financial records of CWSG and short term bank borrowings which
have been included in a list furnished by CWSG to DSC (the "CWSG SHORT TERM
BORROWINGS LIST"));
(j) any restrictive covenant contained in any deed to or lease of
real property owned or leased by CWSG or any of the CWSG Subsidiaries (as
lessee) that materially restricts the use, transferability or value of such
property;
(k) any guarantee or indemnification other than letters of credit or
loan commitments issued in the normal course of business;
(l) any supply contracts that are not terminable by CWSG or any of
the CWSG Subsidiaries without penalty on 30 days' or less notice;
(m) other than as disclosed with reference to subparagraph (k) of
this Section 5.19, any material agreement which would be terminable other than
by CWSG or any of the CWSG Subsidiaries as a result of the consummation of the
transactions contemplated by this Agreement;
(n) any sales of assets of CWSG or any of the CWSG Subsidiaries with
recourse of any kind to CWSG except the sale of repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary course of
business;
(o) [deleted];
34
(p) any contract relating to the provision of data processing
services to CWSG or any of the CWSG Subsidiaries; or
(q) any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items.
True copies of all CWSG Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to DSC.
5.20 UNDISCLOSED LIABILITIES. To CWSG and each of the CWSG Subsidiaries'
knowledge, it has no liabilities or obligations, either accrued or contingent,
that are material to CWSG and that have not been: (a) reflected or disclosed in
the Financial Statements of CWSG; (b) incurred subsequent to December 31, 1997
in the ordinary course of business; or (c) disclosed in a list furnished by CWSG
to DSC (the "CWSG UNDISCLOSED LIABILITIES LIST") or on any other CWSG List.
To CWSG's knowledge, there exists no basis for the assertion against it of any
liability, obligation or claim (including, without limitation, that of any
regulatory authority) that is likely to result in or cause a Material Adverse
Effect on CWSG that is not fairly reflected in the Financial Statements of CWSG
or otherwise disclosed in this Agreement.
5.21 YEAR 2000 PLAN AND COMPLIANCE. CWSG has formulated a plan for
addressing Year 2000 issues (the "Year 2000 Plan"), a copy of which has been
provided to DSC. Except as disclosed by CWSG in a list furnished by CWSG to DSC
(the "CWSG YEAR 2000 EXCEPTIONS LIST"), CWSG has been and is in material
compliance with the Year 2000 Plan as in effect on the date hereof.
5.22 ACCURACY AND CURRENTNESS OF INFORMATION FURNISHED. The
representations and warranties made by CWSG hereby or in the CWSG Lists or
Schedules hereto do not contain any untrue statement of material fact or omit to
state any material fact which is necessary under the circumstances under which
they were made to prevent the statements contained herein or therein or in such
schedules from being misleading.
5.23 STANDARD. No representation or warranty of CWSG contained in Article
V shall be deemed untrue or incorrect, and CWSG shall not be deemed to have
breached any such representation or warranty, as a consequence of the existence
of any fact, circumstance or event unless such fact, circumstance or event which
constitutes a breach of any such representation or warranty after giving effect
to any materiality standards contained in any representation or warranty,
individually or taken together with all other facts, circumstances or events
constituting such breaches, has had or would reasonably be expected to have a
Material Adverse Effect on CWSG.
ARTICLE VI
COVENANTS OF DSC
PENDING EFFECTIVE TIME OF THE MERGER
DSC covenants and agrees with CWSG and Water Company as follows:
35
6.1 LIMITATION ON DSC'S CONDUCT PRIOR TO EFFECTIVE TIME OF THE MERGER.
Between the date hereof and the Effective Time of the Merger, except as
contemplated by this Agreement and subject to requirements of law and regulation
generally applicable to California corporations, DSC and each of the DSC
Subsidiaries agrees to conduct its business in the ordinary course in
substantially the manner heretofore conducted and in accordance with sound
business practices, and DSC and each of the DSC Subsidiaries shall not, without
the prior written consent of CWSG, which consent, except with respect to Section
6.1(n) below, shall not be unreasonably withheld and which consent shall be
deemed granted if within five (5) Business Days of CWSG's receipt of written
notice of a request for prior written consent, written notice of objection is
not received by DSC:
(a) issue, sell or grant any DSC Stock (except pursuant to the
exercise of DSC Options outstanding as of the date hereof and except with
respect to those pending acquisitions and other acquisitions that may develop
prior to the Effective Time of the Merger by DSC of water systems or companies
within a radius of fifty (50) miles of DSC's current operations and having three
hundred (300) or fewer customers as described in a list furnished by DSC to CWSG
(the "DSC PENDING ACQUISITIONS LIST")), any other securities (including long
term debt) of DSC, or any rights, options or securities to acquire any DSC
Common Stock, or any other securities (including long term debt) of DSC;
(b) declare, set aside or pay any dividend or make any other
distribution upon or split, combine or reclassify any shares of capital stock or
other securities of DSC, provided, however, that subject to Section 6.11, DSC
may pay to its shareholders its regular cash dividend in amounts consistent with
past practices;
(c) purchase, redeem or otherwise acquire any capital stock or other
securities of DSC or any rights, options, or securities to acquire any capital
stock or other securities of DSC;
(d) except as may be required to effect the transactions contemplated
herein, amend its Articles of Incorporation or Bylaws;
(e) grant any general or uniform increase in the rate of pay of
employees or employee benefits except in the ordinary course of business and
consistent with past practice;
(f) grant any increase in salary, incentive compensation or employee
benefits or pay any bonus to any Person or voluntarily accelerate the vesting of
any employee benefits (other than the acceleration and vesting of stock options
outstanding on the date of this Agreement upon the Effective Time of the
Merger), except for annual salary increases of not more than three and one half
percent (3.5%) in the aggregate which shall not be in the form of stock options
and shall only be granted in the ordinary course of business and consistent with
past practices or as required by an existing written employment agreement or
pursuant to the 1996 DSC Bonus Plan as approved by the Board of Directors (the
"DSC Bonus Plan"), as amended; provided, however, that payment of the
Transaction Expenses shall not be considered in the determination of bonus
payments pursuant to the DSC Bonus Plan;
36
(g) make any capital expenditure or commitments with respect thereto
in excess of $50,000 in the aggregate, except for (i) ordinary repairs,
renewals, replacements, (ii) any agreement or commitment under any DSC approved
planned capital budget program, copies of which have been furnished by DSC to
CWSG, and (iii) developer funded projects in accordance with the Commission's
Tariff Rule 15;
(h) compromise or otherwise settle or adjust any assertion or claim of
a deficiency in taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or file any
pleading in court in any tax litigation or any appeal from an asserted
deficiency, or file or amend any federal, foreign, state or local tax return, or
make any tax election;
(i) [deleted];
(j) change its tax or accounting policies and procedures or any method
or period of accounting unless required by generally accepted accounting
principles or a Governmental Entity;
(k) [deleted];
(l) close any offices at which business is conducted or open any new
offices except those new offices being opened in connection with any pending
acquisition;
(m) adopt or enter into any new employment agreement or other employee
benefit plan or arrangement or amend or modify any employment agreement or
employee benefit plan or arrangement of any such type except for such amendments
as are required by law;
(n) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or any other
representative retained by it or any of its Affiliates to take any such action,
and DSC shall promptly notify CWSG (orally and in writing) of all of the
relevant details relating to all inquiries and proposals which it may receive
relating to any of such matters; PROVIDED, HOWEVER, that notwithstanding any
other provision hereof, DSC may engage in discussions or negotiations with a
third party who (without any solicitation, initiation, encouragement, discussion
or negotiation, directly or indirectly, by or with the party or its authorized
representatives after the date hereof) seeks to initiate such discussions or
negotiations and furnish such third party information concerning itself and its
business, properties and assets, and may accept a Competing Transaction proposal
from such third party if, and only to the extent that such third party shall
first have made an unsolicited Competing Transaction proposal to DSC that the
Board of Directors of DSC reasonably believes in good faith may be a Superior
Proposal (as such term is defined below). Furthermore, nothing contained herein
shall prohibit DSC from
27
taking and disclosing to its shareholders a position on any takeover proposal
contemplated by Rule 14e-2(a) of the Exchange Act.
For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving DSC: (i) any merger, consolidation, share exchange
involving fifty percent (50%) or more of the voting power of DSC or other
business combination; (ii) a sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets of DSC representing thirty percent (30%) or more
of the assets of DSC; (iii) a sale by DSC of shares of capital stock (or
securities convertible or exchangeable into or otherwise evidencing, or any
agreement or instrument evidencing, the right to acquire capital stock),
representing thirty percent (30%) or more of the voting power of DSC; (iv) a
tender offer or exchange offer for at least fifty percent (50%) of the
outstanding shares of DSC; (v) a solicitation of proxies in opposition to
approval of the Merger by DSC's shareholders; (vi) or a public announcement of
an unsolicited bona fide proposal, plan, or intention to do any of the
foregoing. Notwithstanding any other provision in this Section 6.1(n) or
elsewhere in this Agreement, the obligations of DSC in this Agreement are
subject to the continuing fiduciary duties of the Board of Directors of DSC to
the shareholders of DSC. In addition, if the Board of Directors of DSC receives
a bona fide proposal for a Competing Transaction which it has determined to be a
Superior Proposal, the Board of Directors may withdraw or modify its approval or
recommendation of this Agreement or the Merger and may terminate this Agreement,
in each case at any time after the fifth (5th) business day following CWSG's
receipt of written notice advising CWSG that the Board of Directors of DSC has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal.
For purposes of this Agreement, a "Superior Proposal" means a
Competing Transaction for consideration consisting of cash and/or securities and
otherwise on terms and conditions which a majority of the members of the Board
of Directors of DSC determines in its good faith reasonable judgment (based on
the advice of a financial advisor of nationally recognized reputation) to be
more favorable to DSC's shareholders than the terms of the Merger;
(o) change any of DSC's basic policies and practices with respect to
operations, cash flow planning, marketing, budgeting, profit and tax planning,
personnel practices or any other material aspect of DSC's business or
operations, except such changes as may be required by any Governmental Entity;
(p) grant any Person a power of attorney or similar authority;
(q) make any investment by purchase of stock or securities (including
an Investment Security), contributions to capital, property transfers or
otherwise in any other Person, except for obligations of the United States
Treasury or an agency of the United States Government the obligations of which
are entitled to or implied to have the full faith and credit of the United
States government and which have an original maturity not in excess of one year,
or investment grade municipal bonds, in any case, in the ordinary course of
business consistent with past practices and which are not designated as trading;
28
(r) amend or modify any DSC Scheduled Contract or enter into any
agreement or contract that would be a DSC Scheduled Contract under Section 4.16,
other than (i) amendments or modifications entered into in the ordinary course
of business and consistent with past practice, (ii) any agreement or commitment
under any DSC approved planned capital budget program, copies of which have been
furnished by DSC to CWSG and (iii) developer funded projects in accordance with
the Commission's Tariff Rule 15;
(s) sell, transfer, mortgage, encumber, amend indentures to encumber
or otherwise dispose of any assets of DSC or the DSC Subsidiaries or release or
waive any claim, except in the ordinary course of business and consistent with
past practices;
(t) knowingly take any action which would or is reasonably likely to
(i) adversely affect the ability of CWSG or DSC to obtain any necessary approval
of any Governmental Entity required for the transactions contemplated hereby;
(ii) adversely affect DSC's ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the
performance of CWSG's or DSC's obligations hereunder, as set forth in Articles
IX or X herein not being satisfied;
(u) reverse, other than in accordance with generally accepted
accounting principles (GAAP), any reserves for contingent tax liabilities for
income tax on services;
(v) [deleted];
(w) sell any security other than in the ordinary course of business,
or engage in gains trading;
(x) [deleted];
(y) agree or make any commitment to take any actions prohibited by
this Section 6.1;
(z) knowingly take or cause to be taken an action which would
disqualify the Merger as a "reorganization" within the meaning of Section 368 of
the Code or prevent CWSG from accounting for the business combination to be
effected by the Merger as a pooling-of-interests;
(aa) [deleted];
(bb) settle any claim, action or proceeding involving any material
liability for monetary damages or enter into any settlement agreement containing
material obligations;
(cc) [deleted];
(dd) incur any indebtedness for borrowed money excluding extensions of
existing bank lines of credit, or assume, guaranty, endorse or otherwise as an
accommodation become responsible for the obligations of any other person, except
for short-term borrowings made at prevailing market rates and terms; or
39
(ee) [deleted].
6.2 AFFIRMATIVE CONDUCT OF DSC AND DSC SUBSIDIARIES PRIOR TO EFFECTIVE
TIME OF THE MERGER. Between the date hereof and the Effective Time of the
Merger, DSC shall, and shall cause the DSC Subsidiaries to:
(a) use commercially reasonable efforts consistent with this Agreement
to maintain and preserve intact its present business organization and to
maintain and preserve its relationships and goodwill with customers, employees
and others having business relationships with DSC or any of the DSC
Subsidiaries;
(b) use its commercially reasonable efforts to keep in full force and
effect all of the existing material permits and licenses of DSC and each of the
DSC Subsidiaries;
(c) use its commercially reasonable efforts to maintain insurance
coverage at least equal to that now in effect on all properties for which it is
responsible and on its business operations;
(d) perform its material contractual obligations and not become in
material default on any such obligations;
(e) duly observe and conform in all material respects to all lawful
requirements applicable to the business of DSC or any of the DSC Subsidiaries;
(f) maintain its assets and properties in good condition and repair,
normal wear and tear expected;
(g) promptly upon learning of such information, advise CWSG in writing
of any event or any other transaction within its knowledge whereby any Person or
Related Group of Persons acquires, directly or indirectly, record or beneficial
ownership or control (as defined in Rule 13d-3 promulgated by the SEC under the
Exchange Act) of five percent (5%) or more of the outstanding DSC Common Stock
prior to the record date fixed for the DSC Shareholders' Meeting or any
adjourned meeting thereof to approve this Agreement and the transactions
contemplated herein;
(h) promptly notify CWSG regarding receipt from any tax authority of
any notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue agent's
report, any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of DSC, or any actual or threatened
collection enforcement activity by any tax authority with respect to tax
liabilities of DSC;
(i) make available to CWSG SEC filings at the time of filing, press
releases at the time of release, and monthly unaudited balance sheets and income
statements of DSC within twenty-five (25) days after the close of each calendar
month;
40
(j) not later than the 30th day of each calendar month, amend or
supplement the DSC Lists prepared and delivered pursuant to Article IV to
ensure that the information set forth in the DSC Lists accurately reflects
the then-current status of DSC and the DSC Subsidiaries. DSC shall further
amend or supplement the DSC Lists as of the Closing Date if necessary to
reflect any additional information that needs to be included in the DSC Lists;
(k) use its commercially reasonable efforts to obtain any third party
consent with respect to any contract, agreement, lease, license, arrangement,
permit or release that is material to the business of DSC or that is
contemplated in this Agreement as required in connection with the Merger;
(l) [deleted];
(m) furnish to CWSG, as soon as practicable, and in any event within
15 days after it is prepared, a copy of any communication submitted to the DSC
Board of Directors or any committee thereof, provided, however, that with the
exception of DSC's obligations under Section 6.1(n) of this Agreement, DSC need
not furnish to CWSG communications regarding DSC's rights and obligations under
this Agreement or the transactions contemplated hereby, including any Competing
Transaction, or books, records and documents covered by confidentiality
agreements or the attorney-client privilege, or which are attorneys' work
product;
(n) make available to CWSG all filings with applicable regulators;
(o) as soon as reasonably possible, and prior to the Closing Date,
obtain and make available to CWSG preliminary title reports for all real
property owned or leased by DSC; and
(p) as soon as reasonably possible and prior to the Closing Date,
obtain and make available to CWSG true and correct copies of all leases included
in the DSC Real Property List, all title insurance policies and all documents
evidencing recordation of all recordable interests in real property included in
the DSC Real Property List.
6.3 ACCESS TO INFORMATION.
(a) Except as otherwise provided in this Article VI, DSC will afford,
upon reasonable notice, to CWSG and its representatives, counsel, accountants,
agents and employees reasonable access during normal business hours to all of
its business, operations, properties, books, files and records and will do
everything reasonably necessary to enable CWSG and its representatives, counsel,
accountants, agents and employees to make a complete examination of the
financial statements, business, assets and properties of DSC and the condition
thereof and to update such examination at such intervals as CWSG shall deem
appropriate. Such examination shall be conducted in cooperation with the
officers of DSC and in such a manner as to minimize any disruption of, or
interference with, the normal business operations of DSC. Upon the request of
CWSG, DSC will request Xxxxxx Xxxxxxxx to provide reasonable access to
representatives of KPMG Peat Marwick working on behalf of CWSG to auditors' work
papers with respect to the business and properties of DSC, including tax accrual
work papers prepared for DSC during the preceding sixty (60) months, other than
(a) books, records and documents covered by the
41
attorney-client privilege, or that are attorneys' work product, and (b)
books, records and documents that DSC is legally obligated to keep
confidential. No examination or review conducted under this section shall
constitute a waiver or relinquishment on the part of CWSG of the right to
rely upon the representations and warranties made by DSC herein; provided,
that CWSG shall disclose to DSC any fact or circumstance it may discover
which CWSG believes renders any representation or warranty made by DSC
hereunder incorrect in any respect. Any examination or review conducted
pursuant to this Section 6.3(a) shall be at the sole cost and expense of the
party conducting or requesting the examination or review. CWSG covenants and
agrees that it, the CWSG Subsidiaries, and their respective representatives,
counsel, accountants, agents and employees will hold in strict confidence all
documents and information concerning DSC so obtained from any of them (except
to the extent that such documents or information are a matter of public
record or require disclosure in the Proxy Statement and Prospectus or any of
the public information of any applications required to be filed with any
Governmental Entity to obtain the approvals and consents required to effect
the transactions contemplated hereby), and if the transactions contemplated
herein are not consummated, such confidence shall be maintained and all such
documents shall be returned to DSC.
(b) [deleted].
(c) With the exception of those portions of minutes relating to
consideration of this transaction or any Competing Transaction, DSC shall
provide CWSG with a copy of all minutes of all regular and special Board of
Directors' and committee meetings of DSC from the date hereof until the
Effective Date of the Merger. Said copy or copies shall be received by CWSG no
later that 10 business days following the meeting or meetings to which the
minutes pertain.
6.4 REVIEW BY ACCOUNTANTS. Promptly upon request of CWSG, DSC will request
Xxxxxx Xxxxxxxx to permit representatives of KPMG Peat Marwick working on behalf
of CWSG to review and examine the work papers of Xxxxxx Xxxxxxxx relating to DSC
and the Financial Statements of DSC and to review and examine the work papers of
Xxxxxx Xxxxxxxx relating to any future completed audits or completed reviews of
DSC. Any costs incurred in such review and examination will be paid by CWSG.
6.5 FILINGS. DSC agrees that through the Effective Time of the Merger,
each of its reports, registrations, statements and other filings required to be
filed with any applicable Governmental Entity will comply in all material
respects with all the applicable statutes, rules and regulations enforced or
promulgated by the Governmental Entity with which it will be filed and none will
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Any
financial statement contained in any such report, registration, statement or
other filing that is intended to present the financial position of the entity to
which it relates will fairly present the financial position of such entity and
will be prepared in accordance with generally accepted accounting principles or
applicable Commission regulations consistently applied during the periods
involved.
42
6.6 NOTICES; REPORTS. Except as provided in Section 6.2(m), DSC will
promptly notify CWSG of any event of which DSC obtains knowledge which has had
or may have a Material Adverse Effect on DSC or in the event that DSC determines
that it is unable to fulfill any of the conditions to the performance of CWSG's
and Water Company's obligations hereunder, as set forth in Articles IX or XI
herein, and DSC will furnish CWSG (i) as soon as available, and in any event
within one (1) Business Day after it is mailed or delivered to the Board of
Directors of DSC or committees thereof, any report by DSC for submission to the
Board of Directors of DSC or committees thereof, (ii) as soon as available, all
proxy statements, information statements, financial statements, reports, letters
and communications sent by DSC to its shareholders or other security holders,
and all reports filed by DSC with the SEC, and (iii) such other existing reports
as CWSG may reasonably request relating to DSC subject to the limitations
contained in Section 6.2(m).
6.7 DSC SHAREHOLDERS' MEETING. Promptly after the execution of this
Agreement, DSC will take action necessary in accordance with applicable law and
its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby so as to permit the consummation of the transactions
contemplated hereby. The Board of Directors of DSC shall, subject to its
fiduciary duties, recommend that its shareholders approve this Agreement and the
transactions contemplated hereby, and the Board of Directors of DSC shall,
subject to its fiduciary duties, use its best efforts to obtain the affirmative
vote of the holders of the largest possible percentage of the outstanding DSC
Stock to approve this Agreement and the transactions contemplated hereby. In
connection with such shareholders meeting, DSC shall prepare a proxy statement
containing the recommendation of the Board of Directors of DSC in favor of this
Agreement and the transactions contemplated hereby; provided, however, that
notwithstanding the foregoing provisions of this sentence, the Board of
Directors of DSC shall be free to take any position and any action which it
determines upon advice of outside counsel to be required to ensure compliance
with the fiduciary obligations of the Board under applicable law.
6.8 [deleted].
6.9 APPLICATIONS. Subject to Section 7.5, DSC will (i) promptly prepare or
cause to be prepared the portions of the Proxy Statement and Prospectus as it
pertains to DSC and any other applications necessary to consummate the
transactions contemplated hereby; (ii) promptly provide any information
requested by CWSG for the preparation of any applications necessary to
consummate the transactions contemplated hereby; and (iii) promptly prepare and
file, or cause to be prepared and filed, a Xxxx-Xxxxx-Xxxxxx notification with
the Federal Trade Commission and the United States Department of Justice. DSC
shall afford CWSG a reasonable opportunity to review the portions of the Proxy
Statement and Prospectus pertaining to DSC and all such applications and all
amendments and supplements thereto before the filing thereof. DSC covenants and
agrees that, with respect to the information furnished by DSC or the DSC
Subsidiaries, the Proxy Statement and Prospectus will (i) comply in all
material respects with the provisions of applicable law, and will not contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading, and
43
(ii) comply in all material respects to the extent relevant with the
requirements of all securities laws and all other applicable rules,
regulations and filing requirements. DSC will use its commercially
reasonable efforts to obtain all regulatory approvals or consents necessary
to effect the Merger and the transactions contemplated herein.
6.10 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Concurrently with
the execution of this Agreement, (a) DSC shall deliver to CWSG a letter
identifying all persons who are then "affiliates" of DSC for purposes of Rule
145 under the Securities Act and (b) DSC shall advise the persons identified in
such letter of the resale restrictions imposed by applicable securities laws and
shall obtain, within 30 days of delivery of such letter, from each person
identified in such letter a written agreement substantially in the form attached
hereto as EXHIBIT B. DSC shall use its best efforts to obtain from any person
who becomes an affiliate of DSC after DSC's delivery of the letter referred to
above, and within 30 days of that person becoming an affiliate of DSC or on or
prior to the date of the DSC Shareholders' Meeting to approve this Agreement,
whichever is earliest, a written agreement substantially in the form attached as
EXHIBIT B hereto as soon as practicable after obtaining such status. At least
10 Business Days prior to the issuance of the opinion to be provided for in
Section 9.6, DSC shall use its commercially reasonable efforts to cause each
person or group of persons who holds more than five percent (5%) of the DSC
Stock (regardless of whether such person is an "affiliate" under Rule 145) to
deliver to Nossaman, Guthner, Xxxx & Xxxxxxx, LLP, a letter stating that such
shareholder(s) has no present plan or intention to dispose of CWSG Stock that
the shareholder(s) will receive in the Merger, and committing that such
shareholder(s) will not dispose of such CWSG Stock in a manner as to cause a
violation of the "continuity of shareholder interest" requirements of Treasury
Regulation 1.368-1.
6.11 COORDINATION OF DIVIDENDS. DSC shall coordinate with CWSG the
declaration of any dividends that may be allowed pursuant to Section 6.1 (b)
hereof, and the record date and the payment dates relating thereto, it being the
intention of the parties that holders of DSC Stock shall not receive two
dividends, or fail to receive one dividend, for any applicable dividend period
with respect to their shares of DSC Stock and any shares of CWSG Stock any such
holder will receive in exchange therefor in the Merger.
6.12 D&O COVERAGE. Prior to the Effective Time of the Merger, DSC shall
obtain a policy of insurance insuring directors and officers of DSC and the DSC
Subsidiaries, and those persons who become directors and officers of DSC or the
DSC Subsidiaries between the date of this Agreement and the Effective Time of
the Merger. This insurance shall be no less protective in terms of policy
limits, coverage or limitations than the insurance for officers and directors
maintained by DSC at the date of this Agreement (the "Current D& O Coverage").
The Current D&O Coverage insures those persons covered by it in an aggregate
amount of $22,000,000, consisting of $3,000,000 of primary coverage and
$19,000,000 of excess (umbrella) coverage. The new D&O insurance to be obtained
by DSC hereunder (the "New Policy") shall provide coverage for a period of up to
48 months following the Effective Time of the Merger and shall cover acts and
omissions occurring prior to the Effective Time of the Merger and acts and
omissions relating to this Agreement and the actions contemplated hereby to the
extent such insurance is commercially available. The above notwithstanding, DSC
shall not obtain or pay
44
for any coverage under the New Policy requiring an annual premium in excess
of 150% of the annual premium that DSC pays for the Current D&O Coverage,
plus any general increases in the cost of D&O insurance between the date of
this Agreement and the periods covered by the New Policy.
ARTICLE VII
COVENANTS OF CWSG
PENDING EFFECTIVE TIME OF THE MERGER
CWSG covenants and agrees with DSC as follows:
7.1 LIMITATION ON CWSG'S CONDUCT PRIOR TO EFFECTIVE TIME OF THE MERGER.
Between the date hereof and the Effective Time of the Merger, except as
contemplated by this Agreement and subject to requirements of law and regulation
generally applicable to California corporations, CWSG and the CWSG Subsidiaries
shall not, without prior written consent of DSC (which consent shall not be
unreasonably withheld and which consent shall be deemed granted if within five
(5) Business Days of DSC's receipt of written notice of a request for prior
written consent, written notice of objection is not received by CWSG):
(a) take any action which would or is reasonably likely to (i)
adversely affect the ability of CWSG or Water Company to obtain any necessary
approvals of any Governmental Entity required for the transactions contemplated
hereby; (ii) adversely affect CWSG's or Water Company's ability to perform its
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the performance of CWSG's or Water Company's obligations
hereunder, as set forth in Articles IX or X herein not being satisfied; or (iv)
take any action which would prevent listing of the shares to be issued to DSC
shareholders from being listed;
(b) take or cause to be taken any action which would disqualify the
Merger as a "reorganization" within the meaning of Section 368 of the Code or
prevent CWSG from accounting for the business combination to be effected by the
Merger as a pooling-of-interests;
(c) except as provided in Section 5.1, amend its articles of
incorporation in any respect which would materially and adversely affect the
rights and privileges attendant to the CWSG Common Stock; or
(d) agree or make any commitment to take any actions prohibited by
this Section 7.1.
(e) enter into any transaction or agreement which would result in its
debt rating being reduced below investment grade;
45
(f) enter into any other transaction or series of transactions which
would result in it engaging in operations or lines of business other than those
currently conducted by CWSG as of the date of this Agreement;
(g) reduce its common stock dividend below its payment level at the
date of this Agreement; or
(h) enter into any transaction which would result in the acquisition
in any manner, directly or indirectly, of an equity interest in CWSG
representing more than 50% of the common stock of CWSG then outstanding, or the
acquisition of more than 50% of the assets of CWSG, nor shall the board of
directors of CWSG nor any committee thereof approve or recommend, or propose to
approve or recommend, any such transaction.
7.2 AFFIRMATIVE CONDUCT OF CWSG AND CWSG SUBSIDIARIES PRIOR TO EFFECTIVE
TIME OF THE MERGER. Between the date hereof and the Effective Time of the
Merger, CWSG shall, and shall cause the CWSG Subsidiaries to:
(a) use commercially reasonable efforts consistent with this Agreement
to maintain and preserve intact their respective present business organizations
and to maintain and preserve the relationships and goodwill with customers,
employees and others having business relationships with CWSG or any of the CWSG
Subsidiaries;
(b) duly observe and conform in all material respects to all lawful
requirements applicable to the business of CWSG and each of the CWSG
Subsidiaries;
(c) make available to DSC SEC filings at the time of filing, press
releases at the time of release, and monthly unaudited balance sheets and income
statements of CWSG within twenty-five (25) days after the close of each calendar
month;
(d) use its commercially reasonable efforts to obtain any third party
consent with respect to any contract, agreement, lease, license, arrangement,
permit or release that is material to the business of CWSG on a consolidated
basis or that is contemplated in this Agreement as required in connection with
the Merger;
(e) not later than the 30th day of each calendar month, amend or
supplement the CWSG Lists prepared and delivered pursuant to Article V to ensure
that the information set forth in the CWSG Lists accurately reflects the
then-current status of CWSG and the CWSG Subsidiaries. CWSG shall further amend
or supplement the CWSG Lists as of the Closing Date if necessary to reflect any
additional information that needs to be included in the CWSG Lists;
(f) [deleted]; and
(g) furnish to DSC, as soon as practicable, and in any event within 15
days after it is prepared, a copy of any communication submitted to the CWSG
Board of Directors or any committee thereof, provided, however, that CWSG need
not furnish to DSC communications regarding CWSG's rights and obligations under
this Agreement or the transactions contemplated
46
hereby, including any Competing Transaction as defined in Section 6.1(n)
(assuming CWSG rather than DSC to be the target), or books, records and
documents covered by confidentiality agreements or the attorney-client
privilege, or which are attorneys' work product.
7.3 ACCESS TO INFORMATION. Except as otherwise provided in this
Article VII, upon reasonable request by DSC, CWSG shall (i) make its Chief
Executive Officer, Chief Financial Officer and/or Controller available to
discuss with DSC and its representatives CWSG's operations, (ii) shall provide
DSC with written information which is (a) similar to the written information
that DSC reviewed in connection with this Agreement, and (b) related to CWSG's
business condition, operations and prospects; and (iii) make available to DSC
the minutes of meetings of the Board of Directors of CWSG (except to the extent
that such minutes relate to consideration of this transaction or any Competing
Transaction, or contain communications of CWSG's legal counsel regarding CWSG's
rights and obligations under this Agreement or the transactions contemplated
hereby, or contain matters covered by confidentiality agreements or the
attorney-client privilege, or which contain attorney's work product). No
examination or review conducted under this Section shall constitute a waiver or
relinquishment on the part of DSC of the right to rely upon the representations
and warranties made by CWSG herein; provided, that DSC shall disclose to CWSG
any fact or circumstance it may discover which DSC believes renders any
representation or warranty made by CWSG hereunder incorrect in any respect. Any
examination or review conducted pursuant to this Section 7.3 shall be at the
sole cost and expense of the party conducting or requesting the examination or
review. DSC covenants and agrees that it, the DSC Subsidiaries and its
representatives, counsel, accountants, agents and employees will hold in strict
confidence all documents and information concerning CWSG so obtained (except to
the extent that such documents or information are a matter of public record or
require disclosure in the Proxy Statement and Prospectus or any of the public
information of any applications required to be filed with any Governmental
Entity to obtain the approvals and consents required to effect the transactions
contemplated hereby), and if the transactions contemplated herein are not
consummated, such confidence shall be maintained and all such documents shall be
returned to CWSG.
7.4 FILINGS. CWSG agrees that through the Effective Time of the Merger,
each of its reports, registrations, statements and other filings required to be
filed with any applicable Governmental Entity will comply in all material
respects with all the applicable statutes, rules and regulations enforced or
promulgated by the Governmental Entity with which it will be filed and none will
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Any
financial statement contained in any such report, registration, statement or
other filing that is intended to present the financial position of the entities
or entity to which it relates will fairly present the financial position of such
entities or entity and will be prepared in accordance with generally accepted
accounting principles or applicable Commission regulations consistently applied
during the periods involved.
7.5 APPLICATIONS. CWSG will promptly prepare and file or cause to be
prepared and filed (i) an application for approval of the Merger with the
Commission; (ii) in conjunction with XXX,
00
the Registration Statement on Form S-4 regarding securities to be issued to
DSC shareholders as a result of the Merger and the Proxy Statement and
Prospectus as it pertains to CWSG for filing with the SEC; (iii) a
Xxxx-Xxxxx-Xxxxxx notification with the Federal Trade Commission and the
United States Department of Justice; and (iv) any other applications
necessary to consummate the transactions contemplated hereby. CWSG shall
afford DSC a reasonable opportunity to review the Proxy Statement and
Prospectus and all such applications and all amendments and supplements
thereto before the filing thereof. CWSG covenants and agrees that the
Registration Statement on Form S-4 and the Proxy Statement and Prospectus
and all applications to the appropriate regulatory agencies for approval or
consent to the Merger, with respect to information furnished by CWSG or the
CWSG Subsidiaries, will (i) comply in all material respects with the
provisions of applicable law, and will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading, and (ii) comply
in all material respects to the extent relevant with the requirements of all
securities laws and all other applicable rules, regulations and filing
requirements. CWSG will use its commercially reasonable efforts to obtain
all regulatory approvals or consents necessary to effect the Merger.
7.6 BLUE SKY. CWSG agrees to have the shares of CWSG Stock to be issued in
connection with the Merger qualified or registered for offer and sale, to the
extent required, under the securities laws of each jurisdiction in which
shareholders of DSC reside.
7.7 SALES AND NET INCOME REPORTS. CWSG shall use its reasonable best
efforts to publish as promptly as reasonably practical, but in no event later
than 45 days after the end of the first month after the Effective Time in which
there are at least 30 days of post-Merger combined operations (which month may
be the month in which the Effective Time occurs), combined sales and net income
figures as contemplated by and in accordance with the terms of SEC Accounting
Series Release No. 135.
7.8 SECURITIES ACT AND EXCHANGE ACT FILINGS. (a) CWSG shall make all
filings with the SEC that are described in Section (c) of Rule 144 under the
Securities Act for a period of two years following the Effective Time.
7.9 NOTICES; REPORTS. Except as provided in Section 7.2(g), CWSG will
promptly notify DSC of any event of which CWSG obtains knowledge which has had
or may have a Material Adverse Effect on CWSG on a consolidated basis or in the
event that CWSG determines that it is unable to fulfill any of the conditions to
the performance of DSC's obligations hereunder, as set forth in Articles IX or X
herein, and CWSG will furnish DSC (i) as soon as available, and in any event
within ten (10) days after it is prepared, any report by CWSG for submission to
the Board of Directors of CWSG or committees thereof, (ii) as soon as available,
all proxy statements, information statements, financial statements, reports,
letters and communications sent by CWSG to its shareholders or other security
holders, and all reports filed by CWSG with the SEC and the Commission and (iii)
such other existing reports as DSC may reasonably request relating to CWSG
subject to the limitations contained in Section 7.2(g).
48
7.10 REMOVAL OF CONDITIONS. In the event of the imposition of a condition
to any regulatory approvals which CWSG deems to materially adversely affect it
or to be materially burdensome as provided in Section 9.3 hereof, CWSG shall use
its commercially reasonable efforts for purposes of obtaining the removal of
such condition.
ARTICLE VIII
ADDITIONAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other as
follows:
8.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement as promptly as practical.
8.2 PUBLIC ANNOUNCEMENTS. No press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated hereby
shall be made by CWSG or DSC unless the other party shall have provided its
prior consent to the form and substance thereof; provided, however, that nothing
herein shall be deemed to prohibit any party hereto from making any disclosure
which its counsel deems necessary or advisable in order to fulfill such party's
disclosure obligations imposed by law. If and where feasible, CWSG and DSC
shall use their best efforts and shall cooperate with each other to issue joint
press releases or other public disclosure of matters related to this Agreement
or any of the transactions contemplated hereby.
8.3 [DELETED].
8.4 [DELETED].
8.5 CONFIDENTIALITY AND NON-DISCLOSURE.
(a) Each party has furnished and will furnish information concerning its
business (herein collectively referred to as the "Evaluation Material") to the
other party. Each party agrees to use the Evaluation Material received from the
other only in accordance with the provisions of this Agreement and to take or
refrain from taking certain other actions set forth herein. The term "Evaluation
Material" shall include any and all information, oral or written, concerning the
Merger or any other actual or potential transaction between the parties or
concerning the parties' respective businesses, which heretofore has been or
hereafter is disclosed by CWSG or DSC, or any of their respective partners,
directors, officers, shareholders, employees, agents or advisors (for the
purposes of this Section 8.5 and Section 8.6, collectively called
"representatives"), either directly or indirectly, in writing, orally or by
physical inspection, and whether disclosed prior to or after the date of this
Agreement, together with all analyses, compilations, studies or other data,
documents or records prepared by either party or any of its representatives
which contain or otherwise reflect or are generated from any such information or
documents. Evaluation Material does not include information
49
that is (i) publicly known (other than as a result of a breach of this
Agreement), (ii) approved for release by written authorization of the party
that provided such information, or (iii) lawfully obtained from third parties
who are not bound by a confidentiality agreement with the party that provided
such information.
(b) CWSG and DSC each agrees that the Evaluation Material will be used
solely for purposes of this Agreement and the transactions contemplated hereby,
and not in connection with the consideration of any other transaction,
including, without limitation, any other transaction or investment directly or
indirectly involving the other party, and that all information contained therein
will be kept confidential by such party. CWSG and DSC may disclose such
Evaluation Material to their representatives who need to have access to such
Evaluation Material in connection with the Merger; provided, that each party
shall advise all of its representatives to whom the Evaluation Material is
disclosed of its obligations under this Agreement and shall take all reasonable
steps to insure that such persons or entities to whom disclosure is made shall
have been advised of the confidentiality thereof and shall have agreed, for the
benefit of the other party, to be bound by confidentiality provisions similar to
those set forth in this Agreement. CWSG and DSC each agrees that it shall
protect the confidentiality of and avoid disclosure or use of the Evaluation
Material, except (i) as permitted in writing by an authorized representative of
the other party and (ii) for disclosure to such party's representatives who need
to know such information for purposes of evaluating the possible Merger between
CWSG and DSC. In complying with its obligations herein, each party shall
exercise at least the same degree of care to safeguard the Evaluation Material
received from the other party as it would use if the confidential information
contained therein were its own confidential information.
(c) In the event that either party or its representatives is required in
any proceeding to disclose any Evaluation Material, such party (for the purposes
of this Section 8.5 (c), the "Compelled Party") will give the other party prompt
notice so that the other party may seek an appropriate protective order. If, in
the absence of a protective order, the Compelled Party or its representatives is
compelled to disclose such Evaluation Material, the Compelled Party or its
representatives as the case may be, may disclose such information to the extent
compelled to do so in such proceeding without liability hereunder; provided,
however, that the Compelled Party shall give the other party written notice of
the information to be disclosed as far in advance of the disclosure as is
practicable and shall use its best efforts to obtain assurances that
confidential treatment will be accorded to such information.
8.6 RETURN OF MATERIALS. If this Agreement is terminated or the Merger is
otherwise not consummated, each party shall promptly redeliver all written
Evaluation Material received from the other party, and all documents, memoranda,
notes and other writings whatsoever prepared by such party or any of its
representatives based on the information in any of the Evaluation Material
received from the other party shall be destroyed. It is expressly understood
and agreed by the parties hereto that their respective obligations hereunder
shall survive the return of materials as set forth above and the termination,
expiration or rescission of this Agreement.
50
ARTICLE IX
CONDITIONS PRECEDENT TO THE MERGER
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction, on or before
the Closing Date, of the following conditions:
9.1 SHAREHOLDER APPROVAL. The Agreement and the transactions contemplated
hereby shall have received all requisite approvals of the shareholders of DSC no
later than April 1, 1999.
9.2 NO JUDGMENTS OR ORDERS. No judgment, decree, injunction, order or
proceeding shall be outstanding or threatened by any Governmental Entity which
prohibits or restricts the effectuation of, or threatens to invalidate or set
aside, the Merger substantially in the form contemplated by this Agreement,
unless counsel to the party against whom such action or proceeding was
instituted or threatened renders to the other parties hereto a favorable opinion
that such judgment, decree, injunction, order or proceeding is without merit.
9.3 REGULATORY APPROVALS. To the extent required by applicable law or
regulation, all approvals or consents of any Governmental Entity, including,
without limitation those of the Commission, the Federal Trade Commission and the
United States Department of Justice shall have been obtained or granted for the
Merger and the transactions contemplated hereby, and all applicable waiting
periods under all laws shall have expired. All other statutory or regulatory
requirements for the valid completion of the transactions contemplated hereby
shall have been satisfied.
9.4 SECURITIES LAWS. The Registration Statement on Form S-4 shall have
been declared effective by the SEC and shall not be the subject of any stop
order or proceedings seeking or threatening a stop order. CWSG shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the CWSG Stock to consummate the Merger.
9.5 LISTING. The CWSG Stock issuable in the Merger shall have been
included for listing on the New York Stock Exchange.
9.6 TAX OPINIONS. CWSG and DSC shall have received from KPMG Peat Marwick
an opinion reasonably satisfactory to CWSG and DSC, respectively, to the effect
that the Merger shall not result in the recognition of gain or loss for federal
income tax purposes to CWSG or DSC, nor shall the issuance of the CWSG Stock
result in the recognition of gain or loss by the holders of DSC Stock who
receive such stock in connection with the Merger, dated prior to the date the
Proxy Statement and Prospectus is first mailed to the shareholders of DSC and
CWSG and such opinions shall not have been withdrawn or modified in any material
respect.
9.7 POOLING OF INTERESTS. Prior to the Effective Time of the Merger, KPMG
Peat Marwick shall have delivered a written opinion to CWSG that, to the best
knowledge of KPMG Peat Marwick, the Merger will qualify for pooling-of-interests
accounting treatment. In making its determination that the Merger will qualify
for such treatment, KPMG Peat Marwick shall be
51
entitled to assume that cash will be paid with respect to all shares held of
record by any holder of Dissenting Shares. Xxxxxx Xxxxxxxx will provide DSC,
with a copy to KPMG Peat Marwick, a "poolability" letter addressed to DSC
regarding DSC's ability to comply with pooling of interests accounting.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DSC
All of the obligations of DSC to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived in writing by DSC:
10.1 LEGAL OPINION. DSC shall have received the opinion of Nossaman,
Guthner, Xxxx & Xxxxxxx, LLP, attorneys for CWSG and Water Company, dated as of
the Closing Date, and in form and substance satisfactory to the counsel of DSC,
to the effect that (i) each of CWSG and Water Company is a corporation validly
existing under the laws of its jurisdiction of incorporation with full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby; (ii) all corporate proceedings on the part of
CWSG and Water Company necessary to be taken in connection with the Merger in
order to make the same effective have been duly and validly taken; (iii) this
Agreement has been duly and validly authorized, executed and delivered on behalf
of CWSG and Water Company and constitutes (subject to standard exceptions of
enforceability arising from the bankruptcy laws and rules of equity) a valid and
binding agreement of each of CWSG and Water Company; (iv) the execution of the
Agreement of Merger by Water Company and CWSG has been duly and validly
authorized and (v) the shares of CWSG Stock to be issued in the Merger will,
when issued, be duly authorized, validly issued, fully paid and nonassessable.
10.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. All the
covenants, terms and conditions of this Agreement to be complied with and
performed by CWSG and Water Company on or before the Closing Date shall have
been complied with and performed in all material respects. Each of the
representations and warranties of CWSG contained in Article V hereof shall have
been true and correct in all material respects (except that where any statement
in a representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects) on and as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date or for changes expressly contemplated by this
Agreement) on and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the Closing Date. It
is understood and acknowledged that the representations being made on and as of
the Closing Date shall be made without giving effect to any update with respect
to the CWSG Lists in accordance with Section 7.2(e).
10.3 AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Agreement of
Merger by CWSG and Water Company and the consummation of the transactions
contemplated hereby and thereby shall have
52
been duly and validly taken by the respective Boards of Directors and Water
Company shall have full power and right to merge pursuant to the Agreement of
Merger.
10.4 ABSENCE OF CERTAIN CHANGES. Between the date of this Agreement and
the Effective Time of the Merger, there shall not have occurred any event that
has had or could reasonably be expected to have a Material Adverse Effect on
CWSG on a consolidated basis, whether or not such event, change or effect is
reflected in the CWSG Lists as amended or supplemented after the date of this
Agreement.
10.5 OFFICERS' CERTIFICATE. There shall have been delivered to DSC on the
Closing Date a certificate executed by the Chief Executive Officer and the Chief
Financial Officer of CWSG certifying, to the best of their knowledge, compliance
with all of the provisions of Sections 10.2, 10.3 and 10.4.
10.6 FAIRNESS OPINION. DSC shall have received a letter from PaineWebber
dated as of a date within five (5) Business Days of the mailing of the Proxy
Statement and Prospectus to the shareholders of DSC, to the effect that the
transactions contemplated by this Agreement are fair from a financial point of
view to the shareholders of DSC.
10.7 [deleted].
ARTICLE XI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF CWSG AND WATER COMPANY
All of the obligations of CWSG and Water Company to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by CWSG:
11.1 LEGAL OPINION. CWSG shall have received the opinion of Fulbright &
Xxxxxxxx, LLP, attorneys for DSC, and in form and substance satisfactory to the
counsel of CWSG, to the effect that: (i) DSC is a corporation validly existing
under the laws of its jurisdiction of incorporation with full corporate power
and authority to enter into this Agreement and the Agreement of Merger and to
consummate the transactions contemplated hereby and thereby; (ii) all corporate
proceedings on the part of DSC necessary to be taken in connection with the
Merger in order to make the same effective have been duly and validly taken;
(iii) this Agreement has been duly and validly authorized, executed and
delivered on behalf of DSC and constitutes (subject to standard exceptions of
enforceability arising from the bankruptcy laws and rules of equity) a valid and
binding agreement of DSC; and (iv) the execution of the Agreement of Merger by
DSC has been duly and validly authorized.
11.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. All the
covenants, terms and conditions of this Agreement to be complied with and
performed by DSC at or before the Closing Date shall have been complied with and
performed in all material respects. Each of the representations and warranties
of DSC contained in Article IV hereof shall have been true
53
and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects) on and as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date or for changes expressly contemplated by this
Agreement) on and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the Closing Date.
It is understood and acknowledged that the representations being made on and
as of the Closing Date shall be made without giving effect to any update with
respect to the DSC Lists in accordance with Section 6.2(j).
11.3 AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Agreement of
Merger by DSC and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors and
shareholders of DSC, and DSC shall have full power and right to merge pursuant
to the Agreement of Merger.
11.4 THIRD PARTY CONSENTS. DSC shall have obtained all consents of other
parties to its respective material mortgages, notes, leases, franchises,
agreements, licenses and permits as may be necessary to permit the Merger and
the transactions contemplated herein to be consummated except where the failure
to obtain any such consent would not result in a Material Adverse Effect on DSC
or the Surviving Corporation.
11.5 ABSENCE OF CERTAIN CHANGES. Between the date of this Agreement and
the Effective Time of the Merger, there shall not have occurred any event that
has had or could reasonably be expected to have a Material Adverse Effect on
DSC, whether or not such event, change or effect is reflected in the DSC Lists
as amended or supplemented after the date of this Agreement.
11.6 OFFICERS' CERTIFICATE. There shall have been delivered to CWSG on the
Closing Date a certificate executed by the Chief Executive Officer and the Chief
Financial Officer of DSC certifying, to the best of their knowledge, compliance
with all of the provisions of Sections 11.2, 11.3, 11.4, 11.5 and 11.16.
11.7 [deleted].
11.8 [deleted].
11.9 [deleted].
11.10 AFFILIATES AGREEMENTS. Within 30 days of the execution of this
Agreement, CWSG shall have received from each person named in the letter or
otherwise referred to in Section 6.10 an executed copy of an agreement
substantially in the form of EXHIBIT B hereto.
11.11 EMPLOYEE BENEFIT PLANS. CWSG shall have received satisfactory
evidence that all of DSC's employee benefit plans, programs and arrangements,
including, without limitation, the DSC 401(k) Plan, have been treated as
provided in Article XII of this Agreement except where the failure to do so
would not have a Material Adverse Effect on DSC.
54
11.12 DISSENTING SHARES. Holders of five percent (5%) or more of the
outstanding shares of DSC Stock shall not be DSC Perfected Dissenting Shares who
have made demand for payment of the fair market value thereof in accordance with
Section 1301 of the CGCL in connection with the Merger.
11.13 [deleted].
11.14 [deleted].
11.15 [deleted].
11.16 TERMINATION OF DSC STOCK OPTION PLANS. CWSG shall have received
satisfactory evidence that the DSC Stock Option Plans have been terminated prior
to the Effective Time of the Merger.
ARTICLE XII
EMPLOYEE BENEFITS
12.1 EMPLOYEE BENEFITS. CWSG intends to merge the DSC 401(k) Plan with and
into the CWSG 401(k) Plan as soon as administratively feasible after the
Effective Time of the Merger. In no event shall the DSC 401(k) Plan be merged
with and into the CWSG 401(k) Plan, however, unless CWSG determines, in its sole
discretion, that: (i) the DSC 401(k) Plan is a qualified plan under
Section 401(a) of the Code, both as to the form of the DSC 401(k) Plan and as to
its operation; and (ii) there are no facts in existence that would be reasonably
likely to adversely affect the qualified status of the DSC 401(k) Plan. This
analysis shall be made prior to the Effective Time of the Merger and, if the
above determinations are made, the DSC 401(k) Plan shall be merged with and into
the CWSG 401(k) Plan as soon as administratively feasible after the Effective
Time of the Merger. If it is determined that the DSC 401(k) Plan is not a
qualified plan as described above, DSC agrees to use its best efforts to have
the DSC 401(k) Plan qualified prior to the Effective Time of the Merger.
As soon as practicable after the Effective Time of the Merger, all other
DSC employee benefit plans will be discontinued or merged into CWSG plans, in
the discretion of CWSG, and employees of DSC shall become eligible for the
employee benefit plans of CWSG on the same terms as such plans and benefits are
generally offered from time to time to employees of CWSG and the CWSG
Subsidiaries in comparable positions with CWSG or the CWSG Subsidiaries. For
purposes of determining such employment eligibility and vesting under the
employee benefit plans of CWSG, CWSG shall recognize such employees years of
service with DSC beginning on the date such employees commenced employment with
DSC through the Effective Time of the Merger.
55
ARTICLE XIII
TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger upon the occurrence of any of the following:
(a) By mutual agreement of the parties, in writing;
(b) By DSC or CWSG immediately upon the failure of the shareholders of
DSC to give any required approval of this Agreement;
(c) By DSC if CWSG breaches or fails to satisfy any covenant or
agreement contained herein which results in a Material Adverse Effect on DSC and
CWSG had not cured such breach within ninety (90) days after DSC has delivered
written notice of such breach to CWSG or if such cure has not occurred by the
Drop Dead Date if such date occurs prior to the expiration of such ninety (90)
day period;
(d) By CWSG if DSC breaches or fails to satisfy any covenant or
agreement contained herein which results in a Material Adverse Effect on CWSG
and DSC had not cured such breach within ninety (90) days after CWSG has
delivered written notice of such breach to DSC or if such cure has not occurred
by the Drop Dead Date if such date occurs prior to the expiration of such ninety
(90) day period;
(e) By DSC or CWSG upon the expiration of thirty (30) days after any
Governmental Entity denies or refuses to grant any approval, consent or
authorization required to be obtained in order to consummate the transactions
contemplated by this Agreement unless, within said thirty (30) day period after
such denial or refusal, all parties hereto agree to re-submit the application to
the regulatory authority that has denied, or refused to grant the approval,
consent or qualification requested;
(f) By DSC or CWSG if any conditions set forth in Article IX shall not
have been met by the Drop Dead Date;
(g) By DSC if any of the conditions set forth in Article X shall not
have been met, or by CWSG if any of the conditions set forth in Article XI shall
not have been met, by the Drop Dead Date, or such earlier time as it becomes
apparent that such condition shall not be met;
(h) By CWSG if DSC shall have failed to act or refrain from doing any
act pursuant to Section 6.1(n); or
(i) [deleted].
13.2 TERMINATION DATE. This Agreement shall terminate if the Closing
Date shall not have occurred by the Drop Dead Date unless extended in writing
by the parties. CWSG and DSC each will cooperate with one another and use
their best efforts to prepare all necessary
56
documentation, to effect all necessary filings and to obtain all necessary
permits, consents, approvals and authorizations of all third parties and
governmental bodies necessary to consummate the transactions contemplated by
this Agreement. CWSG and DSC each shall have the right to review and approve
in advance all characterizations of the information relating to CWSG and DSC,
as the case may be, and any of the characterizations of information relating
to the CWSG Subsidiaries and the DSC Subsidiaries, which appear in any filing
made in connection with the transactions contemplated by this Agreement with
any governmental body. In exercising the foregoing right, CWSG and DSC each
shall act as promptly as practicable, recognizing that time is of the essence
to the transactions contemplated by this Agreement.
13.3 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either DSC or CWSG as provided in Section 13.1 or pursuant to Section 13.2,
neither DSC, CWSG nor Water Company shall have any further obligation or
liability to the other party except (a) with respect to the last sentences of
each of Section 6.3(a) and Section 7.3, (b) with respect to Sections 8.5, 14.1,
14.2 and 14.16 and (c) to the extent such termination results from a party's
willful and material breach of the warranties and representations made by it, or
willful and material failure in performance of any of its covenants, agreements
or obligations hereunder.
13.4 FORCE MAJEURE. DSC, CWSG and Water Company agree that,
notwithstanding anything to the contrary in this Agreement, in the event this
Agreement is terminated as a result of a failure of a condition, which failure
is due to a natural disaster or other act of God, or an act of war, and provided
neither party has materially failed to observe the obligations of such party
under this Agreement, neither party shall be obligated to pay to the other party
to this Agreement any expenses or otherwise be liable hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 EXPENSES.
(a) CWSG hereby agrees that if this Agreement is terminated by DSC
pursuant to Section 13.1(c) or by DSC or CWSG pursuant to Section 13.1(e), and
DSC has not failed in any material respect to perform it obligations under this
Agreement, CWSG shall promptly, and in any event within 10 days after such
termination, pay DSC all actual Expenses (as defined in Section 14.1(c) below)
of DSC but not to exceed $1,500,000.
(b) DSC hereby agrees that if the Agreement is terminated by CWSG
pursuant to Section 13.1(b) with respect to the failure of DSC shareholders to
approve the Agreement and the transactions contemplated hereby, or pursuant to
Section 13.1(d) or Section 13.1(h), and CWSG has not failed in any material
respect to perform its obligations under this Agreement, DSC shall promptly and
in any event within 10 days after such termination pay CWSG all actual Expenses
of CWSG, but not to exceed $1,500,000.
(c) Except as otherwise provided herein, all Expenses incurred by CWSG
or DSC shall be borne solely and entirely by the party which has incurred the
same. "Expenses" as used
57
in this Agreement shall include all out of pocket expenses incurred by a
party, or on its behalf, in connection with or related to the authorization,
preparation and execution of this Agreement, the solicitation of shareholder
approvals and all other matters related to the closing of the transactions
contemplated hereby, including, without limitation of the generality of the
foregoing, all fees and expenses of agents, representatives, counsel and
accountants employed by either such party or its affiliates.
(d) [deleted].
14.2 LIQUIDATED DAMAGES; BUST-UP FEES.
(a) [deleted].
(b) If the Merger is not consummated by reason of one of the following
events and CWSG has not failed to any material extent to perform its obligations
under this Agreement, DSC shall pay to CWSG, as liquidated damages, the sum of
$1,500,000: (i) the Board of Directors of DSC or any committee thereof shall
have withdrawn or modified in a manner adverse to CWSG its approval or
recommendation of the Merger or this Agreement or shall have recommended a
Superior Proposal; (ii) DSC shall have entered into any agreement (other than a
confidentiality agreement) with respect to a Superior Proposal; (iii) the Board
of Directors of DSC shall have resolved to do any of the foregoing set forth in
(i) or (ii) above; or (iv) those four members of the Board of Directors of DSC
who are affiliates, directors, shareholders or officers of the two largest
shareholders of DSC as of the date of this Agreement all shall have withdrawn or
modified in a manner adverse to CWSG their approval or recommendation of the
Merger or this Agreement or all shall have recommended a Superior Proposal.
(c) If the Merger is not consummated and, within 24 months after the
effective date of the termination of this Agreement, DSC shall have consummated
a Superior Proposal with the person whose Superior Proposal was recommended by
the Board of Directors of DSC and CWSG has not failed to any material extent to
perform its obligations under this Agreement, DSC shall pay to CWSG, as
liquidated damages, the sum of $1,200,000 which amount is in addition to amounts
payable to CWSG pursuant to Section 14.2(b).
(d) The party owing liquidated damages ("Paying Party") shall make
such payment to that party which is owed liquidated damages ("Receiving Party")
in immediately available funds within 30 days following the day on which the
Receiving Party properly notifies the Paying party in writing that one of the
events described in Section 14.2, subdivisions (b) and (c) hereof has occurred.
The Paying Party shall make such payment as compensation and liquidated damages
for the loss suffered by Receiving Party as a result of the failure of the
Merger to be consummated and to avoid the difficulty of determining damages in
that circumstance.
(e) The payment of liquidated damages to CWSG, pursuant to subdivision
(b) or (c) of this Section 14.2, shall be a one time payment regardless of the
number of times an event occurs or the number of events which occur that would
trigger payments.
58
(f) Any liquidated damages paid in accordance with this Section 14.2
which sum represents (i) the Receiving Party's direct costs and expenses
(including, but not limited to, fees and expenses of financial or other
consultants, printing costs, accountants, and counsel) incurred in negotiating
and undertaking to carry out the transactions contemplated by this Agreement,
including the Receiving Party's management time devoted to negotiation and
preparation for the transactions contemplated by this Agreement; (ii) the
Receiving Party's indirect costs and expenses incurred in connection with the
transactions contemplated by this Agreement; and (iii) the Receiving Party's
loss as a result of the transactions contemplated by this Agreement not being
consummated. Any payment previously made by the Paying Party pursuant to
Section 14.1(a) or 14.1(b) hereof shall be credited against any amount due under
this Section.
14.3 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another shall be in writing and delivered
personally or by confirmed facsimile transmission or sent by registered or
certified mail, postage prepaid, with return receipt requested, addressed as
follows:
To CWSG: California Water Service Group
or Water Company 0000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxx
President & CEO
Facsimile Number: (000) 000-0000
With a copy to: Nossaman, Guthner, Xxxx & Xxxxxxx, LLP
00 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile Number: (000) 000-0000
To DSC: Xxxxxxxxx Services Corporation
00000 Xxxxx Xxxxxxx Xxxxxx
Xxxx Xxxxx, XX 00000-0000
Attention: Xxxxx Xxxxx
President & CEO
Facsimile Number: (000) 000-0000
With a copy to: Fulbright & Xxxxxxxx, LLP
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
Facsimile Number: (000) 000-0000
Any such notice, request, instruction or other document shall be deemed
received on the date delivered personally or delivered by confirmed facsimile
transmission, or on the third
59
business day after it was sent by registered or certified mail, postage
prepaid. Any of the persons shown above may change its address for purposes
of this Section by giving notice in accordance herewith.
14.4 SUCCESSORS AND ASSIGNS. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective transferees, successors and assigns; provided, however, that
this Agreement and all rights, privileges, duties and obligations of the parties
hereto may not be assigned or delegated by any party hereto and any such
attempted assignment or delegation shall be null and void.
14.5 COUNTERPARTS. This Agreement and any exhibit hereto may be executed
in one or more counterparts, all of which, taken together, shall constitute one
original document and shall become effective when one or more counterparts have
been signed by the appropriate parties and delivered to each party hereto.
14.6 EFFECT OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Agreement or in any List shall terminate
immediately after the Effective Time of the Merger.
14.7 THIRD PARTIES. Each party hereto intends that this Agreement shall
not benefit or create any right or cause of action to any person other than
parties hereto. As used in this Agreement the term "parties" shall refer only
to CWSG, Water Company or DSC as the context may require.
14.8 LISTS, EXHIBITS; INTEGRATION. Each List, exhibit and letter or other
documents delivered pursuant to this Agreement or referred to in Section 2.8
shall be in writing and shall constitute a part of the Agreement, although Lists
and letters or other documents need not be attached to each copy of this
Agreement. Any information unintentionally omitted in any list furnished by one
party to the other, but included in a separate list furnished by the same party
to the other, shall be deemed included in the list from which the information
was unintentionally omitted. This Agreement, together with such Lists, exhibits
and letters or other documents, constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection therewith.
14.9 KNOWLEDGE. Whenever any statement herein or in any List, certificate
or other document delivered to any party pursuant to this Agreement is made "to
the knowledge" or "to the best knowledge" of any party or another Person,
such party or other Person shall make such statement only after conducting such
investigation as may be reasonable under the circumstances of the subject matter
thereof, and each such statement shall constitute a representation that such
investigation, if any, has been conducted.
14.10 GOVERNING LAW. This Agreement is made and entered into in the State
of California, except to the extent that the provisions of federal law are
mandatorily applicable, and the laws of the State of California shall govern the
validity and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder.
60
14.11 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
14.12 SEVERABILITY. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
14.13 WAIVER AND MODIFICATION; AMENDMENT. No waiver of any term, provision
or condition of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such term, provision or condition of this Agreement. Except as
otherwise required by law, this Agreement and the Agreement of Merger, when
executed and delivered, may be modified or amended by action of the Boards of
Directors of CWSG, Water Company or DSC without action by their respective
shareholders. This Agreement may be modified or amended only by an instrument
of equal formality signed by the parties or their duly authorized agents.
14.14 ATTORNEYS' FEES. If any legal action or any arbitration upon mutual
agreement is brought for the enforcement of this Agreement or because of an
alleged dispute, controversy, breach, or default in connection with this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
14.15 ARBITRATION. Any controversy arising out of, or relating to, this
Agreement or the other transactions contemplated by this Agreement, or any
modification or extension thereof, including any claim for damages, shall be
settled by arbitration in San Francisco, California. Such arbitration shall be
conducted in accordance with the commercial rules then obtaining of the American
Arbitration Association, except as otherwise specified herein. The arbitration
shall be conducted by a panel of three arbitrators. Each party shall select one
arbitrator, and the two arbitrators so chosen shall select the third arbitrator.
In the event that the two arbitrators chosen by the parties can not agree on the
third arbitrator, the commercial rules then obtaining of the American
Arbitration Association shall apply to determine who the third arbitrator shall
be. The arbitration panel shall be selected within sixty (60) days after the
date arbitration is first sought, and the arbitration panel shall render a
decision on the matter within one hundred twenty (120) days after submission of
the dispute to the arbitration panel, unless the parties agree in writing to a
longer period of time. The decision of a majority of the arbitrators shall be
binding upon both parties, and the parties hereby consent to the jurisdiction of
any competent court for the purpose of the entry of a judgment upon any award
rendered by the arbitration panel.
14.16 OTHER RIGHTS AND REMEDIES.. Notwithstanding any other provision of
this Agreement, including, without limitation, Sections 14.1 and 14.2, as an
inducement for DSC to enter into this Agreement, if this Agreement is terminated
by DSC because of a failure by CWSG to comply with its obligations under Section
7.1(a) because CWSG entered into an agreement to
61
acquire, merge or consolidate with another entity, which by its terms
requires that the transactions contemplated by this Agreement shall not be
completed by the Drop Dead Date or which transaction any Governmental Entity
advised CWSG in writing would result in the disapproval of the transactions
contemplated in this Agreement, if such transaction is consummated prior to
termination of this Agreement or during the twelve-month period following
termination of this Agreement, then, in addition to the Expenses provided for
in Section 14.1 (but not limited to $1,500,000), DSC shall be entitled to all
other rights and remedies available to it at law or in equity, which rights
and remedies shall not be subject to the limitations contained in Section
14.1 and 14.2.
[SIGNATURE PAGE FOLLOWS]
62
IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement as of the day and year first above written.
California Water Service Group,
a California corporation
By: /s/
-----------------------------
Xxxxxx X. Xxx
Chairman of the Board
By: /s/
------------------------------
Xxxxx X. Xxxxxx
President & Chief Executive Officer
California Water Service Company,
a California corporation
By: /s/
-------------------------------
Xxxxxx X. Xxx
Chairman of the Board
By: /s/
-------------------------------
Xxxxx X. Xxxxxx
President & Chief Executive Officer
Xxxxxxxxx Services Corporation,
a California corporation
By: /s/
---------------------------------
Xxxxx X. Xxxxx
Chairman of the Board and
President & Chief Executive Officer
By: /s/
--------------------------------
Xxxx X. Xxxxxx
Chief Financial Officer
63
EXHIBIT A
AGREEMENT OF MERGER
AGREEMENT OF MERGER
OF
CALIFORNIA WATER SERVICE COMPANY
AND
XXXXXXXXX SERVICES CORPORATION
This Agreement of Merger is entered into as of this ________ day of
__________, ____, among Xxxxxxxxx Services Corporation, a California corporation
(herein "DSC"), California Water Service Company, a California corporation
(herein "Subsidiary") and California Water Service Group, a California
corporation (herein "Parent").
1. DSC shall be merged into Subsidiary.
2. Upon such merger, each outstanding share of DSC, other than
shares held by shareholders who perfect their rights as dissenting shareholders
under California law, shall be converted to ________ shares of the Common Stock
of Parent.
3. Upon such merger, the outstanding shares of Subsidiary shall
remain outstanding and are not affected by the merger.
4. The articles of incorporation of Subsidiary are not amended by
the merger.
5. The conversion of shares as provided by this Agreement shall
occur automatically upon the effective date without action by the holders
thereof.
6. Fractional shares shall not be issued, but cash shall be paid for
any such fraction in an amount proportionate to the fair value of a whole share
as determined by the board of directors of Parent and in accordance with the
Agreement and Plan of Reorganization referred to in 10 below.
7. Upon such merger, the separate existence of DSC ceases and
Subsidiary shall succeed, without other transfer, to all the rights and property
of DSC and shall be subject to all the debts and liabilities thereof in the same
manner as if Subsidiary had itself incurred them. All rights of creditors and
all liens upon the property of each corporation shall be preserved unimpaired,
provided that such liens upon property of DSC shall be limited to the property
affected thereby immediately prior to the time the merger is effective.
8. Upon the merger becoming effective, DSC, through the persons who
were its officers immediately prior to the merger, shall execute or cause to be
executed such further assignments, assurances or other documents as may be
necessary or desirable to confirm title to properties, assets and rights in
Subsidiary.
A-1
9. This Agreement is intended as a plan of reorganization within the
meaning of Section 368 of the Internal Revenue Code.
10. The corporations parties to this Agreement are also parties to an
Agreement and Plan of Reorganization dated November 13, 1998. The two
agreements are intended to be construed together in order to effectuate their
purposes.
11. The effective date of the merger is the date upon which a copy of
this Agreement is filed with the Secretary of State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement.
CALIFORNIA WATER SERVICE GROUP
By:______________________________________
By:______________________________________
CALIFORNIA WATER SERVICE COMPANY
By:______________________________________
By:______________________________________
XXXXXXXXX SERVICES CORPORATION
By:______________________________________
By:______________________________________
A-2
EXHIBIT B
FORM OF AFFILIATE AGREEMENT
Exhibit B
AFFILIATE LETTER
California Water Service Group
0000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Xxxxxxxxx Services Corporation, a California corporation ("DSC"), for purposes
of paragraphs (c) and (d) of Rule 145 promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"),
and for purposes of generally accepted accounting principles ("GAAP") as such
term relates to pooling-of-interests accounting treatment for certain business
combinations under GAAP and the interpretations of the SEC or its staff,
including, without limitation, Section 201.01 of the SEC's Codification of
Financial Reporting Policies ("Section 201.01") and the SEC's Staff Accounting
Bulletin No. 65.
California Water Service Group ("CWSG"), California Water Service Company
("Water Company") and DSC have entered into an Agreement and Plan of
Reorganization, dated as of November 13, 1998 (the "Merger Agreement").
Pursuant to the terms of the Merger Agreement, upon consummation of the Merger
described therein (the "Merger"), I will be entitled to receive shares of CWSG
common stock, no par value ("CWSG Stock"), in exchange for my shares of common
stock of DSC ("DSC Stock"). This agreement is hereinafter referred to as this
"Letter Agreement."
A. I represent and warrant to, and agree with, CWSG as follows;
1. I have read this Letter Agreement and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, pledge, transfer or otherwise dispose of shares of CWSG Stock and DSC
Stock, to the extent I felt necessary, with my counsel or counsel for DSC.
2. I have been advised that any issuance of shares of CWSG Stock to me
pursuant to the Merger will be registered with the SEC. I have also been
advised, however, that, because I may be an "affiliate" of DSC at the time the
Merger will be submitted for a vote of the shareholders of DSC and my offer,
sale, transfer or other disposition of shares of CWSG Stock has not been
registered under the Act, I shall not make any offer, sale, pledge, transfer or
other disposition of such shares unless (i) such offer, sale, transfer or other
disposition of such shares is subject to an effective registration statement and
to the availability of a prospectus under the Act, (ii) a sale of such shares is
made in conformity with the provisions of Rule 145(d) under the Act (and I agree
to provide those representations as CWSG may reasonably request in order to
determine such conformity) or (iii) in an opinion of counsel, in form and
substance reasonably satisfactory to CWSG, some other
B-1
Affiliate Letter
Page 2
exemption from registration is available with respect to any such proposed
disposition of such shares. I further agree that I will not cause my shares
to become dissenting shares as defined in Section 1300 of the CGCL.
3. Notwithstanding the foregoing and any other agreements on my part in
connection with CWSG Stock and any other capital stock of CWSG and DSC Stock
and any other capital stock of DSC, I hereby agree that I will not, without
prior written consent of CWSG, pledge, sell or otherwise reduce my risk
relative to any shares of DSC Stock or CWSG Stock (whether received in the
Merger or otherwise) during the period commencing 30 days prior to the
effective date of the Merger and continuing until financial results covering
at least thirty (30) days of combined operations have been published
following the effective date of the Merger within the meaning of Section
201.01; provided, however, that this paragraph shall not prevent me from
selling, transferring or disposing (in each case, with prior written approval
of CWSG) of such number of shares of CWSG Stock or DSC Stock as will not, in
the reasonable judgment of accountants to CWSG, interfere with or prevent the
Merger from being accounted for as a "pooling-of-interests."
4. Stop transfer instructions may be given to the transfer agent of DSC
with respect to the shares of DSC Stock and to the transfer agent of CWSG
with respect to the shares of CWSG Stock in connection with the restrictions
set forth herein, and there will be placed on the certificate representing
shares of CWSG Stock I receive pursuant to the Merger, or any certificates
delivered in substitution therefor, a legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement between the
registered holder hereof and CWSG, a copy of which agreement is on
file at the principal offices of CWSG. A copy of such agreement shall
be provided to the holder hereof without charge upon receipt by CWSG
of a written request.
5. Unless a transfer of my shares of CWSG Stock is a sale made in
conformity with the provisions of Rule 145(d) under the Act, or made pursuant
to any effective registration statement under the Act, CWSG reserves the
right to put an appropriate legend on the certificates issued to my
transferee.
6. I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse occupying my home,
(iii) any trust or estate in which I, my spouse or any such relative owns at
least a 10% beneficial interest or of which any of us serves as trustee,
executor or in any similar capacity and (iv) any corporation or other
organization in which I, my spouse or any such relative owns at least a 10%
of any class of equity securities or of the equity interest.
7. I further recognize that in the event I become a director or officer
of CWSG upon consummation of the Merger, any purchase or sale of the capital
stock of CWSG by me may be subject to liability pursuant to Section 16(b) of
the Securities Exchange Act of 1934, as amended.
B-2
Affiliate Letter
Page 3
8. Execution of this letter should not be construed as an admission on
my part that I am an "affiliate" of DSC as described in the first paragraph
of this Letter Agreement or as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after that date of this Letter
Agreement.
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated
in accordance with its terms. It is also understood and agreed that this
Letter Agreement shall terminate and be of no further force and effect and
the stop transfer instructions set forth in Paragraph 4 above shall be lifted
forthwith upon the later of (i) such time as financial results covering at
least thirty (30) days of combined operations following the effective date of
the Merger have been published within the meaning of Section 201.01 and (ii)
delivery by the undersigned to CWSG of a copy of a letter from the staff of
the SEC, an opinion of counsel in form and substance reasonably satisfactory
to CWSG, or representations or other evidence reasonably satisfactory to
CWSG, to the effect that a transfer of my shares of CWSG Stock represented by
such certificate or certificates will not violate the Act or any of the rules
and regulations of the SEC thereunder. In addition, it is understood and
agreed that the legend set forth in Paragraph 4 above shall be removed
forthwith from the certificate or certificates representing my shares of CWSG
Stock if I shall have delivered to CWSG a copy of a letter from the staff of
the SEC, an opinion of counsel in form and substance reasonably satisfactory
to CWSG or other representations or evidence reasonably satisfactory to CWSG
that a transfer of my shares of CWSG Stock represented by such certificate or
certificates will be a sale made in conformity with the provisions of Rule
145(d) under the Act, or made pursuant to an effective registration statement
under the Act, or that such legend is not required for purposes of the
Securities Act or the rules and regulation promulgated thereunder.
This Letter Agreement shall be binding on my heirs, legal representative
and successors.
Very truly yours,
____________________________
Dated: _____________________
Accepted this ______ day
of _____________, 199__
California Water Service Group
By: ________________________
Name:
Title:
B-3
