SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 28, 1998
CHESAPEAKE UTILITIES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 001-11590 51-0064146
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(State of other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
909 Silver Lake Boulevard, Dover, Delaware 19904
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(Address of principal executive offices) (Zip Code)
(302) 734-6799
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
Item 5. Other Events
Chesapeake Utilities Corporation ("Chesapeake") has agreed
to purchase all of the outstanding shares of Xeron, Inc.
("Xeron"), a privately held natural gas liquids trading company
headquartered in Houston, Texas. In the transaction, the Xeron
shareholders will receive 475,000 shares of Chesapeake common stock
for all the outstanding common stock of Xeron. After the purchase
of Xeron's stock, the total number of Chesapeake outstanding shares
will be approximately 5,064,000.
The transaction, which is subject to regulatory and other
required approvals and other conditions of closing, is expected to
close by May 31, 1998. Attached herein as Exhibits I and II,
respectively, are copies of the executed Agreement and Plan of
Merger and the press release relating thereto.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned hereunto duly authorized.
CHESAPEAKE UTILITIES CORPORATION
By: /s/ RALPH J. ADKINS
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Ralph J. Adkins
Chairman of the Board and
Chief Executive Officer
Dated: April 29, 1998
Exhibit I.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement")
is made and entered into as of April 28, 1998, by and among
Chesapeake Utilities Corporation, a Delaware corporation
("Chesapeake"), CPK Sub-C, Inc., a Delaware corporation and a
wholly owned subsidiary of Chesapeake ("CPK-Sub-C"), Xeron,
Inc., a Mississippi corporation ("Xeron"), J. Phillip Keeter,
Earnest A. Allen, Jr. and Patrick E. Armand, residents of
Texas (each individually a "Shareholder," together, the
"Shareholders," and with Xeron collectively, the "Sellers").
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject
to the conditions hereof, as promptly as practicable following
the satisfaction or waiver of the conditions set forth in
Article VIII hereof, but in no event later than two business
days thereafter, unless the parties hereto shall otherwise
agree, articles of merger (the "Articles of Merger") and a
certificate of merger (the "Certificate of Merger") providing
for the merger of CPK-Sub-C with and into Xeron (the "Merger")
shall be duly prepared, executed and filed by Xeron, as the
surviving corporation (the "Surviving Corporation"), in
accordance with the relevant provisions of the Mississippi
General Corporation Law (the "MGCL") and the Delaware General
Corporation Law (the "DGCL") and the Merger shall become
effective. Following the Merger, the Surviving Corporation
shall continue under the same name as Xeron and the separate
corporate existence of CPK-Sub-C shall cease. The date and
time the Merger becomes effective is referred to herein as the
"Effective Time." Immediately prior to the filing of the
Articles of Merger and the Certificate of Merger, a closing
(the "Closing") shall take place at the offices of Xeron in
Houston, Texas or at such other place and at such time as the
parties shall agree.
SECTION 1.2 EFFECTS OF THE MERGER. The Merger
shall have the effects set forth in Section(s) 79-4-11.01
through 79-4-11.07 of the MGCL and Sections 259, 260 and 261
of the DGCL.
SECTION 1.3 CERTIFICATE OF INCORPORATION AND BY-
LAWS. The Articles of Incorporation of Xeron and the By-laws
of CPK-Sub-C (both of which have been heretofore delivered by
Xeron to Chesapeake or Chesapeake to Xeron, as the case may
be), in each case as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation and By-
laws of the Surviving Corporation until duly amended in
accordance with applicable law.
SECTION 1.4 DIRECTORS. The directors of CPK-Sub-C
immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office
until their respective successors are duly elected and
qualified in accordance with the Articles of Incorporation and
By-laws of the Surviving Corporation, or their earlier death,
resignation or removal.
SECTION 1.5 OFFICERS. The officers of CPK-Sub-C
immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation and shall serve as the
officers of the Surviving Corporation at the pleasure of the
Board of Directors of the Surviving Corporation.
SECTION 1.6 CONVERSION OF SHARES. At the Effective
Time, by virtue of the Merger and without any action on the
part of the holders thereof:
(a) Subject to Section 2.2, each issued and
outstanding share of common stock, par value $10.00 per share,
of Xeron (the "Xeron Common Stock") shall automatically be
converted into the right to receive (the "Stock
Consideration") that number of fully paid and nonassessable
shares of common stock, par value $.4867 per share, of
Chesapeake (the "Chesapeake Common Stock"), which shall be
determined by dividing a total of 475,000 shares of Chesapeake
Common Stock by the aggregate number of shares of Xeron Common
Stock outstanding at the Effective Time, provided that in the
event of a stock split or reverse stock split of the
Chesapeake Common Stock prior to the Effective Time, the
number of shares of Chesapeake Common Stock to be issued shall
be adjusted proportionately to prevent either dilution or
enlargement of the rights of the Shareholders.
(b) Each share of capital stock of Xeron that
is held in the treasury of Xeron shall be canceled and retired
and cease to exist and no consideration shall be issued in
exchange therefor.
(c) The issued and outstanding shares of
capital stock of CPK-Sub-C shall be converted into and become,
in the aggregate, one thousand fully paid and nonassessable
shares of common stock of the Surviving Corporation.
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.1 SURRENDER OF CERTIFICATES. At the
Effective Time, each of the Shareholders shall surrender the
certificate or certificates that formerly represented that
Shareholder's shares of Xeron Common Stock to the Surviving
Corporation, and shall thereupon receive in exchange therefor
the Stock Consideration for each share of Xeron Common Stock
formerly represented by such certificate or certificates, and
the certificates so surrendered shall forthwith be cancelled.
SECTION 2.2 NO FRACTIONAL SHARES. No certificate
or scrip representing fractional shares of Chesapeake Common
Stock shall be issued upon the surrender for exchange of
certificates of Xeron Common Stock, and such fractional share
interests will not entitle the owner thereof to vote or to any
rights of a shareholder of Chesapeake. In lieu of any such
fractional share interest, Chesapeake shall pay to each
shareholder of Xeron who otherwise would be entitled to
receive a fractional share of Chesapeake Common Stock (after
aggregating all certificates formerly representing shares of
Xeron Common Stock held by the same holder) an amount of cash
determined by multiplying (i) the average of the closing
prices of Chesapeake Common Stock on the New York Stock
Exchange ("NYSE"), as reported by The Wall Street Journal, for
the twenty (20) consecutive trading days immediately preceding
the second day prior to the Effective Time, by (ii) the
fraction of a share of Chesapeake Common Stock to which such
holder would otherwise be entitled pursuant to Section 1.6(a)
of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Each of the Sellers represents and warrants to
Chesapeake and CPK-Sub-C as follows:
SECTION 3.1 CORPORATE ORGANIZATION.
(a) Xeron is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Mississippi and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted. Section 3.1(a)
of the disclosure schedule to be delivered to Chesapeake prior
to the date of this Agreement (the "Xeron Disclosure
Schedule") sets forth the name of each jurisdiction in which
Xeron is qualified or licensed to do business. Xeron is duly
qualified or licensed to do business and is in good standing
in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary unless failure
to qualify would not result in a material adverse effect on
Xeron. Xeron has heretofore delivered to Chesapeake accurate
and complete copies of its Certificate of Incorporation and
By-laws, as in effect as of the date of this Agreement.
(b) Xeron does not own, directly or
indirectly, any capital stock or other equity securities or
similar interest in any corporation, partnership, joint
venture, or other business association or entity except as set
forth in Section 3.1(b) of the Xeron Disclosure Schedule.
SECTION 3.2 CAPITALIZATION. The authorized capital
stock of Xeron consists of 7500 shares of Xeron Common Stock,
of which 6750 shares are issued and outstanding. All of the
issued and outstanding shares of Xeron Common Stock are
validly issued, fully paid and nonassessable. There are no
subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character
(whether or not currently exercisable) obligating Xeron to
issue, transfer or sell any of its securities. Section 3.2 of
the Xeron Disclosure Schedule sets forth (i) the name of the
holder and beneficial owner of each outstanding share of Xeron
Common Stock, and (ii) the number of shares of Xeron Common
Stock held by such holder.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT;
BINDING EFFECT.
(a) Xeron has full corporate power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized and approved by the Board of Directors of
Xeron and by the unanimous vote or written consent of the
shareholders of Xeron and no other corporate proceedings on
the part of Xeron are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by
Xeron and constitutes a legal, valid and binding agreement of
Xeron, enforceable against Xeron in accordance with its terms.
(b) This Agreement has been duly and validly
executed and delivered by each Seller and constitutes a legal,
valid and binding agreement of each Seller, enforceable
against each Seller in accordance with its terms.
SECTION 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except for the filing and recordation of the Articles of
Merger, as required by the MGCL, and the Certificate of
Merger, as required by the DGCL, and as set forth in Section
3.4 of the Xeron Disclosure Schedule, no filing with or
notification to, and no permit, authorization, consent, waiver
or approval of, any government, executive official thereof,
governmental or regulatory authority, agency, commission, or
court of competent jurisdiction, domestic or foreign (a
"Governmental Entity"), is necessary for the consummation by
the Sellers of the transactions contemplated by this
Agreement. Except as set forth in Section 3.4 of Xeron
Disclosure Schedule, neither the execution and delivery of
this Agreement by the Sellers nor the consummation by the
Sellers of the transactions contemplated hereby nor compliance
by the Sellers with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of Xeron, (ii) result in
a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration or
result in the creation of any mortgage, pledge, charge,
security interest, claim or encumbrance of any kind
(collectively, a "Lien")) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which
any Seller is a party or by which it or any of its properties
or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
the Sellers or any of their properties or assets.
SECTION 3.5 ABSENCE OF CERTAIN CHANGES. Except as
and to the extent set forth in Section 3.5 of the Xeron
Disclosure Schedule, since November 30, 1997 Xeron has not:
(a) suffered any Material Adverse Change;
"Material Adverse Change" means (i) any material change in the
nature of Xeron's business, assets, financial condition,
results of operations, or prospects, (ii) the loss of a
material contract (other than spot contracts which have been
performed by the parties thereto in accordance with their
terms), and (iii) any change that creates a material
limitation on the ability of Xeron to conduct its business as
heretofore conducted;
(b) paid, discharged or otherwise satisfied
any material claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business
and consistent with past practice;
(c) permitted or allowed any of its material
property or assets (real, personal or mixed, tangible or
intangible) to be subjected to any Liens, except for (i) Liens
for current taxes or other governmental charges not yet due
and payable, or the amount or validity of which is being
contested by the appropriate proceedings and for which an
appropriate reserve has been established and is reflected in
the Financial Statements (as defined below), (ii) Liens
disclosed in Sections 3.23(b) and 3.23(c) of the Xeron
Disclosure Schedule, (iii) Liens of carriers, warehousemen and
mechanics and similar Liens incurred in the ordinary course of
business, and (iv) zoning, entitlement and other land use
regulations (collectively, "Permitted Liens");
(d) sold, transferred, or otherwise disposed
of any of its properties or assets (real, personal or mixed,
tangible or intangible), except in the ordinary course of
business and consistent with past practice;
(e) granted any increase in the compensation
or benefits of any director, officer or employee (including
any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the
compensation or benefits payable or to become payable to any
director, officer or employee, and no such increase is
customary on a periodic basis or required by agreement or
understanding;
(f) made any change in Xeron's severance
policy or practices;
(g) made any expenditure capitalized in
accordance with
generally accepted accounting principles or acquired any
property or assets for a cost in excess of $25,000, in the
aggregate, other than in the ordinary course of business;
(h) declared, paid or set aside for payment
any dividend or other distribution in respect of its capital
stock or redeemed, purchased or otherwise acquired, directly
or indirectly, any shares of capital stock or other securities
of Xeron;
(i) made any change in any method of tax or
financial accounting or accounting practice or made or changed
any election for Federal income tax purposes;
(j) paid, loaned or advanced any amount to, or
sold, transferred or leased any properties or assets (real,
personal or mixed, tangible or intangible) to, or entered into
any agreement or arrangement with, any of its officers,
directors or shareholders or any affiliate or associate of any
of its officers, directors or shareholders except for
directors' fees, and compensation to officers at rates not
exceeding the rates of compensation paid during the six month
period immediately prior to November 30, 1997;
(k) agreed or planned, whether in writing or
otherwise, to take any action described in this Section.
SECTION 3.6 FINANCIAL STATEMENTS. Xeron shall have
furnished to Chesapeake prior to the date of this Agreement
audited balance sheets for the last two completed fiscal
years, audited statements of income, equity and cash flows of
Xeron for the last three completed fiscal years and an
unaudited balance sheet and statement of income for the nine
month period ending February 28, 1998 (collectively, the
"Financial Statements"). The audited financial statements are
true, correct and complete in all material respects, fairly
present, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be
indicated in Section 3.6 of the Xeron Disclosure Schedule) the
financial position of Xeron as of the dates thereof and its
consolidated results of operations and changes in financial
position and changes in stockholders equity and cash flows for
the periods then ended. Such unaudited balance sheet and
statement of income shall be certified by the Chief Executive
Officer of Xeron as having been prepared under his
supervision; as presenting the financial position of Xeron in
accordance with generally accepted accounting principles
consistently applied (except as may be indicated in Section
3.6 of the Xeron Disclosure Schedule); to be true, correct and
complete in all material respects; and to reflect accurately
the results of operations of Xeron for such nine month period.
SECTION 3.7 NO UNDISCLOSED LIABILITIES. Except as
and to the extent provided in the Financial Statements or
Section 3.7 of the Xeron Disclosure Schedule, Xeron does not
have any material liabilities (whether contingent or absolute,
direct or indirect, known or unknown to Xeron or matured or
unmatured) not fully reflected or fully reserved against in
the Financial Statements. Except as set forth in Section 3.7
of the Xeron Disclosure Schedule, since November 30, 1997,
Xeron has not incurred any liability except in the ordinary
course of business consistent with past practice.
SECTION 3.8 NO DEFAULT. Except as set forth in
Section 3.8 of the Xeron Disclosure Schedule, Xeron is not in
default or violation (and no event has occurred that with
notice or the lapse of time or both would constitute a default
or violation) of any term, condition or provision of (i) its
Certificate of Incorporation or its By-laws, (ii) any note,
bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation to which Xeron is a party or by
which it or any of its properties or assets are bound, or
(iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to Xeron or any of its properties or
assets, unless any such default or violation would not have a
material adverse effect on Xeron.
SECTION 3.9 LITIGATION. Except as set forth in
Section 3.9 of the Xeron Disclosure Schedule, there is no
action, suit, proceeding, arbitration, or investigation
pending or, to the knowledge of Xeron, threatened involving
Xeron or any of its properties or assets. Neither Xeron nor
any of its properties or assets is subject to any order, writ,
judgment, injunction, decree, determination or award. There
is no action, suit, proceeding, arbitration or investigation
initiated by Xeron that is currently pending or that Xeron
presently intends to initiate.
SECTION 3.10 COMPLIANCE WITH APPLICABLE LAW.
Except as set forth in Section 3.10 of the Xeron Disclosure
Schedule, the business of Xeron has not been conducted in
violation of any applicable law, ordinance, rule, regulation,
decree or order of any Governmental Entity, unless such
violation will not result in a material adverse effect on
Xeron. Xeron holds all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of its businesses (the "Xeron
Permits") and is in compliance with the terms of the Xeron
Permits, unless the failure to obtain any Xeron Permits or be
in compliance therewith will not result in a material adverse
effect on Xeron. Except as set forth in Section 3.10 of the
Xeron Disclosure Schedule, Xeron has not received any
notification of any asserted present or past failure by Xeron
to comply with such laws, rules or regulations or such Xeron
Permits which have not been previously cured, and there is, to
the knowledge of Xeron, no pending audit, investigation or
other review by any Governmental Entity to determine the
existence of any violation of such laws, rules or regulations
or such Xeron Permits.
SECTION 3.11 TAXES.
(a) Since June 1, 1979, Xeron has been a C
corporation for purposes of the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated
thereunder (the "Code").
(b) The amounts, if any, provided as a
liability on the Financial Statements for all Taxes (as
hereinafter defined) ("tax liability amounts") are adequate to
cover all unpaid liabilities for all Taxes, whether or not
disputed, that have accrued or will accrue with respect to or
are applicable to the period ended on and including the
Effective Time (including, without limitation, as a result of
the transactions contemplated by this Agreement) or to any
years and periods prior thereto and for which Xeron may be
directly or contingently liable in its own right or as a
transferee of the assets of, or successor to, any person;
provided, however, that with respect to tax liability amounts
reflected on the unaudited financial statements for the nine-
month period ending February 28, 1998, the term "adequate"
means that such amounts are reasonable estimates made in good
faith based on currently available information. Except as set
forth in Section 3.11(b) of the Xeron Disclosure Schedule,
Xeron has incurred no Tax liabilities other than in the
ordinary course of business for any taxable year for which the
applicable statute of limitations has not expired. There are
no Liens for Taxes (other than Liens for current Taxes not yet
due and payable, or the amount or validity of which is being
contested by the appropriate proceedings and for which an
appropriate reserve has been established and is reflected in
the Financial Statements) upon the properties or assets of
Xeron. Xeron has not granted or been requested to grant any
waiver of any statutes of limitations applicable to any claim
for Taxes. Xeron has made no elections for federal income tax
purposes, except for customary elections for inventory,
amortization and depreciation.
(c) Xeron (i) has filed (or has had filed on
its behalf) or has caused to be filed timely all Tax Returns
(as hereinafter defined) required by applicable law to be
filed and (ii) has paid all Taxes shown thereon as owing. To
the knowledge of Xeron, each such Tax Return is true, accurate
and complete and Xeron has paid all Taxes as are due, except
such as are being contested in good faith by appropriate
proceedings and with respect to which Xeron is maintaining
reserves adequate for their payment. All Taxes that Xeron is
required by law to withhold or collect, including sales and
use taxes, and amounts required to be withheld for Taxes of
employees and other withholding taxes, have been duly withheld
or collected and, to the extent required, have been paid over
in a timely manner to the proper governmental authorities or
are held in separate bank accounts for such purpose.
(d) No extensions of time have been granted
for Xeron to file any Tax Return required by applicable law to
be filed, which have expired, without such Tax Return having
been filed.
(e) Except as disclosed in Section 3.11(e) of
the Xeron Disclosure Schedule, none of the Tax Returns filed
by or on behalf of Xeron are currently undergoing any Audit
(as hereinafter defined), Xeron has received no notice that
any Tax Return will undergo any Audit, and no facts exist that
would constitute grounds for the assessment against Xeron of
any material additional Taxes by any governmental authority
for periods that have not been audited. No material issues
have been raised in any Audit by any governmental authority
with respect to the business and operations of Xeron that, by
application of similar principles, reasonably could be
expected to result in a proposed adjustment to the liability
for Taxes for any other period not so examined. No deficiency
or adjustment for any Taxes has been threatened, proposed,
asserted, or assessed against Xeron.
(f) No power of attorney has been granted by
Xeron with respect to any matter relating to Taxes which is
currently in force.
(g) Xeron is not a party to any agreement
providing for the allocation or sharing of Taxes.
(h) Xeron has not entered into any agreement
that would result in the disallowance of any tax deduction
pursuant to Code Section 280G.
(i) No "consent" within the meaning of Code
Section 341(f) has been filed with respect to Xeron.
(j) Except as disclosed in Section 3.11(j) of
the Xeron Disclosure Schedule, Xeron is not subject to any
arrangement that (a) gives rise to a deduction or loss before
the Effective Time and a corresponding recognition of taxable
gain or income after the Effective Time or (b) gives rise to
the recognition of taxable income or gain after the Effective
Time without the receipt of a corresponding amount of cash.
(k) None of the Shareholders is a "foreign
person" as defined in Code Section 1445(f)(3).
(l) None of the assets of Xeron constitutes
tax-exempt bond financed property or tax-exempt use property
within the meaning of Code Section 168, and none of the assets
reflected on the Financial Statements is subject to a lease,
safe harbor lease or other arrangement as a result of which
Xeron is not treated as the owner of such assets for federal
income tax purposes.
(m) The basis of all depreciable or
amortizable assets, and the methods used in determining
allowable depreciation or amortization (including cost
recovery) deductions of Xeron, are materially correct and in
compliance with the Code.
(n) To the knowledge of Xeron, Xeron is not
required to make any material adjustment under Code Section
481(a) by reason of a change or proposed change in accounting
method or otherwise.
(o) For purposes of this Section:
(i) the term "Taxes" shall mean all
taxes, charges, fees, duties (including customs duties),
levies or other assessments, including income, gross
receipts, net proceeds, ad valorem, turnover, real and
personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease,
user, transfer, fuel, excess profits, occupational,
interest equalization, windfall profits, severance,
license, payroll, environmental, capital stock,
disability, employee's income withholding, other
withholding, unemployment and Social Security taxes,
which are imposed by any federal, state, local or foreign
governmental authority, and such term shall include any
interest, penalties or additions to tax attributable
thereto;
(ii) the term "Tax Return" shall include
all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and
information returns and any amended Tax Return relating
to Taxes; and
(iii) the term "Audit" shall include
any taxing authority's audit, assessment of Taxes, or
other examination proceedings or appeal of such
proceedings relating to Taxes.
SECTION 3.12 BENEFIT PLANS AND ARRANGEMENTS
(a) Section 3.12(a) of the Xeron Disclosure
Schedule contains a list of all employee benefits, plans or
arrangements (whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended, and the
rules and regulations promulgated thereunder ("ERISA"), and
whether written or oral) that Xeron has maintained or to which
it has contributed at any time for the benefit of its
employees (the "Employee Benefit Plans").
(b) Xeron has provided Chesapeake with a true and
complete copy of each of the following for the Employee
Benefit Plans which are currently in effect: the current plan
document, including any amendments thereto, the most recent
summary plan description, annual reports on form 5500 for the
three most recent years (if such forms were required to be
filed), and any trust agreements, insurance contracts, service
provider agreements or similar agreements. Xeron has no plan
or commitment, whether legally binding or not, to create any
additional benefit plans or arrangements or to change the
terms of the Employee Benefits Plans.
(c) Xeron has complied in all material respects
with all applicable provisions of ERISA and the Code and all
other applicable laws, rules, and regulations with respect to
the Employee Benefit Plans except for compliance failure(s)
that individually or in the aggregate would not have a
material adverse effect on Xeron. The Employee Benefit Plans
are not subject to any ongoing audit or other administrative
proceeding of any governmental entity, and are not the subject
of any pending application for administrative relief under any
program of the IRS, the Department of Labor, or any other
governmental entity. Xeron has disclosed in Section 3.12(c)
of the Xeron Disclosure Schedule all material liabilities with
respect to the Employee Benefit Plans to Chesapeake. There
are no pending or threatened claims (other than routine claims
for benefits) against the Employee Benefit Plans by any
person. The Employee Benefit Plans are not multiemployer
plans within the meaning of ERISA except as set forth in
Section 3.12(c) of the Xeron Disclosure Schedule. The
Employee Benefit Plans can be terminated, without penalty,
with no requirement for the further provision of benefits,
within a period of 30 days. None of the representations in
this Section will be affected by the occurrence of the Merger.
SECTION 3.13 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 3.13 of the
Xeron Disclosure Schedule, neither Xeron nor any Shareholder
has learned, been advised, or received any communication
(written or oral), whether from a governmental authority,
citizens group, employee or otherwise that alleges or suggests
that Xeron or any Shareholder is not in full compliance with
the Environmental Laws. Section 3.13 of the Xeron Disclosure
Schedule lists the permits or other governmental
authorizations that Xeron has pursuant to the Environmental
Laws.
(b) To the knowledge of Xeron, there are no
Environmental Claims (as hereinafter defined) pending or
threatened against Xeron or any Shareholder or against any
person or entity whose liability for any Environmental Claim
Xeron or any Shareholder has retained, or has assumed either
contractually or by operation of law and neither Xeron nor any
Shareholder knows of any facts or allegations that could
result in future Environmental Claims.
(c) To the knowledge of Xeron, none of the Real
Property, as such term is defined in Section 3.23, nor any
property owned or leased by Xeron is on the National
Priorities List or the Comprehensive Environmental Response
Compensation and Liability Information System, and no such
property is a Resource Conservation and Recovery Act
"permitted facility." No such property is permitted by the
state in which it is located to be used as a landfill or
disposal site of any type.
(d) To the knowledge of Xeron, Section 3.13 of the
Xeron Disclosure Schedule lists all tanks that have been
owned, leased, operated or used by Xeron, or which are
currently used by Xeron and are located on the Real Property,
as such term is defined in Section 3.23.
(e) For purposes of this Agreement:
(i) "Environmental Claim" means any claim,
action, cause of action, litigation, proceeding, order,
decree, investigation or notice (written or oral) by any
person or entity alleging potential liability or
responsibility (including, without limitation, potential
liability or responsibility for investigatory costs,
cleanup costs, costs of compliance with laws,
requirements, guidelines, or orders, governmental
response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the presence, or release
into the environment, of any Materials of Environmental
Concern at any location, whether or not owned or operated
by Xeron or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Laws.
(ii) "Environmental Laws" means all Federal,
state, local and foreign laws, regulations, ordinances,
rules, guidelines, orders, directives, judgments and
determinations relating in any way to pollution or
protection of human health or the environment (including,
without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating
to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Materials of Environmental Concern, as amended from time
to time.
(iii) "Materials of Environmental Concern"
means chemicals, pollutants, contaminants, hazardous
materials, hazardous substances, hazardous wastes, toxic
substances, petroleum and petroleum products, and any
substance controlled or regulated by any Environmental
Law.
SECTION 3.14 CHANGE IN CONTROL. Except as set
forth in Section 3.14 of the Xeron Disclosure Schedule, Xeron
is not a party to any contract, agreement or understanding
which contains a "change in control," "potential change in
control" or similar provision. Except as set forth in Section
3.14 of the Xeron Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise)
becoming due from Xeron to any person.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 3.15(a) of
the Xeron Disclosure Schedule, Xeron owns, or is licensed or
otherwise has the full right to use, all copyrights,
trademarks and service marks (including all applications and
registrations therefor), trade names, computer software,
patents (including applications therefor), and all other
intellectual property that is necessary for the conduct of its
business as heretofore conducted (collectively, the
"Intellectual Property"). Xeron has not sold or conveyed to
any third-party the right to use proprietary software
developed by or for Xeron.
(b) Except as set forth in Section 3.15(b) of
the Xeron Disclosure Schedule, there are no outstanding
claims, judgments, settlements or proceedings against Xeron
asserting the invalidity, abuse, misuse or unenforceability of
any of the Intellectual Property and there are no threatened
claims or proceedings relating to the validity of or
enforceability of the Intellectual Property. There are no
pending or threatened opposition or other administrative
proceedings with respect to any Intellectual Property which is
the subject of a pending application that would prevent the
registration in due course of such Intellectual Property.
SECTION 3.16 CONTRACTS AND COMMITMENTS. Except as
set forth in Section 3.16 of the Xeron Disclosure Schedule:
(a) Xeron has no agreements, contracts,
commitments, or restrictions that are material to its
business, prospects, financial condition, working capital,
assets, liabilities (absolute, accrued, contingent or
otherwise) or operations;
(b) There are no purchase contracts or
commitments under which Xeron is required to pay in excess of
$300,000, other than those incurred in the ordinary course of
business;
(c) There are no outstanding sales contracts
or commitments of Xeron that call for the payment to, or
receipt by, Xeron of more than $300,000, other than those
incurred in the ordinary course of business;
(d) Xeron has no outstanding contracts with
officers, directors or employees that are not cancelable by it
on notice of not longer than thirty (30) days and without
liability, penalty, or premium or any agreement or arrangement
providing for the payment of any bonus or commissions based on
sales or earnings;
(e) Xeron is not in default, nor aware of any
facts or circumstances which could serve as the basis for any
valid claim of default, under any material contract made or
obligation owed by it;
(f) Xeron is not restricted by agreement from
carrying on its business anywhere in the world;
(g) Xeron has no obligation with respect to
borrowed money (except for a line of credit from Norwest Bank
in the maximum amount of $5,000,000), including debt
obligations of its own or guarantees of or agreements to
acquire any debt obligation of others;
(h) Xeron has no power of attorney outstanding
or any obligations or liabilities (whether absolute, accrued,
contingent, or otherwise), as guarantor, surety, co-signer,
endorser, co-maker or indemnitor for the obligation of any
person, corporation, partnership, joint venture, association,
organization, or other entity; and
(i) None of the officers, directors or
shareholders of Xeron has any interest in any property, real
or personal, tangible or intangible, including without
limitation Intellectual Property, that is used in the business
of Xeron.
SECTION 3.17 LABOR RELATIONS. As of the date
hereof, there is no strike or other labor dispute pending
against Xeron. Xeron is not bound by or subject to (and none
of its properties or assets is bound by or subject to) any
written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has
requested or sought to represent any of the employees,
representatives or agents of Xeron, nor is Xeron aware of any
labor organization activity involving its employees. Except
as previously disclosed in writing to Chesapeake, no officer
or employee of Xeron has any plans to terminate his employment
with Xeron.
SECTION 3.18 EMPLOYEE BENEFIT PLANS. Except as
disclosed in Section 3.18 of the Xeron Disclosure Schedule,
Xeron has previously given to Chesapeake true and correct
copies of its work rule manuals, rules, policies or other
guidelines relating to employee compensation, retirement and
severance and each employment or consulting contract to the
extent they exist. Except as set forth in Section 3.18 of the
Xeron Disclosure Schedule and except as previously disclosed
to Chesapeake in writing, there are no other significant
employee benefit plans, programs or arrangements, maintained
or contributed to by Xeron.
SECTION 3.19 PERSONNEL. Xeron has furnished to
Chesapeake a list of the names and current salaries of each
officer and employee of Xeron as of the date of this
Agreement. Section 3.19 of the Xeron Disclosure Schedule sets
forth a complete and correct list of all written employment,
compensation, severance, consulting or indemnification
contracts between Xeron and its present or former employees,
officers, directors and consultants to the extent Xeron has
any continuing obligations thereunder. Xeron has made
available to Chesapeake true and correct copies of all such
agreements.
SECTION 3.20 INSURANCE. Section 3.20(a) of the
Xeron Disclosure Schedule contains an accurate and complete
list of all policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by
Xeron, except with respect to the policies as disclosed in
Section 3.12 of the Xeron Disclosure Schedule. In the
reasonable judgment of the Sellers, such policies are in
adequate amounts and cover risks customarily insured against
by businesses of the type operated by Xeron. Except as set
forth in Section 3.20(a) of the Xeron Disclosure Schedule, all
such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the
Effective Time will have been paid, and no notice of
cancellation of termination has been received with respect to
any such policy. Except as set forth in Section 3.20(a) of
the Xeron Disclosure Schedule, such policies will remain in
full force and effect through the respective dates set forth
in Section 3.20(a) of the Xeron Disclosure Schedule without
the payment of additional premiums, and will not be materially
affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. All of such
policies have been issued by reputable insurance companies
actively engaged in the insurance business. All known claims,
if any, made against Xeron that are covered by insurance have
been disclosed to and accepted by the appropriate insurance
companies and, to the knowledge of Xeron, are being defended
by such appropriate insurance companies and are described in
Section 3.20(b) of the Xeron Disclosure Schedule, and, except
as disclosed in Section 3.20(b) of the Xeron Disclosure
Schedule, no claims have been denied coverage during the last
three years.
SECTION 3.21 RECEIVABLES. All accounts and notes
due and uncollected as reflected on the Financial Statements,
and all accounts and notes due and uncollected arising
subsequent to February 28, 1998 (i) have arisen in the
ordinary course of business of Xeron, except as set forth in
Section 3.21 of the Xeron Disclosure Schedule, and
(ii) represent valid obligations due to Xeron enforceable in
accordance with their terms, net of applicable reserves.
Xeron has previously made available to Chesapeake lists of the
aging and amounts of all accounts and notes due and
uncollected at February 28, 1998. No reserve for bad debts is
required as of February 28, 1998.
SECTION 3.22 RELATED PARTY CONTRACTS. Except as
set forth in Section 3.22 of the Xeron Disclosure Schedule,
Xeron has no agreements, arrangements or commitments with
related parties (including shareholders, directors and
officers), other than the related-party agreements described
in Sections 3.16(d) and 3.16(i) of the Xeron Disclosure
Schedule. Except as set forth in Section 3.22 of the Xeron
Disclosure Schedule, each of the related-party agreements was
entered into between Xeron and the party thereto on an arm's
length basis on terms no less favorable to Xeron than it could
obtain from an unrelated third party.
SECTION 3.23 REAL PROPERTY; LEASED PREMISES.
(a) Section 3.23(a) of the Xeron Disclosure
Schedule sets forth a true and complete list and description
of all real property and land owned by Xeron and the
buildings, improvements and structures located thereon, except
for the Leased Premises (as defined below) (collectively, the
"Real Property"). Each of the material improvements located
upon the Real Property owned or used by Xeron (including,
without limitation, all buildings, land and equipment leased
by Xeron) is in reasonably good repair and operating
condition.
(b) Xeron has good and valid title to the Real
Property in fee simple and to the structures and fixtures
attached or appurtenant to or used in connection with the Real
Property, free and clear of all Liens, except (i) as set forth
in Section 3.23(b) of the Xeron Disclosure Schedule, and (ii)
Permitted Liens.
(c) Section 3.23(c) of the Xeron Disclosure
Schedule sets forth a true and complete list of each lease of
premises executed by or binding upon Xeron as lessee,
sublessee, tenant or assignee (the "Leased Premises"). Except
as set forth in Section 3.23(c) of the Xeron Disclosure
Schedule, each such lease is in full force and effect without
any default or breach thereof by Xeron or, to the knowledge of
Xeron, by any other party thereto. True and complete copies
of all leases listed on Schedule 3.23(c) of the Xeron
Disclosure Schedule (including all amendments, addenda,
waivers and all other binding documents relating thereto) have
been made available to Chesapeake.
(d) Except as set forth in Section 3.23(d) of
the Xeron Disclosure Schedule, Xeron has not received any
notice of or writing referring to any requirements by any
insurance company that has issued a policy covering any part
of any Real Property or Leased Premises or by any board of
fire underwriters or other body exercising similar functions,
requiring any repairs or work to be done on any part of any
Real Property or Leased Premises.
SECTION 3.24 ABSENCE OF CERTAIN PAYMENTS. Neither
Xeron nor any of its affiliates or any of their respective
officers, directors, employees or agents or other people
acting on behalf of Xeron have (i) engaged in any activity
prohibited by the United States Foreign Corrupt Practices Act
of 1977 or any other similar law, regulation, decree,
directive or order of any other country and (ii) without
limiting the generality of the preceding clause (i), used any
corporate or other funds for unlawful contributions, payments,
gifts or entertainment, or made any unlawful expenditures
relating to political activity to government officials or
others. None of Xeron or any of its affiliates or any of
their respective directors, officers, employees or agents of
other persons acting on behalf of Xeron, has accepted or
received any unlawful contributions, payments, gifts or
expenditures.
SECTION 3.25 DISCLOSURE. No representation or
warranty by Xeron or the Sellers in this Agreement and no
statement in any document, schedule or certificate furnished
or to be furnished by the Sellers to Chesapeake or any of its
representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains
any untrue statement of material fact or omits or will omit to
state any material fact necessary in order to make the
statements herein or therein, in light of the circumstance
under which they were made, not misleading.
SECTION 3.26 PUHCA.
(a) Xeron is not a "public-utility company,"
as that term is defined in Section 2(a)(5) of the Public
Utility Holding Company Act of 1935, and the rules and
regulations thereunder (the "1935 Act").
(b) Upon consummation of the Merger, none of
the Shareholders, individually or in the aggregate, shall
constitute a "holding company" with respect to Chesapeake, as
that term is defined in Section 2(a)(7) of the 1935 Act.
(c) None of the Sellers, individually or in
the aggregate, directly or indirectly owns, controls or holds
with power to vote five percent or more of the outstanding
voting securities of a public-utility company, as that term is
defined in Section 2(a)(5) of the 1935 Act.
SECTION 3.27 POOLING MATTERS. The representations,
warranties and covenants of Xeron set forth in the form of
letter from Xeron to Coopers & Lybrand, attached hereto as
Annex A-1, are true and correct in all material respects
(except as such matters may be subject to the control of
Chesapeake or its affiliates).
SECTION 3.28 YEAR 2000. Except as set forth in
Section 3.28 of the Xeron Disclosure Schedule, Xeron does not
rely on any computer or information systems or equipment that
will not operate or perform properly using dates for January
1, 2000 and beyond.
SECTION 3.29 KNOWLEDGE. The phrase "to the
knowledge of Xeron" means to the knowledge of Xeron or any of
its officers.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHESAPEAKE
Chesapeake represents and warrants to the Sellers as
follows:
SECTION 4.1 CORPORATE ORGANIZATION. Each of
Chesapeake and CPK-Sub-C is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted. The Certificate of Incorporation and By-laws of
Chesapeake, as currently in effect, are filed as exhibits to
Chesapeake's Annual Report on Form 10-K. Chesapeake has
heretofore delivered to the Sellers accurate and complete
copies of the Certificate of Incorporation and By-laws, as
currently in effect, of Chesapeake.
SECTION 4.2 CAPITALIZATION. As of the date of this
Agreement, the authorized capital stock of Chesapeake consists
of 12,000,000 shares of Chesapeake Common Stock and 2,000,000
shares of preferred stock, of which 4,577,778 shares of
Chesapeake Common Stock are issued and outstanding. All of
such issued and outstanding shares of Chesapeake Common Stock
are validly issued, fully paid and nonassessable and free of
preemptive rights. As of the date of this Agreement, (i)
163,637 shares of Chesapeake Common Stock were issuable upon
exercise of warrants or stock options; 26,700 shares of
Chesapeake Common Stock were issuable in accordance with
Chesapeake's Long Term Incentive Awards Plan; and 173,771
shares of Chesapeake Common Stock were reserved for issuance
under such plans and (ii) there are $3,852,000 face amount
convertible debt securities outstanding that are convertible
into 226,455 shares of Chesapeake Common Stock. Except as set
forth above and in the Chesapeake financial statements and
other public filings, or as may be required in connection with
Chesapeake's ongoing acquisition activities, there are not any
shares of capital stock (or securities substantially
equivalent to capital stock) of Chesapeake issued or
outstanding or any subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or
commitments of any character obliging Chesapeake to issue,
transfer or sell any of its securities.
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
Each of Chesapeake and CPK-Sub-C has full corporate power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized and approved by the Boards of Directors of
Chesapeake and CPK-Sub-C and by Chesapeake as the sole
shareholder of CPK-Sub-C and no other corporate proceedings on
the part of Chesapeake or CPK-Sub-C are necessary to authorize
this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly
executed and delivered by each of Chesapeake and CPK-Sub-C and
constitutes a valid and binding agreement of each of
Chesapeake and CPK-Sub-C, enforceable against each of
Chesapeake and CPK-Sub-C in accordance with its terms.
SECTION 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except for the filing and recordation of the Articles of
Merger, as required by the MGCL, and the Certificate of
Merger, as required by the DGCL, the filing with the Delaware
Public Utilities Commission, and as set forth in Section 4.4
of the disclosure schedule to be delivered to the Sellers
prior to the date of this Agreement (the "Chesapeake
Disclosure Schedule"), no filing with or notification to, and
no permit, authorization, consent, waiver or approval of, any
Governmental Entity, is necessary for the consummation by
Chesapeake of the transactions contemplated by this Agreement.
Except as set forth in Section 4.4 of the Chesapeake
Disclosure Schedule, neither the execution and delivery of
this Agreement by Chesapeake or CPK-Sub-C nor the consummation
by Chesapeake and CPK-Sub-C of the transactions contemplated
hereby nor compliance by Chesapeake or CPK-Sub-C with any of
the provisions hereof will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or
By-laws of Chesapeake or any of its subsidiaries, (ii) result
in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration or
result in the creation of any Lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or
obligation to which Chesapeake or any of its subsidiaries is a
party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, treaty, rule or regulation
applicable to Chesapeake, any of its subsidiaries or any of
their properties or assets.
SECTION 4.5 SEC REPORTS. Chesapeake has filed on a
timely basis all required forms, reports and documents with
the Securities and Exchange Commission ("SEC") since January
1, 1994 (collectively, the "Chesapeake SEC Reports"), each of
which has complied in all material respects with all
applicable requirements of the Securities Act of 1933 (the
"Securities Act"), and the Securities Exchange Act of 1934
(the "Exchange Act"), and the rules and regulations of the
SEC, as each was in effect on the dates so filed. Chesapeake
has heretofore delivered to Xeron and the Sellers in the form
filed with the SEC, its (i) Annual Reports on Form 10-K for
each of the last three fiscal years and (ii) all definitive
proxy statements relating to Chesapeake meetings of
shareholders (whether annual or special) held since January 1,
1994. The audited consolidated financial statements and
unaudited consolidated interim financial statements of
Chesapeake included in the Chesapeake SEC Reports are true,
correct and complete in all material respects; fairly present,
in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in
the notes thereto), the consolidated financial position of
Chesapeake and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and
changes in financial position and changes in stockholders
equity and cash flows for the periods then ended (subject to
normal year-end and audit adjustments in the case of any
unaudited interim financial statements).
SECTION 4.6 CPK-SUB-C. CPK-Sub-C has not conducted
any operations or incurred any liabilities or obligations
other than arising under or in connection with its formation
and the transactions contemplated by this Agreement.
SECTION 4.7 CHESAPEAKE SHARES. All of the shares
of Chesapeake Common Stock to be issued in connection with the
Merger will, at the time of such issuance, be validly issued,
fully paid and nonassessable and free of preemptive rights and
free of any adverse liens, claims, charges or encumbrances.
SECTION 4.8 DISCLOSURE. No representation or
warranty by Chesapeake in this Agreement and no statement
contained in any document (including without limitation, the
Chesapeake SEC Reports), schedule or certificate furnished or
to be furnished by Chesapeake to the Sellers or any of their
representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains
any untrue statement of material fact or omits or will omit to
state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances
under which they were made, not misleading.
SECTION 4.9 POOLING MATTERS. The representations,
warranties and covenants of Chesapeake set forth in the form
of letter from Chesapeake to Coopers & Lybrand attached to
this Agreement as Annex A-2 are true and correct in all
material respects (except as such matters may be subject to
the control of Xeron or its affiliates).
SECTION 4.10 ABSENCE OF CERTAIN CHANGES. Except as
and to the extent set forth in Section 4.10 of the Chesapeake
Disclosure Schedule, since December 31, 1997 Chesapeake has
not:
(a) suffered any material Adverse Change; "Material
Adverse Change" means (i) any material change in the nature of
Chesapeake's business, assets, financial condition, results of
operations, or prospects, (ii) the loss of a contract which
would have a material adverse effect on Chesapeake, and (iii)
any change that creates a material limitation on the ability
of Chesapeake to conduct its business as heretofore conducted;
(b) agreed or planned, whether in writing or
otherwise, to take any action described in this Section.
SECTION 4.11 AUDITED FINANCIAL STATEMENTS.
Chesapeake shall have furnished to Xeron prior to the date of
this Agreement copies of Chesapeake's Form 10-K for the fiscal
years 1995, 1996 and 1997 filed with the Securities and
Exchange Commission.
SECTION 4.12 NO UNDISCLOSED LIABILITIES. Except as
and to the extent provided in the Chesapeake SEC Reports or
Section 4.12 of the Chesapeake Disclosure Schedule, Chesapeake
does not have any material liabilities (whether contingent or
absolute, direct or indirect, known or unknown to Chesapeake
or matured or unmatured) not fully reflected or fully reserved
against in the Chesapeake financial statements.
SECTION 4.13 NO DEFAULT. Except as set forth in
Section 4.13 of the Chesapeake Disclosure Schedule, Chesapeake
is not in default or violation (and no event has occurred that
with notice or the lapse of time or both would constitute a
default or violation) of any material term, condition or
provision of (i) its Certificate of Incorporation or its By-
Laws, (ii) any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which
Chesapeake is a party or by which it or any of its properties
or assets are bound, or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to Chesapeake
or any of its properties or assets, unless such default would
not have a material adverse effect on Chesapeake.
SECTION 4.14 LITIGATION. Except as set forth in
Chesapeake's SEC Reports or in Section 4.14 of the Chesapeake
Disclosure Schedule, there is no material action, suit,
proceeding, arbitration, or investigation pending or to the
best of Chesapeake's knowledge, threatened by or before any
Governmental Entity involving Chesapeake or any of its
properties or assets. Except as set forth in Chesapeake's SEC
Reports or in Section 4.14 of the Chesapeake Disclosure
Schedule, neither Chesapeake nor any of its material
properties or assets is subject to any order, writ, judgment,
injunction, decree, determination or award.
SECTION 4.15 COMPLIANCE WITH APPLICABLE LAW.
Except as set forth in Section 4.15 of the Chesapeake
Disclosure Schedule, the business of Chesapeake has not been
conducted in violation of any applicable law, ordinance, rule,
regulation, decree or order of any Governmental Entity, unless
such violation would not result in a material adverse effect
on Chesapeake. Chesapeake holds all permits, licenses,
variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its
businesses (the "Chesapeake Permits") and is in compliance
with the terms of the Chesapeake Permits, unless the failure
to obtain any Chesapeake Permits or be in compliance therewith
will not result in a material adverse effect on Chesapeake.
Except as set forth in Section 4.15 of the Chesapeake
Disclosure Schedule, Chesapeake has not received any
notification of any asserted present or past failure by
Chesapeake to comply with such laws, rules or regulations or
such Chesapeake Permits which have not been previously cured,
and there is, to the knowledge of Chesapeake, no pending
audit, investigation or other review by any Governmental
Entity to determine the existence of any violation of such
laws, rules or regulations or such Chesapeake Permits.
SECTION 4.16 TAXES.
(a) To the knowledge of Chesapeake, Chesapeake
has duly filed with the appropriate governmental authorities
all Tax Returns (as defined in Section 4.16(c)) required to be
filed by it for all periods ending on or prior to the date
hereof, and such Tax Returns are true, correct and complete in
all material respects, and (ii) duly paid in full all Taxes
(as defined in Section 4.16(b)) due in connection with or with
respect to the filing of such Tax Returns and has paid all
other Taxes as are due, except such as are being contested in
good faith by appropriate proceeding and with respect to which
Chesapeake is maintaining reserves adequate for their payment.
Neither the Internal Revenue Service (the "IRS") nor any
other governmental entity or taxing authority or agency is now
asserting, either through audits, administrative proceedings,
court proceedings or otherwise, or threatening to assert
against any deficiency or claim for additional Taxes.
Chesapeake has not been granted any waiver of any statute of
limitations with respect to, or any extension of a period for
the assessment of, any Tax that is currently in effect. There
are no tax liens on any assets of Chesapeake. Chesapeake has
not received a ruling or entered into an agreement with the
IRS, or any other governmental entity or taxing authority or
agency that would have a material adverse effect on Chesapeake
after the Effective Time. The accruals and reserve for Taxes
reflected in Chesapeake's most recent balance sheet included
in the Chesapeake SEC Reports are adequate to cover all Taxes
accruable through the date thereof (including Taxes being
contested) in accordance with generally accepted accounting
principles. Except for Chesapeake and its subsidiaries'
intercompany tax allocation agreements, no agreements relating
to allocating or sharing of Taxes exist among Chesapeake and
its subsidiaries and no tax indemnities given by Chesapeake is
connection with a sale of stock or assets remain in effect.
(b) For purposes of this Section, the term
"Taxes" shall mean all taxes, including, without limitation,
income, gross receipts, excise, property, sales, withholding,
social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes,
fees and charges, windfall profits, severance, customs,
import, export, employment or similar taxes, charges, fees,
levies or other assessments imposed by the United States, or
any state, local or foreign government or subdivision or
agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis, and such terms shall
include any interest, fines, penalties, or additional amounts
and any interest in respect to any addition, fines, or
penalties attributable or imposed or with respect to any such
taxes, charges, fees, levies or other assessments.
(c) For purposes of this Section, the term
"Tax Return" shall mean any return, report or other document
or information required to be supplied to a taxing authority
in connection with Taxes.
SECTION 4.17 LABOR RELATIONS. As of the date
hereof, there is no material strike or other labor dispute
pending against Chesapeake. Except as previously disclosed in
writing to Xeron, no officer of Chesapeake has notified
Chesapeake of any plans to terminate his employment with
Chesapeake.
SECTION 4.18 RELATED PARTY CONTRACTS. Except as
set forth in Section 4.18 of the Chesapeake Disclosure
Schedule or the Chesapeake SEC Reports, Chesapeake has no
agreements, arrangements or commitments with related parties
(including shareholders, directors and officers), other than
the related-party agreements described in Section 4.21 of the
Chesapeake Disclosure Schedule. Except as set forth in
Section 4.18 of the Chesapeake Disclosure Schedule, each of
the related-party agreements was entered into between
Chesapeake and the party thereto on an arm's length basis on
terms less favorable to Chesapeake than it could obtain from
an unrelated third party.
SECTION 4.19 ABSENCE OF CERTAIN PAYMENTS. Neither
Chesapeake nor any of its affiliates or any of their
respective officers, directors, employees or agents or other
people acting on behalf of Chesapeake have (i) engaged in any
activity prohibited by the United States Foreign Corrupt
Practices Act of 1977 or any other similar law, regulation,
decree, directive or order of any other country and (ii)
without limiting the generality of the preceding clause (i),
used any corporate or other funds for unlawful contributions,
payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government
officials or others. None of Chesapeake or any of its
affiliates or any of their respective directors, officers,
employees or agents of other persons acting on behalf of
Chesapeake, has accepted or received any unlawful
contributions, payments, gifts or expenditures.
SECTION 4.20 ENVIRONMENTAL MATTERS. Except as set
forth in the Chesapeake Disclosure Schedule or in the
Chesapeake SEC Reports, to Chesapeake's knowledge Chesapeake
has no material liabilities relating to environmental matters.
SECTION 4.21 CONTRACTS AND COMMITMENTS. Except as
set forth in Section 4.21 of the Chesapeake Disclosure
Schedule:
(a) Chesapeake is not restricted by agreement
from carrying on its business anywhere in the world;
(b) Chesapeake has no obligation with respect
to borrowed money, including debt obligations of its own or
guarantees of or agreements to acquire any debt obligation of
others not reflected on the Chesapeake financial statements;
and
(c) Chesapeake has no power of attorney
outstanding or any obligations or liabilities (whether
absolute, accrued, contingent, or otherwise), as guarantor,
surety, co-signor, endorser, co-maker or indemnitor for the
obligation of any person, corporation, partnership, joint
venture, association, organization, or other entity not
reflected in the Chesapeake financial statements.
SECTION 4.22 KNOWLEDGE. The phrase "to the
knowledge of Chesapeake" means to the knowledge of Chesapeake
or any of its officers.
ARTICLE V
COVENANTS OF XERON AND SELLERS
Each of the Sellers covenants and agrees as follows:
SECTION 5.1 CONDUCT OF BUSINESS PENDING THE MERGER.
Except as otherwise specifically provided in this Agreement
or as otherwise consented to in writing by Chesapeake, from
the date of this Agreement to the Effective Time, Xeron will
(and the Shareholders will cause Xeron to) conduct its
operations only in the ordinary and usual course of business
and consistent with past practices and will preserve intact
its present business organization, take all reasonable efforts
to keep available the services of its present officers,
employees and consultants and preserve its present
relationships with licensors, licensees, customers, suppliers,
employees, labor organizations and others with whom it has a
significant business relationship. Without limiting the
generality of the foregoing, and except as otherwise
specifically provided in this Agreement or as set forth in
Section 5.1 of the Xeron Disclosure Schedule, Xeron will not
directly or indirectly (and the Shareholders will cause Xeron
not to), from the date of this Agreement to the Effective
Time, without the prior written consent of Chesapeake:
(a) adopt any amendment to or otherwise change
its Articles of Incorporation or By-laws or other
organizational documents;
(b) authorize for issuance, sale, pledge,
disposition or encumbrance, or issue, sell, pledge, dispose of
or encumber (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to
purchase, convertible securities or otherwise), any capital
stock of any class or any other securities of, or any other
ownership interest in, Xeron or amend any of the terms of any
such securities or agreements outstanding on the date hereof;
(c) reclassify, combine, split or subdivide
any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, securities or
property or any combination thereof) in respect of any class
or series of its capital stock;
(d) redeem, purchase or otherwise acquire, or
propose or offer to redeem, purchase or otherwise acquire, any
outstanding shares of Xeron Common Stock or other securities
of Xeron;
(e) organize any new subsidiary, acquire any
capital stock or equity securities of any corporation or
acquire any equity or ownership interest (financial or
otherwise) in any business;
(f) (i) incur, assume or prepay any material
liability, including without limitation, any indebtedness for
borrowed money except in the ordinary course of business and
consistent with past practice; (ii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
contingently or otherwise) for obligations of any third party,
(iii) make any loans, advances or capital contributions to, or
investments in, any third party, (iv) mortgage or pledge any
of its material properties or assets, tangible or intangible,
or create any material Lien thereupon other than Permitted
Liens, or (v) authorize any new capital expenditures which,
individually or in the aggregate, are in excess of $25,000;
(g) license (except to end users in the
ordinary course of business, consistent with past practice and
pursuant to a written license agreement) or otherwise
transfer, dispose of, permit to lapse or otherwise fail to
preserve any of Xeron's Intellectual Property, or dispose of
or disclose to any person any trade secret, formula, process
or know-how not theretofore a matter of public knowledge;
(h) enter into any agreement, contract,
commitment or transaction other than in the ordinary course of
business, consistent with past practices or that would be
required to be included in Section 3.16 of the Xeron
Disclosure Schedule if entered into prior to the date of this
Agreement;
(i) increase the compensation payable or to
become payable to its officers or employees, except for
increases in salary or wages of non-officer employees of Xeron
in accordance with past practices, or grant any severance or
termination pay or stock options to, or enter into any
employment or severance agreement with, any director, officer,
or other employee of Xeron, or establish, adopt, enter into,
or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance, or other plan, agreement, trust, fund, policy, or
arrangement for the benefit of any current or former
directors, officers, or employees;
(j) cancel any debts or waive, release or
relinquish any material contract rights or other rights of
substantial value other than in the ordinary course of
business, consistent with past practices;
(k) authorize, recommend, propose or enter
into or announce an intention to authorize, recommend, propose
or enter into an agreement in principle or a definitive
agreement with respect to any merger, consolidation,
liquidation, dissolution, or business combination, any
acquisition of a material amount of property or assets or
securities, or any disposition of a material amount of
property or assets or securities;
(l) make any change with respect to accounting
policies or procedures in effect as of November 30, 1997
except as may be required by generally accepted accounting
principles;
(m) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business,
consistent with past practices, of liabilities reflected or
reserved against in the Financial Statements or incurred in
the ordinary course of business consistent with past practices
since the date hereof; or
(n) commit or agree (in writing or otherwise)
to take any of the foregoing actions or any action which would
make any representation or warranty in this Agreement untrue
or incorrect, either as of the date hereof or of the Effective
Time, as if made as of such time.
SECTION 5.2 TAX STATUS. Shareholders and Xeron
shall refrain from taking any action that would impair Xeron
from being deemed a "C" corporation for federal income tax
purposes at the Effective Time.
SECTION 5.3 ACCESS TO INFORMATION. Upon reasonable
notice, Xeron shall afford to the officers, employees,
accountants, counsel, environmental consultants and other
representatives of Chesapeake, reasonable access, during
normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and
records and, during such period, Xeron shall furnish promptly
to Chesapeake all information concerning its business,
properties and personnel as Chesapeake may reasonably request.
SECTION 5.4 NO SOLICITATION. Sellers will not and
will cause their affiliates not to, and will cause their
respective officers, directors, employees and agents retained
by Sellers or any of their affiliates not to, initiate or
solicit, directly or indirectly, any inquiries or the making
of any proposal with respect to, or engage in negotiations
concerning, provide any information or data to, or have any
discussions with, any Third Party (as hereinafter defined)
relating to, any public offering of securities of, or
acquisition, business combination or purchase of all or any
significant portion of the properties or assets of, or any
equity interest in, Xeron (an "Acquisition Proposal").
Sellers and Xeron will immediately cease and cause to be
terminated any existing activities, discussions or
negotiations with any Third Party conducted heretofore with
respect to any Acquisition Proposal. Sellers and Xeron shall
immediately notify Chesapeake if, subsequent to the date
hereof, any such negotiations, provision of information or
data or discussions are entered into or made or any such
inquiries are received in respect thereof, and shall provide
details with respect thereto, including the identity of such
Third Party and the price and terms of any Acquisition
Proposal. As used in this Agreement, the term "Third Party"
means any "person" or "group", as such terms are defined in
Section 13(d) of the Exchange Act, other than Chesapeake or
any affiliate of Chesapeake.
SECTION 5.5 FURTHER INFORMATION. As soon as
practicable after such information becomes available, and in
any event not later than thirty (30) days after the end of
each fiscal month, Xeron shall provide to Chesapeake an
unaudited consolidated balance sheet as of the end of such
month and the related consolidated statements of results of
operations and statements of cash flows for such period.
SECTION 5.6 AFFILIATES. Prior to the execution of
this Agreement, Xeron shall deliver to Chesapeake a letter
identifying all persons who may be deemed, as of the date of
this Agreement, "affiliates" of Xeron for purposes of Rule 145
under the Securities Act. Xeron shall cause each person named
in such letter to deliver a written agreement substantially in
the form attached hereto as Exhibit 5.6.
SECTION 5.7 PUHCA. Each Shareholder covenants that
he will take no action at any time that will cause the
Shareholders to be deemed a "holding company" with respect to
Chesapeake as that term is defined in Section 2(a)(7) of the
1935 Act. With respect to Chesapeake, each Shareholder will
act as an individual and on his own behalf, and not in concert
with or as a group with any other Shareholder or any other
person. The covenants contained in this Section 5.7 will
continue with respect to a Shareholder as long as the
Shareholders remain in the aggregate owners of ten percent or
more of the outstanding voting securities of Chesapeake. This
Section 5.7 and any claims for breach hereof are not subject
to the limitations set forth in Article IX.
ARTICLE VI
COVENANTS OF CHESAPEAKE
SECTION 6.1 CONDUCT OF BUSINESS PENDING THE MERGER.
Except as otherwise specifically provided in this Agreement,
as disclosed in its SEC filings or press releases, in
connection with its ongoing acquisition program, in connection
with Chesapeake's compensation program for directors or as
otherwise consented to in writing by Xeron, from the date of
this Agreement to the Effective Time, Chesapeake will conduct
its operations in the ordinary and usual course of business
and consistent with past practices, will preserve intact its
present business organization, take all reasonable efforts to
keep available the services of its present officers, employees
and consultants and preserve its present relationships with
licensors, licensees, customers, suppliers, employees, labor
organizations and others with whom it has a significant
business relationship, and will not
(a) adopt any amendment to or otherwise change
its Certificate of Incorporation of By-laws or other
organizational documents;
(b) authorize for issuance, sale, pledge,
disposition or encumbrance, or issue, sell, pledge, dispose of
or encumber (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to
purchase, convertible securities or otherwise), any capital
stock of any class or any other securities of, or any other
ownership interest in, Chesapeake or amend any of the terms of
any such securities or agreements outstanding on the date
hereof; or
(c) redeem, purchase or otherwise acquire, or
propose or offer to redeem, purchase or otherwise acquire, any
outstanding shares of Chesapeake Common Stock or securities of
Chesapeake.
ARTICLE VII
MUTUAL COVENANTS
SECTION 7.1 REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties
hereto agrees to use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to assure that all
conditions to Closing set forth in Article VIII of this
Agreement are satisfied as expeditiously as possible
including, without limitation, the preparation and filing of
all forms, registrations and notices required to be filed to
consummate the transactions contemplated hereby and the taking
of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any
public or private third party. Each party shall promptly
consult with the other with respect to, provide any necessary
information with respect to and provide the other (or its
counsel) copies of, all filings made by such party with any
Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 7.2 BROKERS OR FINDERS. Each of the
Sellers and Chesapeake represents, as to itself, its
subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person
is or will be entitled to any broker's or finder's fee or any
other commission or similar fee in connection with any of the
transactions contemplated by this Agreement. The Sellers and
Chesapeake agree to indemnify and hold the other harmless from
and against any such claims, liabilities or obligations with
respect to any broker's or finder's fees, commissions or
expenses determined to be owed by them or it.
SECTION 7.3 NOTIFICATION OF CERTAIN MATTERS. The
Sellers shall give prompt notice to Chesapeake and CPK-Sub-C,
and Chesapeake and CPK-Sub-C shall give prompt notice to the
Sellers, of the occurrence (or non-occurrence) of any event of
which Sellers, Chesapeake or CPK-Sub-C has knowledge,
respectively, the occurrence (or non-occurrence) of which
would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any
respect (including as of the Effective Time) and of any
failure of either party to comply with or satisfy any
covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that delivery of
any notice pursuant to this Section 7.3 shall not limit or
otherwise affect the remedies available to either party
hereunder.
SECTION 7.4 FEES AND EXPENSES. Whether or not the
Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses in the normal course of business.
SECTION 7.5 FURTHER ASSURANCES. After the Closing,
Chesapeake and the Sellers shall from time to time, at the
request of the other party and without further cost or expense
to the requesting party, execute and deliver such other
instruments of conveyance and transfer and take such other
actions as such other party may reasonably request in order
more effectively to carry out this Agreement.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION
TO EFFECT THE MERGER. The respective obligations of each
party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the
following conditions: no statute, rule, regulation, executive
order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any United States court or
Governmental Entity of competent jurisdiction that prohibits
the consummation of the Merger and shall be in effect.
SECTION 8.2 CONDITIONS OF OBLIGATIONS OF THE SELLERS.
The obligation of the Sellers to effect the Merger
is further subject to the satisfaction at or prior to the
Effective Time of the following conditions, unless waived by
Sellers:
(a) The representations and warranties of
Chesapeake set forth in this Agreement shall be true and
correct in all respects as of the date of this Agreement and
as of the Effective Time (except that representations and
warranties that are made as of a specified date shall be true
and correct in all respects as of such specified date).
(b) Chesapeake shall have performed and
complied, in all respects, with all obligations and covenants
required to be performed or complied with by it under this
Agreement at or prior to the Effective Time.
(c) Chesapeake shall have obtained all
consents, approvals, authorizations and permits required from
third parties and any Governmental Entity (applicable to
Chesapeake and its subsidiaries) necessary for the
consummation by Chesapeake of the transactions contemplated by
this Agreement.
(d) Sellers shall have received from
Chesapeake an officer's certificate substantially in the form
of Exhibit 8.2(d) attached hereto.
(e) The Stock Consideration to be issued
pursuant to this Agreement shall have been listed on the NYSE.
(f) Chesapeake shall have executed and
delivered the letter to Coopers & Lybrand in the form of Annex
A-2 attached hereto.
(g) Chesapeake shall have delivered executed
Employment Agreements for J. Phillip Keeter and Earnest A.
Allen, Jr. in the form of Annexes B-1 and B-2 hereto; and
Chesapeake shall have delivered executed Employment Agreements
for Patrick Armand, Carl E. Mendenhall, David Snyder and
Marilyn Johnson satisfactory to the parties thereto.
(h) Chesapeake shall have caused the
Shareholders to be released from their personal guaranties of
the indebtedness of Xeron listed on Schedule 8.2(h) hereto.
(i) From the date of this Agreement through
the Effective Time, Chesapeake shall not have suffered a
Material Adverse Change.
SECTION 8.3 CONDITIONS OF OBLIGATIONS OF CHESAPEAKE.
The obligation of Chesapeake to effect the Merger
is further subject to the satisfaction at or prior to the
Effective Time of the following conditions, unless waived by
Chesapeake:
(a) The representations and warranties of
Sellers set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and as of the
Effective Time (except that representations and warranties
that are made as of a specified date shall be true and correct
in all respects as of such specified date).
(b) Sellers shall have performed and complied
with, in all respects, all obligations and covenants required
to be performed or complied with by it under this Agreement at
or prior to the Effective Time.
(c) Sellers shall have obtained all consents,
approvals, authorizations and permits required from third
parties and any Governmental Entity (applicable to Xeron or
any of its shareholders) necessary for the consummation by
Sellers of the transactions contemplated by this Agreement.
(d) The Stock Transfer Restriction Agreement
dated September 28, 1987, as amended or supplemented, shall
have been terminated in writing in accordance with the terms
thereof.
(e) Chesapeake shall have received from Xeron
an officer's certificate substantially in the form of Exhibit
8.3(e) attached hereto.
(f) Chesapeake shall have received from each
Shareholder a certificate substantially in the form of
Exhibit 8.3(f) attached hereto.
(g) Chesapeake shall have received from Lowrey
& Millikin, L.L.P., counsel to the Sellers, an opinion
substantially in the form of Exhibit 8.3(g) attached hereto.
(h) Chesapeake shall have received from each
of the Shareholders, investment representation letters
substantially in the form of Exhibit 8.3(h) attached hereto.
(i) From the date of this Agreement through
the Effective Time, Xeron shall not have suffered a Material
Adverse Change.
(j) All necessary approvals from the Delaware
Public Service Commission regarding the issuance of the shares
of Chesapeake Common Stock shall have been granted by final
order.
(k) All rights of first refusal pursuant to
the Articles of Incorporation of Xeron or otherwise held by
any Shareholder shall have been waived or terminated in
writing.
(l) All waiting periods shall have expired
and/or all necessary approvals, authorizations, consents, or
waivers have been received for the consummation of the
transaction pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(m) Xeron shall have executed and delivered
the letter to Coopers & Lybrand in the form of Annex A-1
attached hereto.
(n) Coopers & Lybrand shall have delivered to
Chesapeake an opinion letter confirming that the merger may be
accounted for as a pooling of interests under the requirements
of Accounting Principles Board Opinion (APB) No. 16, Business
Combinations, and the related published interpretations of the
American Institute of Certified Public Accountants and the
Financial Accounting Standards Board, and the published rules
and regulations of the Securities and Exchange Commission.
(o) The Sellers shall have delivered executed
Employment Agreements for J. Phillip Keeter and Earnest A.
Allen, Jr. in the form of Annexes B-1 and B-2 hereto; and the
Sellers shall have delivered executed Employment Agreements
for Patrick E. Armand, Carl E. Mendenhall, David Snyder and
Marilyn Johnson satisfactory to Chesapeake.
(p) The Sellers shall have provided Chesapeake
with such representations and evidence as Chesapeake's counsel
advises are necessary or appropriate to ensure compliance with
applicable federal and state securities laws.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. All statements, certifications, representations,
and warranties provided for herein shall survive beyond the
Effective Time and continue in full force and effect at all
times as provided in this Article IX (and shall not in any
manner be affected or impaired by the consummation of the
transactions contemplated by this Agreement or by any
investigation made by or on behalf of any party) until the
termination of this Agreement pursuant to Section 10.1 or the
period for identifying a claim of breach or default pursuant
to the limitations prescribed under Section 9.2(d)(i) and (ii)
shall have expired.
SECTION 9.2 INDEMNIFICATION.
(a) INDEMNITY BY CHESAPEAKE. Chesapeake shall
indemnify and defend and hold each Shareholder harmless from
and against all claims, liabilities, damages, losses and
expenses (including reasonable attorneys' fees) of every kind
and character (exclusive however of any amounts covered by
Section 9.2(b)) resulting from or relating to or arising out
of the inaccuracy, nonfulfillment, nonperformance or breach of
any representation, warranty, covenant, agreement or
obligation of Chesapeake contained herein.
(b) INDEMNITY BY THE SHAREHOLDERS. Each
Shareholder shall indemnify and defend and hold Chesapeake and
its affiliates harmless from and against all claims,
liabilities, damages, losses and expenses (including
reasonable attorneys' fees) of every kind and character
(exclusive however of any amounts covered by Section 9.2(a))
incurred by Chesapeake and its affiliates and resulting from
or relating to or arising out of the inaccuracy,
nonfulfillment, nonperformance or breach of any
representation, warranty, covenant, agreement or obligation of
the Sellers contained herein.
(c) THIRD PARTY CLAIMS. If a claim for which
indemnification may be sought under this Section 9.2 is
asserted by third parties (including any environmentally
related remedial or clean up work) (the "Third Party Claims"),
such Third Party Claim will be subject to the following terms
and conditions:
(i) upon receipt of written notice of any
Third Party Claim asserted against, imposed upon or incurred
by Chesapeake and its affiliates or the Shareholders, as the
case may be (the "Indemnified Party"), the party from whom
indemnification is sought (the "Indemnifying Party") may, at
its own expense, participate in and, upon notice to the
Indemnified Party undertake the defense thereof by counsel of
its own choosing, which counsel shall be reasonably
satisfactory to the Indemnified Party, provided that, if in
the Indemnified Party's reasonable judgment a conflict of
interest may exist between such Indemnified Party and the
Indemnifying Party with respect to such Third Party Claim,
such Indemnified Party shall be entitled to select counsel of
its own choosing to defend the Third Party Claim (with the
fees and costs of such counsel being at the Indemnifying
Party's sole cost and expense);
(ii) if (A) within a reasonable time after written notice
to the Indemnifying Party of a Third Party Claim, the
Indemnifying Party fails to notify the Indemnified Party
that it will assume the defense of the Third Party Claim
or (B) within a reasonable time after written notice to
the Indemnified Party of its intention to undertake the
defense of any Third Party Claim, the Indemnifying Party
fails to defend the Indemnified Party, the Indemnified
Party will have the right to undertake the defense,
compromise or settlement of such Third Party Claim
for the account and at the risk of the Indemnifying Party;
(iii) anything in this Section 9.2(c) to the contrary
notwithstanding, if there is a reasonable probability in the
Indemnified Party's judgment that a claim may materially and
adversely affect the Indemnified Party, other than as a result
of money damages or other money payments, the Indemnified
Party will have the right to defend, co-defend, compromise or
settle such Third Party Claim (with full disclosure of the
proposed settlement terms being given to the Indemnifying
Party prior to settlement thereof) by selecting counsel of its
own choosing (with the fees and costs of such counsel being
the Indemnified Party's sole cost and expense);
(iv) the Indemnified Party shall cooperate fully in all
reasonable respects with the Indemnifying Party in any such defense,
compromise or settlement including, without limitation, by
making available to the Indemnifying Party all pertinent
information and all books and records under the control of the
Indemnified Party;
(v) the Indemnifying Party shall not compromise or settle
any such action, suit, proceeding, claim or demand without
the prior written approval of the Indemnified Party; provided
that, if such prior written approval is unreasonably withheld
by the Indemnified Party, the liability of the Indemnifying
Party with respect to such action, suit, proceeding, claim
or demand shall be limited to the amount of the settlement
recommended by the Indemnifying Party and not approved by
the Indemnified Party.
(d) LIMITATIONS. The Indemnified Party shall
have no claim for indemnification hereunder or other claims
against the Indemnifying Party with respect to this Agreement
(other than a claim arising out of the knowing, fraudulent or
intentional breach of any provision of this Agreement) unless
such claim is identified:
(i) with respect to claims relating to
Sections 3.11 and 4.16 within the relevant
statute of limitations for assessment and
collection of additional taxes; or
(ii) with respect to all other claims,
within the earlier of
(A) one (1) year following the Effective Time
or (B) the date on which an independent audit
report on Chesapeake is issued which reflects
the Merger.
If such a claim for indemnification or such other recourse is
not identified in writing within the appropriate time period
provided above, such claim against and right to
indemnification from the Indemnifying Party shall be deemed
released, waived and relinquished for all purposes.
Notwithstanding any other provisions of this Section 9.2 or
other provisions of this Agreement to the contrary (except as
expressly stated in Section 5.7 and Article XI hereof), no
indemnification shall be payable to an Indemnified Party by an
Indemnifying Party unless the total of all claims for
indemnification by an Indemnified Party under this Agreement
shall exceed $500,000 in the aggregate, whereupon the excess
of the amount of such claims over $500,000 shall be
recoverable in accordance with the terms hereof, subject to
the maximum amounts set forth in Section 9.2(e).
(e) MAXIMUM AMOUNT OF INDEMNIFICATION. The
maximum amount payable to Chesapeake by the Shareholders in
the aggregate pursuant to this Section 9.2 shall be $500,000
and the maximum amount payable by each Shareholder shall be
such Shareholder's proportionate ownership percentage of the
outstanding Xeron Common Stock immediately prior to the Merger
multiplied by $500,000. The maximum amount payable to the
Shareholders, in the aggregate, by Chesapeake pursuant to this
Section 9.2, shall be $500,000. Notwithstanding the foregoing
provisions, the respective maximum amounts shall not be
applicable to amounts owed arising out of the knowing,
fraudulent or intentional breach of any provision of this
Agreement by an Indemnifying Party. Furthermore, in no event
shall Chesapeake be obligated to pay the Shareholders any
indemnification if the market price of Chesapeake Common Stock
for the last day of the preceding month end is $17 per share
or above, as adjusted for stock splits, stock dividends and
similar events.
(f) REIMBURSEMENT IN STOCK. Amounts due to
Chesapeake under this Article IX shall be paid first in
Chesapeake Common Stock and, to the extent the Shareholders do
not hold sufficient shares of Chesapeake Common Stock to pay
the amount due, then in cash. For purposes of this Section
9.2(f), the value of such Chesapeake Common Stock shall be
deemed to be the closing price of Chesapeake Common Stock on
the New York Stock Exchange on the day the Effective Time
occurs (or the next succeeding trading day on which shares are
sold if none are sold on the day the Effective Time occurs).
ARTICLE X
TERMINATION AND AMENDMENT
SECTION 10.1 TERMINATION. This Agreement may be
terminated at any time prior to the Effective Time:
(a) by mutual consent of Chesapeake and the
Sellers;
(b) by either Chesapeake or the Sellers, if
the Merger shall not have been consummated before May 31, 1998
(unless the failure to consummate the Merger by such date
shall be due to the action or failure to act of the party
seeking to terminate); or
(c) by either Chesapeake or the Sellers, if
any permanent injunction or other order of a court or other
competent authority preventing the consummation of the Merger
shall have become final and nonappealable.
SECTION 10.2 EFFECT OF TERMINATION. In the event
of the termination and abandonment of this Agreement pursuant
to Section 10.1 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or
shareholders. Notwithstanding the foregoing, nothing
contained in this Section 10.2 shall relieve any party from
liability for any material breach of any covenant of this
Agreement or any material breach or misrepresentation of the
representations or warranties contained herein, which occurred
prior to such termination.
SECTION 10.3 AMENDMENT. This Agreement may be
amended by the parties hereto at any time prior to the
Effective Time. This Agreement may not be amended except by
an instrument in writing signed by or on behalf of each of the
parties hereto.
SECTION 10.4 EXTENSION, WAIVER. At any time prior
to the Effective Time, the parties may, to the extent legally
allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii)
waive any inaccuracies in the representations and warranties
of the other parties hereto contained herein or in any
document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein by
the other parties hereto. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of
such party.
ARTICLE XI
NON-COMPETITION AGREEMENT
SECTION 11.1 COVENANT NOT TO SOLICIT CUSTOMERS,
HIRE EMPLOYEES OR COMPETE. For and in consideration of the
purchase of Xeron and in addition to any non-competition
agreements in the Employment Agreements attached as Annex B
hereto, each of the Shareholders agrees that he will not, for
a period of three years following the Effective Time:
(a) directly or indirectly, on his own behalf or on
behalf of any other person or entity other than Chesapeake,
solicit, or attempt to solicit, for the purpose of providing
any product or service of the same or similar kind or
character as any product or service sold, provided or under
development by Xeron prior to the Effective Date, any person
or entity that is or was a customer or a prospective customer
of Xeron.
(b) directly or indirectly, on his own behalf or on
behalf of any
other person or entity other than Chesapeake, solicit for
employment or hire any employee or former employee of Xeron or
any affiliate of Xeron who is or was employed by Xeron or any
affiliate during the twelve months preceding the Effective
Date.
(c) (i) directly or indirectly engage in, (ii) have
any interest in any person, firm, corporation or other entity
that directly or indirectly engages in, or (iii) perform any
services for any person, firm, corporation or other entity
that directly or indirectly engages in, the same or similar
lines of business as Xeron, except for such Shareholders'
ownership of the stock of Chesapeake, except for ownership of
interests in publicly traded companies where such ownership
represents less than one percent of the outstanding shares of
such publicly traded company.
Nothing in this Section 11.1 is intended or shall restrict the
right of any Shareholder to engage in speculative transactions
in propane futures traded on a public exchange for his own
individual investment account (or the investment account of a
member of his immediate family) and not for the benefit of any
third party, provided that any such transaction shall be
permitted only if (1) executed on a public exchange and (2)
such transaction shall not have an adverse effect on Xeron.
This Article XI and any claims for breach hereof are not
subject to the limitations set forth in Article IX.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 NOTICES. All notices and other
communications hereunder shall be in writing, and shall be deemed
given upon receipt if delivered personally, sent by facsimile
transmission (receipt of which is confirmed) or by certified or
registered mail, return receipt requested, or by a nationally
recognized private overnight courier to the parties at the
following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to the Shareholders, to:
J. Phillip Keeter
1405 Colony Circle
Longview, TX 75604
Fax: (903) 236-6807
Earnest A. Allen, Jr.
3126 Robinson Road
Missouri City, TX 77459
Patrick E. Armand
9119 Devoncroft
Houston, TX 77037
(b) if to Xeron, to
Xeron, Inc.
9301 Southwest Freeway, Suite 325
Houston, TX 77074
Attn: Earnest A. Allen, Jr.
Fax: (713) 988-3476
with a copy to:
J. Richard Millikin, Jr.
Lowrey & Millikin, L.L.P.
1127 Judson Road, Suite 141
Longview, TX 75601
Fax: (903) 236-3050
(c) if to Chesapeake, to:
Chesapeake Utilities Corporation
909 Silver Lake Boulevard
Dover, Delaware 19904
Attention: John R. Schimkaitis
Fax: (302) 734-6750
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Ruth S. Epstein
Fax: (202) 662-6291
SECTION 12.2 DESCRIPTIVE HEADINGS. The descriptive
headings herein are inserted for convenience only and are not
intended to be part of or to affect the meaning or interpretation
of this Agreement.
SECTION 12.3 COUNTERPARTS. This Agreement may be
executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when two or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
SECTION 12.4 ENTIRE AGREEMENT; ASSIGNMENT. This
Agreement (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise.
SECTION 12.5 GOVERNING LAW. This Agreement shall be
governed and construed in accordance with the laws of the State
of Delaware without regard to any applicable principles of
conflicts of law.
SECTION 12.6 SPECIFIC PERFORMANCE. The parties hereto
agree that if any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached, irreparable damage would occur, no adequate
remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy
at law or equity.
SECTION 12.7 PUBLICITY. Chesapeake may issue or cause
the publication of any press release or other public announcement
or make any filing with the SEC with respect to the transactions
contemplated by this Agreement as it deems appropriate; provided
that, to the extent practicable, Chesapeake shall provide the
Shareholders with a copy of any such press release or other
public announcement or filing prior to the time of release or
filing. The Sellers shall not issue or cause the publication of
any press release or other public announcement with respect to
the transactions contemplated by this Agreement without the prior
approval of Chesapeake.
SECTION 12.8 PARTIES IN INTEREST. This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person or persons
any rights, benefits or remedies of any nature whatsoever under
or by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed (where applicable by their respective
officers thereunto duly authorized), as of the date first written
above.
CHESAPEAKE UTILITIES CORPORATION
By: /s/ John R. Schimkaitis
-------------------------------
Name: John R. Schimkaitis
Title: President
CPK-SUB-C, INC.
By: /s/ John R. Schimkaitis
-------------------------------
Name: John R. Schimkaitis
Title: President
XERON, INC.
By: /s/ Earnest A. Allen, Jr.
-------------------------------
Name: Earnest A. Allen, Jr.
Title: Chief Executive Officer
SHAREHOLDERS
/s/ J. Phillip Keeter
-------------------------------
J. Phillip Keeter
/s/ Earnest A. Allen, Jr.
-------------------------------
Earnest A. Allen, Jr.
/s/ Patrick E. Armand
-------------------------------
Patrick E. Armand
Exhibit II.
FOR IMMEDIATE RELEASE:
April 29, 1998
NYSE Symbol: CPK
CHESAPEAKE UTILITIES CORPORATION
ENTERS AGREEMENT TO PURCHASE THE STOCK
OF XERON, INC.
DOVER, DELAWARE - Chesapeake Utilities Corporation ("Chesapeake")
announced today that it has signed an agreement to purchase all
of the outstanding shares of Xeron, Inc. ("Xeron"), a privately
held natural gas liquids trading company headquartered in Houston,
Texas. Xeron will be operated as a subsidiary of Chesapeake.
In the transaction, which will be accounted for as a pooling of
interests, Xeron shareholders will receive 475,000 shares of
Chesapeake common stock for all the outstanding common stock of
Xeron. After the purchase of Xeron's stock, the total number
of Chesapeake outstanding shares will be approximately 5,064,000.
Excluding one-time merger costs, this transaction is not expected
to have a dilutive effect on earnings per share. The purchase,
which is subject to regulatory and other required approvals and
conditions of closing, is expected to close by May 31, 1998.
Chesapeake Utilities Corporation is a diversified utility company
engaged in natural gas distribution and transmission, propane
distribution, advanced information services and water treatment.
Chesapeake's three natural gas distribution divisions serve
approximately 35,800 residential, commercial and industrial
customers throughout central and southern Delaware, Maryland's
Eastern Shore and Central Florida. The Company's propane segment
serves approximately 34,000 customers in central and southern
Delaware and the Eastern Shore region of Maryland and Virginia.
--30--
For more information, please contact:
Michael P. McMasters, Vice President,
Treasurer & Chief Financial Officer
Chesapeake Utilities Corporation, 302.734.6798
Beth W. Cooper, Assistant Treasurer
Chesapeake Utilities Corporation, 302.734.6015
This press release includes forward-looking information relating
to the proposed business combination, including its anticipated
impact on earnings per share. This forward-looking information
involves risks and uncertainties that could cause actual results
to differ materially, including without limitation, whether or
not the proposed acquisition actually occurs, actual performance
for the periods indicated, the actual costs of the acquisition
and the ability of the combined company to execute the
anticipated integration and realize the expected synergies.
