EXHIBIT INDEX ON PAGES 19-23
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-3437-2
AMERICAN WATER WORKS COMPANY, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 51-0063696
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 856-346-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
Common Stock, $1.25 par value per share New York Stock Exchange
Cumulative Preferred Stock, 5% Series,
$25 par value per share New York Stock Exchange
5% Cumulative Preference Stock,
$25 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
<PAGE>
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 6, 2000 was $1,263,689,643.
As of March 6, 2000, there were a total of 97,591,855 shares of Common
Stock, $1.25 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained and incorporated by reference herein contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Certain
factors could cause actual results to differ materially from those in the
forward-looking statements. Those factors include, but are not limited to,
the unpredictability of weather, rate regulations and timing of rate cases,
and changes to existing and proposed environmental regulations. See
"Management's Discussion and Analysis" beginning on page 25 of the Company's
Annual Report to Shareholders incorporated herein by reference.
(1) The following pages and section in Registrant's Annual Report to
Shareholders for 1999 are incorporated by reference into Part I, Item 1 and
Part II of this Form 10-K: pages 24 through 52, with the exception of the
section entitled "Management's Responsibility for Financial Reporting" on
page 37; and the section entitled "Range of Market Prices" on page 55.
(2) The following pages and section in Registrant's definitive Proxy
Statement relating to Registrant's Annual Meeting of Shareholders on
May 4, 2000 are incorporated by reference into Part III of this Form 10-K:
Page 2 (beginning with the sixth full paragraph thereon) through page 5, the
section entitled "Director Remuneration" on page 7, pages 8 and 9, and pages 14
through 16.
<PAGE>
Page 1
PART I
Item 1. Business
The "Description of the Business" is set forth on pages 25 and 27 of the
Annual Report to Shareholders for 1999, filed as Exhibit 13 to this Report on
Form 10-K; and such description is hereby specifically incorporated herein by
reference thereto. The information provided in that section is supplemented
by the following details:
The water supplies of the regulated subsidiaries consist of surface
supplies, wells, and in a limited number of cases, water purchased under
contract. Such supplies are considered adequate to meet present require-
ments. In general, all surface supplies are filtered and substantially all of
the water is treated with chlorine, and, in some cases, special treatment is
provided to correct specific conditions of the water.
In general, the regulated subsidiaries have valid franchises, free from
unduly burdensome restrictions, sufficient to enable them to carry on their
business as presently conducted. They derive such franchise rights from
statutes under which they were incorporated, municipal consents and ordinances,
or certificates or permits received from state or local regulatory agencies.
In most instances, such franchise rights are non-exclusive.
In most of the states in which the operations of the regulated
subsidiaries are carried on, there exists the right of municipal acquisition by
one or both of the following methods: (1) condemnation; or (2) the right of
purchase given or reserved by the law of the state in which the company was
incorporated or received its franchise. The price to be paid upon condemnation
is usually determined in accordance with the law of the state governing the
taking of land or other property under eminent domain statutes; in other
instances, the price is fixed by appraisers selected by the parties, or in
accordance with a formula prescribed by the law of the state or in the
particular franchise or special charter.
The Registrant and its subsidiary companies acquire water and wastewater
utility systems that complement existing service territories or which enhance
geographic diversification. Acquisitions of utility systems by the Registrant
and its subsidiary companies are described in the subsection entitled
"Acquisitions of Utility Systems" under the section entitled "System Growth and
Development," located on page 27 of the Annual Report to Shareholders for 1999,
filed as Exhibit 13 to this Report on Form 10-K; such information is hereby
specifically incorporated herein by reference thereto.
Some of the expenditures for construction by regulated subsidiaries have
included facilities to comply with federal and state water quality and safety
standards. The nature of some of the construction is described in the
subsection entitled "Capital Spending Program" under the section entitled
"System Growth and Development," located on pages 27 and 28 of the Annual Report
to Shareholders for 1999, filed as Exhibit 13 to this Report on Form 10-K; such
information is hereby specifically incorporated herein by reference thereto.
The number of persons employed by the Registrant and subsidiary companies
totaled 4,970 at December 31, 1999.
<PAGE>
Page 2
Item 1A. Executive Officers of the Registrant
The following sets forth the names, ages and business experience
during the past five years of the executive officers of the Registrant. No
family relationships exist among any of such executive officers, nor do any
arrangements or understandings exist between any such executive officer and any
other person pursuant to which he was selected as an officer.
Name Age Business Experience During Past Five Years
J. James Barr 58 President and Chief Executive Officer
of the Registrant since March, 1998 and Acting
President and Chief Executive Officer of the
Registrant from November, 1997 to March, 1998.
Vice President and Treasurer of the
Registrant prior thereto.
Ellen C. Wolf 46 Vice President and Chief Financial Officer
of the Registrant since May, 1999 and Vice
President-Treasurer of Bell Atlantic
Corporation prior thereto.
W. Timothy Pohl 45 General Counsel and Secretary of the
Registrant.
Joseph F. Hartnett, Jr. 48 Treasurer of the Registrant since January,
1998 and Vice President-Finance since May, 1998
and Vice President and Treasurer from September,
1992 to May, 1998 of American Water Works Service
Company, Inc., service subsidiary of the
Registrant.
Robert D. Sievers 46 Comptroller of the Registrant.
The executive officers are elected at the annual organizational meeting of
the Board of Directors of the Registrant which is held in May. The executive
officers serve at the pleasure of the Board of Directors. Successors to
officers who resign, die or are removed during the year are elected by the
Board.
Item 2. Properties
The Registrant leases its office space, equipment and furniture from one
of its wholly-owned subsidiaries. The office space, equipment and furniture are
located in Voorhees, New Jersey and are utilized by the Registrant's directors,
officers and staff in the conduct of the Registrant's business.
The regulated subsidiaries own, in the states in which they operate,
transmission and distribution mains, pump stations, treatment plants, storage
tanks, reservoirs and related facilities. Properties are adequately maintained
and units of property are replaced as and when necessary. The Registrant
considers the properties of its regulated subsidiaries to be in good operating
condition.
<PAGE>
Page 3
A substantial acreage of land is owned by the regulated subsidiaries, the
greater part of which is located in watershed areas, with the balance being
principally sites of pumping and treatment plants, storage reservoirs, tanks
and standpipes.
Item 3. Legal Proceedings
There are no pending material legal proceedings, other than ordinary,
routine litigation incidental to the business, to which the Registrant or any
of its subsidiaries is a party or of which any of their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required under this item is contained in the section
entitled "Range of Market Prices," located on page 55 of the Annual Report to
Shareholders for 1999, filed as Exhibit 13 to this Report on Form 10-K; such
information is hereby specifically incorporated herein by reference thereto.
Item 6. Selected Financial Data
The information required under this item is contained in the section
entitled "Consolidated Summary of Selected Financial Data," located on page 24
of the Annual Report to Shareholders for 1999, filed as Exhibit 13 to this
Report on Form 10-K; such information is hereby specifically incorporated by
reference thereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is contained in the section
entitled "Management's Discussion and Analysis," located on pages 25 through 36
of the Annual Report to Shareholders for 1999, filed as Exhibit 13 to this
Report on Form 10-K; such information is hereby specifically incorporated
herein by reference thereto.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item with respect to market risk is
contained on page 32, within the section entitled "Management's Discussion and
Analysis," located on pages 25 through 36 of the Annual Report to Shareholders
for 1999, filed as Exhibit 13 to this Report on Form 10-K; such information is
hereby specifically incorporated herein by reference thereto.
<PAGE>
Page 4
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 1, 2000, appearing on pages 37
through 52 of the 1999 Annual Report to Shareholders, filed as Exhibit 13 to
this Report on Form 10-K, are hereby specifically incorporated herein by
reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required under this item with respect to the Directors of
the Registrant appears in the sixth full paragraph on page 2 through page 5 of
the definitive Proxy Statement relating to the Registrant's Annual Meeting of
Shareholders on May 4, 2000, to be filed by the Registrant with the Commission
pursuant to Section 14(a) of the Securities Exchange Act of 1934 (the "1934
Act"); such information is hereby specifically incorporated herein by reference
thereto.
The information required under this item with respect to the Executive
Officers of the Registrant is set forth in Item 1A of Part I above pursuant to
paragraph (3) of General Instruction G to Form 10-K.
Item 11. Executive Compensation
The information required under this item is contained in the section
entitled "Director Remuneration" which is located on page 7, and in the
sections entitled "Report of the Compensation and Management Development
Committee of the Board of Directors on Executive Compensation," "Performance
Graph," "Management Remuneration," and "Pension Plan" which are located on
pages 10 through 16 of the definitive Proxy Statement relating to the
Registrant's Annual Meeting of Shareholders on May 4, 2000, to be filed by the
Registrant with the Commission pursuant to Section 14(a) of the 1934 Act, and
is hereby specifically incorporated herein by reference thereto, except for the
"Report of the Compensation and Management Development Committee of the Board
of Directors on Executive Compensation" and "Performance Graph" which are not
so incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is contained in the section
entitled "Stock Ownership Information" which is located on pages 8 and 9 of the
definitive Proxy Statement relating to the Registrant's Annual Meeting of
Shareholders on May 4, 2000, to be filed by the Registrant with the Commission
pursuant to Section 14(a) of the 1934 Act, and is hereby specifically
incorporated herein by reference thereto.
<PAGE>
Page 5
Item 13. Certain Relationships and Related Transactions
There are no material relationships or related transactions other than
those disclosed in response to Item 11 of this Part III.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) The following documents are filed as part of this report:
1. Financial Statements: the Financial Statements required to be
filed by Item 8 are listed in the Index to Financial
Statements, which appears on Pages 9 and 10 of this Report on
Form 10-K.
2. Financial Statement Schedules: the Financial Statement
Schedules required to be filed by Item 8 and by paragraph (d)
of this Item are listed in the Index to Financial Statements,
which appears on Pages 9 and 10 of this Report on Form 10-K.
3. Exhibits: the Exhibits to this Report on Form 10-K are listed
in the Index to Exhibits, which appears on Pages 19 to 23 of this
Report on Form 10-K.
b) Reports on Form 8-K.
During the last quarter of the period covered by this Report on
Form 10-K, the Registrant filed no reports on Form 8-K.
<PAGE>
Page 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN WATER WORKS COMPANY, INC.
By: J. James Barr
-------------------------------------
J. James Barr, President
and Chief Executive Officer
DATE: March 2, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
Principal Executive Officer:
J. James Barr
- -----------------------------
J. James Barr President, Chief March 2, 2000
Executive Officer
and Director
Principal Financial Officer:
Ellen C. Wolf
- -----------------------------
Ellen C. Wolf Vice President and March 2, 2000
Chief Financial Officer
Principal Accounting Officer:
Robert D. Sievers
- -----------------------------
Robert D. Sievers Comptroller March 2, 2000
<PAGE>
Page 7
SIGNATURES (Cont'd.)
Directors:
Marilyn Ware
- --------------------------------------
Marilyn Ware (Chairman) March 2, 2000
Anthony P. Terracciano
- --------------------------------------
Anthony P. Terracciano (Vice Chairman) March 2, 2000
William O. Albertini
- --------------------------------------
William O. Albertini March 2, 2000
Rhoda W. Cobb
- --------------------------------------
Rhoda W. Cobb March 2, 2000
Elizabeth H. Gemmill
- --------------------------------------
Elizabeth H. Gemmill March 2, 2000
- --------------------------------------
Ray J. Groves
- --------------------------------------
Henry G. Hager
Frederick S. Kirkpatrick
- --------------------------------------
Frederick S. Kirkpatrick March 2, 2000
Gerald C. Smith
- --------------------------------------
Gerald C. Smith March 2, 2000
- --------------------------------------
Nancy Ware Wainwright
Paul W. Ware
- --------------------------------------
Paul W. Ware March 2, 2000
Ross A. Webber
- --------------------------------------
Ross A. Webber March 2, 2000
William S. White
- --------------------------------------
William S. White March 2, 2000
Horace Wilkins, Jr.
- --------------------------------------
Horace Wilkins, Jr. March 2, 2000
<PAGE>
Page 8
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1999
AMERICAN WATER WORKS COMPANY, INC.
FINANCIAL STATEMENTS
<PAGE>
Page 9
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Page(s) in
(1) FINANCIAL STATEMENTS Annual Report*
Report of Independent Accountants . . . . . . . . . . . . . . 37
Consolidated Balance Sheet of American Water Works
Company, Inc. and Subsidiary Companies at December 31,
1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . .38 and 39
Consolidated Statements of Income and Comprehensive
Income and of Retained Earnings of American Water
Works Company, Inc. and Subsidiary Companies for
each of the three years in the period ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 40
Consolidated Statement of Cash Flows of American
Water Works Company, Inc. and Subsidiary Companies
for each of the three years in the period ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statement of Capitalization of American
Water Works Company, Inc. and Subsidiary Companies
at December 31, 1999 and 1998 . . . . . . . . . . . . . . .42 and 43
Consolidated Statement of Common Stockholders' Equity
of American Water Works Company, Inc. and Subsidiary
Companies for each of the three years in the period
ended December 31, 1999 . . . . . . . . . . . . . . . . . . . 44
Notes to Financial Statements . . . . . . . . . . . . . .45 through 52
*Incorporated by reference from the indicated pages of the 1999 Annual Report
to Shareholders, which is Exhibit 13 to this Report on Form 10-K.
<PAGE>
Page 10
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS (Continued)
(2) FINANCIAL STATEMENT SCHEDULES
Description Page(s)*
Schedule I: Report of Independent Accountants on Financial
Statement Schedules. . . . . . . . . . . . . . . . . . 11
Balance Sheet of American Water Works Company, Inc.
at December 31, 1999 and 1998. . . . . . . . . . . . . 13 and 14
Statements of Income and Comprehensive Income
and of Retained Earnings of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1999 . . . . . . . . . . . . 15 and 16
Statement of Cash Flows of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1999 . . . . . . . . . . . . 17 and 18
Financial Statement Schedules not included in this Report on Form 10-K have
been omitted because they are not applicable or the required information is
shown in the Financial Statements or notes thereto.
*Page numbers shown refers to the page numbers in this Report on Form 10-K.
<PAGE>
Page 11
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
American Water Works Company, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 1, 2000 appearing in the 1999 Annual Report to Shareholders of
American Water Works Company, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 1, 2000
<PAGE>
Page 12
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 33-59059) and in the Registration Statements on Form
S-8 (No. 333-52309, No. 33-52923, and No. 333-14451) of American Water Works
Company, Inc. of our report dated February 1, 2000 relating to the financial
statements, which appears on page 37 in the Annual Report to Shareholders,
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report dated February 1, 2000 relating to
the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 24, 2000
<PAGE>
Page 13
SCHEDULE 1
FINANCIAL INFORMATION OF AMERICAN WATER WORKS COMPANY, INC.
-----------------------------------------------------------
(Dollars in thousands)
BALANCE SHEET
At December 31
1999 1998
----------- -----------
ASSETS
Investments in subsidiaries
Securities $ 1,819,412 $ 1,708,659
Notes and advances 70 762
----------- -----------
Total investments in subsidiaries 1,819,482 1,709,421
----------- -----------
Current assets
Cash and cash equivalents 4,702 18,042
Income tax receivable from subsidiary - 2,189
Other receivables from subsidiaries 751 990
Income tax receivable 4,954 410
Other 135 139
----------- -----------
Total current assets 10,542 21,770
----------- -----------
Deferred debits
Debt expense 467 586
Preferred stock expense 43 90
Other 1 1
----------- -----------
Total deferred debits 511 677
----------- -----------
Other investments 195,937 97,022
----------- -----------
TOTAL ASSETS $ 2,026,472 $ 1,828,890
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 121,630 $ 119,789
Paid-in capital 424,434 384,255
Retained earnings 1,001,029 945,434
Accumulated other comprehensive income 92,461 33,138
Unearned compensation (1,056) (980)
Treasury stock (3,700) (25)
----------- -----------
Common stockholders' equity 1,634,798 1,481,611
<PAGE>
Page 14
SCHEDULE 1
(continued)
At December 31
1999 1998
----------- -----------
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Long-term debt 211,472 216,992
----------- -----------
Total capitalization 1,897,943 1,750,276
----------- -----------
Current liabilities
Bank debt 46,500 -
Current portion of long-term debt 213 35,158
Interest accrued 5,338 5,398
Taxes accrued, including federal income 167 2,666
Other 890 1,020
----------- -----------
Total current liabilities 53,108 44,242
----------- -----------
Long-term liabilities
Deferred income taxes 57,942 14,401
Other 17,479 19,971
----------- -----------
Total long-term liabilities 75,421 34,372
----------- -----------
Commitments and contingencies - -
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,026,472 $ 1,828,890
=========== ===========
Capital lease obligations to a subsidiary were $685 in 1999 and $650 in 1998.
The results presented in 1999 and the restated results for 1998 reflect the
pooling of interests method of accounting to recognize the acquisition of
National Enterprises Inc.
<PAGE>
Page 15
SCHEDULE 1
(continued)
FINANCIAL INFORMATION OF AMERICAN WATER WORKS COMPANY, INC.
-----------------------------------------------------------
(Dollars in thousands, except per share amounts)
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AND OF RETAINED EARNINGS
For the Years Ended
December 31,
1999 1998 1997
-------- -------- --------
INCOME AND COMPREHENSIVE INCOME
Income from subsidiaries
Equity in earnings of subsidiaries
Dividends $128,860 $119,283 $102,283
Undistributed earnings 37,677 49,481 49,802
-------- -------- --------
166,537 168,764 152,085
Interest 5 6 7
Other income 1,222 1,377 922
-------- -------- --------
167,764 170,147 153,014
-------- -------- --------
Expenses
Operating and administrative expenses 16,236 12,459 9,803
General taxes 526 266 281
Interest 17,879 17,299 13,817
Merger related costs 9,876 352 -
Amortization of debt expense 120 114 63
-------- -------- --------
44,637 30,490 23,964
-------- -------- --------
Income before income taxes 123,127 139,657 129,050
Provision for income taxes (15,822) (10,782) (8,641)
-------- -------- --------
Net income 138,949 150,439 137,691
Dividends on preferred stocks 3,984 3,984 3,984
-------- -------- --------
Net income to common stock 134,965 146,455 133,707
Other comprehensive income
Unrealized gains on securities 102,604 47,083 5,348
Income taxes on other comprehensive
income (43,281) (17,959) (1,334)
-------- -------- --------
Other comprehensive income, net 59,323 29,124 4,014
-------- -------- --------
Comprehensive income $194,288 $175,579 $137,721
======== ======== ========
Average shares of basic common
stock outstanding 96,544 95,234 94,080
Basic and diluted earnings per common
share on average shares outstanding $1.40 $1.54 $1.42
======== ======== ========
<PAGE>
Page 16
SCHEDULE 1
(continued)
For the Years Ended
December 31,
1999 1998 1997
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of year $ 945,434 $ 870,368 $ 803,085
Add: net income 138,949 150,439 137,691
--------- --------- ---------
1,084,383 1,020,807 940,776
--------- --------- ---------
Deduct: dividends paid
Preferred stock 3,528 3,528 3,528
Preference stock 456 456 456
Common stock - $.86 per share in 1999
$.82 per share in 1998, $.76 per
share in 1997 76,479 65,781 60,084
National Enterprises Inc. common stock 2,891 5,608 6,340
--------- --------- ---------
83,354 75,373 70,408
--------- --------- ---------
Balance at end of year $1,001,029 $ 945,434 $870,368
========== ========= =========
The results presented in 1999 and the restated results for 1998 and 1997
reflect the pooling of interests method of accounting to recognize the
acquisition of National Enterprises Inc.
<PAGE>
Page 17
SCHEDULE 1
(continued)
FINANCIAL INFORMATION OF AMERICAN WATER WORKS COMPANY, INC.
-----------------------------------------------------------
(Dollars in thousands)
STATEMENT OF CASH FLOWS
For The Years Ended
December 31,
1999 1998 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $138,949 $150,439 $137,691
Adjustments
Undistributed earnings of subsidiaries (37,677) (49,481) (49,802)
Employee stock plan expense 169 98 585
Other, net (40) 1,892 1,197
Changes in assets and liabilities
Other current assets (2,112) (1,436) (319)
Taxes accrued, including federal
income (2,499) 1,512 178
Interest accrued (60) 3,345 191
Other current liabilities (130) 238 (802)
-------- -------- --------
Net cash from operating activities 96,600 106,607 88,919
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries common stock (73,076) (102,547) (68,148)
Repayment (borrowing) of promissory
notes by subsidiaries 692 (672) 10
Supplemental executive retirement plan
funding (653) (3,449) (950)
-------- -------- --------
Net cash used in investing activities (73,037) (106,668) (69,088)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock, net of
issuance costs 41,913 36,227 28,041
Dividends paid (83,354) (75,373) (70,408)
Net borrowings (repayments) under
line-of-credit agreements 46,500 (59,500) 21,400
Intercompany borrowings, net - (3,013) 3,013
Redemption of preferred stock from
subsidiary 100 - -
Purchase of common stock for treasury (1,190) - -
Proceeds from long-term debt - 120,000 -
<PAGE>
Page 18
SCHEDULE 1
(continued)
For The Years Ended
December 31,
1999 1998 1997
-------- -------- --------
Repayment of long-term debt (40,872) (765) (1,073)
Debt issuance costs - (352) -
-------- -------- --------
Net cash from (used in) financing
activities (36,903) 17,224 (19,027)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents (13,340) 17,163 804
Cash and cash equivalents at beginning
of year 18,042 879 75
-------- -------- --------
Cash and cash equivalents at end of year $ 4,702 $ 18,042 $ 879
======== ======== ========
Cash paid (received) during the year for:
Interest $ 17,939 $ 13,954 $ 13,626
======== ======== ========
Income taxes $(11,178) $ (9,162) $ (7,786)
======== ======== ========
Common stock issued in lieu of cash in connection with the Long-Term
Performance-Based Incentive plan totaled $105 in 1999, $111 in 1998 and
$437 in 1997.
The results presented in 1999 and the restated results for 1998 and 1997
reflect the pooling of interests method of accounting to recognize the
acquisition of National Enterprises Inc.
<PAGE>
Page 19
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
3 Articles of Incorporation and By-laws
(a) Certificate of Incorporation of the Registrant, as
amended and restated as of May 15, 1987, is incorporated
herein by reference to Exhibit 3(a) to Form 10-K report of
the Registrant for 1996.
(b) Certificate of Amendment of the Restated Certificate
of Incorporation of the Registrant, effective May 9, 1989,
is incorporated herein by reference to Exhibit 3(b) to Form
10-K report of the Registrant for 1996.
(c) Certificate of Amendment of the Restated Certificate
of Incorporation of the Registrant, effective May 3, 1990,
is incorporated herein by reference to Exhibit 3(c) to Form
10-K report of the Registrant for 1996.
(d) Certificate of Designations of the Registrant,
effective February 6, 1991, relating to its Cumulative
Preferred Stock, 8.50% Series, is incorporated herein by
reference to Exhibit 3(d) to Form 10-K report of the
Registrant for 1996.
(e) Certificate of Amendment of the Restated
Certificate of Incorporation of the Registrant, effective
May 2, 1996, is incorporated herein by reference to Exhibit
3(e) to Form 10-K report of the Registrant for 1996.
(f) Certificate of Amendment of the Restated
Certificate of Incorporation of the Registrant effective
May 6, 1999, is incorporated herein by reference to Exhibit
3(a) to Form 10-Q report of the Registrant for the period
ended March 31, 1999.
(g) By-laws of the Registrant, as amended to October 14,
1999 are incorporated herein by reference to Exhibit 3 to
Form 10-Q report of Registrant for the period ended
September 30, 1999.
4 Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Indenture dated as of November 1, 1977 between the
Registrant and The Fidelity Bank (name later changed to
First Union National Bank), Trustee, is incorporated herein
by reference to Exhibit E to Form 10-K report of the
Registrant for 1977.
<PAGE>
Page 20
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
4 (cont'd) (b) Second Supplemental Indenture dated as of
February 1, 1993 between the Registrant and Fidelity Bank,
National Association (name later changed to First Union
National Bank), as Trustee, is incorporated herein by
reference to Exhibit 4(c) to Form 10-K report of the
Registrant for 1992.
(c) Third Supplemental Indenture dated as of July 2,
1998 between the Registrant and First Union National Bank,
as Trustee, is incorporated herein by reference to Exhibit
4(d) to Form 10-K report of the Registrant for 1998.
(d) Rights Agreement dated as of February 18, 1999
between the Registrant and BankBoston, N.A., as Rights
Agent, is incorporated herein by reference to Exhibit 4 to
Form 8-A Registration Statement of the Registrant,
No. 1-3437-2.
10 Material Contracts
(a) Employees' Stock Ownership Plan of the Registrant
and Its Designated Subsidiaries, as Amended and Restated
Effective January 1, 1989, is incorporated herein by
reference to Exhibit 10(a) to Form 10-K report of the
Registrant for 1994.
(b) Amendment No. 1 to Employees' Stock Ownership Plan
of the Registrant is incorporated herein by reference to
Exhibit 10(b) to Form 10-K report of the Registrant for
1995.
(c) Amendment No. 2 to Employees' Stock Ownership Plan
of the Registrant is incorporated herein by reference to
Exhibit 10(c) to Form 10-K report of the Registrant for
1996.
(d) Supplemental Executive Retirement Plan of the
Registrant, as amended and restated July 1, 1997, is
incorporated herein by reference to Exhibit 10(d) to Form
10-K report of the Registrant for 1997.
<PAGE>
Page 21
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont'd) (e) Supplemental Retirement Plan of the Registrant,
as amended and restated effective July 1, 1997, is
incorporated herein by reference to Exhibit 10(e) to Form
10-K report of the Registrant for 1997.
(f) Long-Term Performance-Based Incentive Plan of the
Registrant, effective as of January 1, 1993, is
incorporated herein by reference to Exhibit 10(f) to Form
10-K report of the Registrant for 1994.
(g) Annual Incentive Plan of the Registrant, effective
as of January 1, 1996, is incorporated herein by reference
to Exhibit 10(j) to Form 10-K report of the Registrant for
1995.
(h) Amendment No. 1 to the Annual Incentive Plan of the
Registrant is incorporated herein by reference to Exhibit
10(h) to Form 10-K report of the Registrant for 1997.
(i) Deferred Compensation Plan of the Registrant,
as amended and restated effective October 1, 1998, is
incorporated herein by reference to Exhibit 10(i) to Form
10-K report of the Registrant for 1998.
(j) Stay Incentive Award for J. James Barr dated
November 6, 1997, is incorporated herein by reference to
Exhibit 10(k) to Form 10-K report of the Registrant for
1997.
(k) Consulting Agreement commencing May 7, 1998 between
registrant and Anthony P. Terracciano, is incorporated
herein by reference to Exhibit 10 to Form 10-Q report of
the Registrant for the period ended June 30, 1998.
(l) Amendment dated December 22, 1998 to Consulting
Agreement between registrant and Anthony P. Terracciano is
incorporated herein by reference to Exhibit 10 to Form 10-Q
report of the Registrant for the period ended March 31,
1999.
(m) Amendment dated May 6, 1999 to Consulting Agreement
between registrant and Anthony P. Terracciano is
incorporated herein by reference to Exhibit 10 to Form 10-Q
report of the Registrant for the period ended June 30,
1999.
<PAGE>
Page 22
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont'd) (n) Amendment dated October 1, 1999 to Consulting
Agreement between registrant and Anthony P. Terracciano is
incorporated herein by reference to Exhibit 10 to Form 10-Q
report of the Registrant for the period ended September 30,
1999.
(o) Contract dated May 5, 1999 between Registrant and
Ellen C. Wolf, is incorporated herein by reference to
Exhibit 10 to Form 10-Q report of the Registrant for the
period ended September 30, 1999.
(p) Agreement and Plan of Merger dated as of October 28,
1999 among American Water Works Company, Inc., SJW
Acquisition Corp. and SJW Corp., is filed herewith.
(q) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and Arizona-American Water Company,
dated as of October 15, 1999, is filed herewith.
(r) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and California-American Water Company,
dated as of October 15, 1999, is filed herewith.
(s) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and Illinois-American Water Company,
dated as of October 15, 1999, is filed herewith.
(t) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and Indiana-American Water Company,
Inc., dated as of October 15, 1999, is filed herewith.
(u) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and Ohio-American Water Company,
dated as of October 15, 1999, is filed herewith.
(v) Asset Purchase Agreement among Citizens Utilities
Company and Certain of its Affiliates and American Water
Works Company, Inc. and Pennsylvania-American Water
Company, dated as of October 15, 1999, is filed herewith.
<PAGE>
Page 23
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
13 Annual Report to Security Holders
The Registrant's Annual Report to Shareholders for 1999
is filed as exhibit hereto solely to the extent portions
thereof are specifically incorporated herein by reference.
21 Subsidiaries of the Registrant
Subsidiaries of the Registrant as of December 31, 1999.
23 Consents of Experts and Counsel
See "Consent of Independent Accountants" on page 12 of
this Report on Form 10-K.
27 Financial Data Schedule
Financial Data Schedule for the fiscal year ended
December 31, 1999, is filed herewith electronically.
EXHIBIT 10(p)
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 28, 1999
among
AMERICAN WATER WORKS COMPANY, INC.,
SJW ACQUISITION CORP.
and
SJW CORP.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER................................................... 1
1.1. The Merger................................................... 1
1.2. Closing...................................................... 1
1.3. Effective Time............................................... 2
1.4. Effects of the Merger........................................ 2
1.5. Articles of Incorporation.................................... 2
1.6. By-Laws...................................................... 2
1.7. Officers and Directors of Surviving Corporation.............. 2
1.8. Effect on Capital Stock...................................... 2
1.9. Further Assurances........................................... 3
ARTICLE II EXCHANGE OF CERTIFICATES.................................... 4
2.1. Exchange Fund................................................ 4
2.2. Exchange Procedures.......................................... 4
2.3. No Further Ownership Rights in SJW Common Stock.............. 4
2.4. Termination of Exchange Fund................................. 5
2.5. No Liability................................................. 5
2.6. Investment of the Exchange Fund.............................. 5
2.7. Lost Certificates............................................ 5
2.8. Withholding Rights........................................... 5
2.9. Stock Transfer Books......................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES............................. 6
3.1. Representations and Warranties of SJW........................ 6
3.2. Representations and Warranties of Parent..................... 17
3.3. Representations and Warranties of Parent and Merger Sub...... 19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS................... 20
4.1. Covenants of SJW............................................. 20
4.2. Covenants of Parent.......................................... 24
4.3. Advice of Changes; Governmental Filings...................... 24
4.4. Transition Planning; Continued Operations of SJW............. 24
4.5. Control of SJW's Business.................................... 25
ARTICLE V ADDITIONAL AGREEMENTS........................................ 25
5.1. Preparation of SJW Proxy Statement; SJW Shareholders Meeting. 25
5.2. Access to Information........................................ 26
5.3. Reasonable Best Efforts...................................... 27
5.4. Acquisition Proposals........................................ 28
5.5. Employee Benefits Matters.................................... 30
5.6. Fees and Expenses............................................ 31
5.7. Directors' and Officers' Indemnification and Insurance....... 31
5.8. Public Announcements......................................... 33
i.
<PAGE>
5.9. Disclosure Schedule Supplements.............................. 33
ARTICLE VI CONDITIONS PRECEDENT........................................ 33
6.1. Conditions to Each Party's Obligation to Effect the Merger... 33
6.2. Additional Conditions to Obligations of Parent and Merger Sub.34
6.3. Additional Conditions to Obligations of SJW.................. 35
ARTICLE VII TERMINATION AND AMENDMENT...................................35
7.1. Termination.................................................. 35
7.2. Effect of Termination........................................ 37
7.3. Amendment.................................................... 37
7.4. Extension; Waiver............................................ 38
ARTICLE VIII GENERAL PROVISIONS........................................ 38
. 8.1. Non-Survival of Representations, Warranties and Agreements... 38
. 8.2. Notices...................................................... 38
8.3. Interpretation............................................... 39
8.4. Counterparts................................................. 39
8.5. Entire Agreement; No Third Party Beneficiaries............... 40
8.6. Governing Law................................................ 40
8.7. Severability................................................. 40
8.8. Assignment................................................... 40
8.9. Submission to Jurisdiction; Waivers.......................... 40
8.10. Enforcement.................................................. 41
8.11. Definitions.................................................. 41
8.12. Other Agreements............................................. 42
ii.
<PAGE>
GLOSSARY OF DEFINED TERMS
Definition Location of Definition
----------------------
1935 Act...............................................Section 3.1(t)
Acquisition Proposal...................................Section 5.4
Agreement..............................................Preamble
AMEX...................................................Section 3.1(c)(iii)
Benefit Plans..........................................Section 8.11(a)
Board of Directors.....................................Section 8.11(b)
Business Day...........................................Section 8.11(c)
CCC....................................................Section 1.1
Certificate............................................Section 1.8(b)
Closing................................................Section 1.2
Closing Date...........................................Section 1.2
Code...................................................Section 2.8
Confidentiality Agreement..............................Section 5.2
Contracts..............................................Section 3.1(c)(ii)
Delaware Certificate of Merger.........................Section 1.3
Delaware General Corporation Law.......................Section 1.1
Dissenting Shares......................................Section 1.8(e)
DOJ....................................................Section 5.3(b)
DRIP...................................................Section 3.1(b)(i)
Encumbrances...........................................Section 3.1(b)(iv)
Effective Time.........................................Section 1.3
Environmental Claim....................................Section 3.1(g)(v)(A)
Environmental Law......................................Section 3.1(g)(v)(B)
ERISA..................................................Section 3.1(h)(i)
Exchange Act...........................................Section 3.1(c)(iii)
Exchange Agent.........................................Section 2.1
Exchange Fund..........................................Section 2.1
Expenses...............................................Section 5.6
Final Order............................................Section 6.1(c)
GAAP...................................................Section 3.1(d)
Governmental Entity....................................Section 3.1(c)(iii)
Hazardous Materials....................................Section 3.1(g)(v)(C)
Health Agencies........................................Section 3.1(c)(iii)
HSR Act................................................Section 3.1(c)(iii)
Indemnified Parties....................................Section 5.7(a)
knowledge..............................................Section 8.11(d)
Laws...................................................Section 3.1(c)(ii)
Material Adverse Effect................................Section 8.11(e)
Merger.................................................Recitals
Merger Consideration...................................Section 1.8(a)
Merger Sub.............................................Preamble
Orders.................................................Section 3.1(c)(ii)
i.
<PAGE>
Parent.................................................Preamble
Parent Financial Advisor...............................Section 3.2(e)
Parent Ordinary Shares.................................Section 3.1(v)
Person.................................................Section 8.11(g)
PUCs...................................................Section 3.1(c)(iii)
Release................................................Section 3.1(g)(v)(D)
Required SJW Vote......................................Section 3.1(p)
Rights.................................................Section 3.1(b)(i)
Rights Plan............................................Section 3.1(b)(i)
SEC....................................................Section 3.1(d)
Significant Subsidiary.................................Section 8.11(h)
SJW....................................................Preamble
SJW Board Approval.....................................Section 3.1(o)
SJW Common Stock.......................................Recitals
SJW Disclosure Schedule................................Section 3.1
SJW Employees..........................................Section 5.5(b)(i)
SJW Financial Advisor..................................Section 3.1(r)
SJW Proxy Statement....................................Section 5.1(a)
SJW Required Consents..................................Section 3.1(c)(iii)
SJW SEC Reports........................................Section 3.1(d)
SJW Shareholders Meeting...............................Section 5.1(b)
SJW Voting Debt........................................Section 3.1(b)(ii)
Subsidiary.............................................Section 8.11(h)
Superior Proposal......................................Section 8.11(i)
Surviving Corporation..................................Section 1.1
Tax Return.............................................Section 3.1(k)(vi)
Taxes..................................................Section 3.1(k)(vi)
Termination Date.......................................Section 7.1(b)
Termination Fee........................................Section 7.2(b)
Violation..............................................Section 3.1(c)(ii)
ii.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 28, 1999 (this
"Agreement"), among American Water Works Company, Inc., a Delaware corporation
("Parent"), SJW Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and SJW Corp., a California corporation
("SJW").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
SJW have each determined that this Agreement and the merger of Merger Sub with
and into SJW (the "Merger") in accordance with the provisions of this Agreement
are advisable and in the best interests of their respective shareholders, and
such Boards of Directors have approved such Merger, upon the terms and subject
to the conditions set forth in this Agreement, pursuant to which the holders of
shares of common stock, $3.125 par value, of SJW ("SJW Common Stock") will be
converted into the right to receive the Merger Consideration (as defined in
Section 1.8) for each share of SJW Common Stock issued and outstanding
immediately prior to the Effective Time (as defined in Section 1.3) (other than
shares of SJW Common Stock that are owned or held directly or indirectly by
Parent or SJW which shall be canceled as provided in Section 1.8, and Dissenting
Shares (as defined in Section 1.8)), and SJW will become a wholly owned
subsidiary of Parent;
WHEREAS, Parent, Merger Sub and SJW desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated hereby and also to prescribe various conditions to the transactions
contemplated hereby;
WHEREAS, as an inducement for Parent to enter into this Agreement, certain
stockholders of SJW have entered into voting support agreements; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the California Corporation Code (the
"CCC") and Delaware General Corporation Law (the "DGCL"), Merger Sub shall be
merged with and into SJW at the Effective Time. Following the Merger, the
separate corporate existence of Merger Sub shall cease and SJW shall continue
as the surviving corporation (the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m., Pacific time, as soon as practicable, but in any event not later
than the third Business
1.
<PAGE>
Day, after the satisfaction or waiver (subject to any applicable Law or Order
(each as defined in Section 3.1(c)) of the conditions (excluding conditions
that, by their terms, cannot be satisfied until the Closing Date) set forth in
Article VI (the "Closing Date"), unless another time or date is agreed to in
writing by the parties hereto. The Closing shall be held at the offices of
Brobeck, Phleger & Harrison LLP, Spear Street Tower, One Market, San Francisco,
CA 94105, unless another place is agreed to in writing by the parties hereto.
1.3. Effective Time. On the Closing Date, the parties shall (i) file
agreements of merger (or like instruments) (collectively, the "Agreement of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the CCC and DGCL and (ii) make all other filings or
recordings required under the CCC and DGCL. The Merger shall become effective
at such time as the Agreement of Merger has been duly filed with the California
Secretary of State and the Delaware Secretary of State or at such subsequent
time as Parent and SJW shall agree and be specified in the Agreement of Merger
(the date and time the Merger becomes effective being the "Effective Time").
1.4. Effects of the Merger. At and after the Effective Time, the Merger
will have the effects set forth in the CCC. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of SJW and Merger Sub shall be vested
in the Surviving Corporation, and all debts, liabilities and duties of SJW and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5. Articles of Incorporation. At the Effective Time, the articles of
incorporation of the Surviving Corporation shall be amended in accordance with
the CCC to read in its entirety as set forth in Exhibit 1.5 hereto until
thereafter amended as provided therein and under the CCC.
1.6. By-Laws. The by-laws of Merger Sub as in effect at the Effective
Time shall be the by-laws of the Surviving Corporation until thereafter changed
or amended as provided therein and under applicable Law or Order.
1.7. Officers and Directors of Surviving Corporation. The officers of SJW
as of the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and qualified, as
the case may be. The directors of Merger Sub as of the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified.
1.8. Effect on Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of SJW Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares of
SJW Common Stock that are 100% owned or held directly or indirectly by Parent
or SJW, which shall be canceled as provided in Section 1.8(c) and Dissenting
Shares) shall be converted into the right to receive,
2.
<PAGE>
subject to the provisions of Article II, $128.00 in cash (the "Merger
Consideration"), without any interest or dividends thereon, except as provided
in Section 2.3.
(b) As a result of the Merger and without any action on the part of
the holders thereof, at Effective Time, all shares of SJW Common Stock shall
cease to be outstanding and shall be canceled and shall cease to exist, and each
holder of a certificate which immediately prior to the Effective Time
represented any such shares of SJW Common Stock (a "Certificate") shall
thereafter cease to have any rights with respect to such shares of SJW Common
Stock, except the right to receive the applicable Merger Consideration, other
than with respect to SJW Common Stock to be canceled in accordance with Section
1.8(c) and Dissenting Shares, in accordance with Article II upon the surrender
of such Certificate.
(c) Each share of SJW Common Stock issued that is 100% owned or held
directly or indirectly by Parent or SJW at the Effective Time shall, by virtue
of the Merger, cease to be outstanding and shall be canceled and no payment or
other consideration shall be delivered in exchange therefor.
(d) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time, shall be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation as of the Effective Time.
(e) Notwithstanding any other provision of this Agreement, shares of
SJW Common Stock issued and outstanding immediately prior to the Effective Time
and held by a holder who has voted against the approval of this Agreement and
who has demanded the payment of such shares at fair value in accordance with
Section 1301 of the CCC ("Dissenting Shares") shall not be converted into a
right to receive the Merger Consideration but shall be converted into the right
to receive such consideration as may be determined to be due to such holder
pursuant to the CCC, unless such holder fails to perfect such demand for payment
within the period prescribed by the CCC or withdraws or otherwise loses such
holder's right to payment under the CCC. If, after the Effective Time, such
holder fails to perfect such demand for payment or withdraws or loses such
holder's right to payment, such Dissenting Shares shall be treated as if they
had been converted as of the Effective Time into the right to receive the Merger
Consideration, without interest or dividends thereon, except as provided in
Section 2.3. SJW shall give Merger Sub prompt notice of any written demands
received by SJW for payment of fair value for shares of SJW Common Stock,
withdrawals of such demands, and other instruments served pursuant to the CCC
and received by SJW and relating thereto. Parent shall direct all negotiations
and proceedings with respect to such demands for payment. Prior to the Effective
Time, SJW shall not, except with the prior written consent of Merger Sub or as
required under applicable law, make any payment with respect to, or settle or
offer to settle, any such demands.
1.9. Further Assurances. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of SJW or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
SJW or Merger Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
3.
<PAGE>
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1. Exchange Fund. Prior to the Effective Time, Parent shall designate a
commercial bank or trust company selected by Parent and reasonably acceptable to
SJW to act as exchange agent hereunder for the purpose of exchanging
Certificates for the Merger Consideration (the "Exchange Agent"). At or prior to
the Effective Time, Parent shall deposit or cause to be deposited with the
Exchange Agent, in trust for the benefit of holders of shares of SJW Common
Stock, the aggregate amount of cash to be paid pursuant to Section 1.8 in
exchange for outstanding shares of SJW Common Stock (other than shares of SJW
Common Stock that are 100% owned or held directly or indirectly by Parent or SJW
which shall be canceled as provided in Section 1.8(c) and Dissenting Shares).
Parent shall, or shall cause the Surviving Corporation to make available to the
Exchange Agent from time to time as needed, cash sufficient to pay any dividends
pursuant to Section 2.3. Any cash deposited with the Exchange Agent shall
hereinafter be referred to as the "Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of a Certificate (i) a letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent, and
which letter shall be in customary form and have such other provisions as Parent
may reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a check in
the aggregate amount equal to (A) the Merger Consideration multiplied by the
number of shares of SJW Common Stock formerly represented by such Certificate
and (B) any dividends payable in accordance with Section 2.3 less any required
withholding of taxes as provided in Section 2.8. No interest will be paid or
will accrue on any cash payable pursuant to the preceding sentence. In the event
of a transfer of ownership of SJW Common Stock which is not registered in the
transfer records of SJW, a check in the proper amount of cash for the
appropriate Merger Consideration and any dividends payable in accordance with
Section 2.3 may be paid with respect to such SJW Common Stock to such a
transferee if the Certificate formerly representing such shares of SJW Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid or are not payable. The Exchange Fund shall not be
used for any purpose other than as set forth in this Article II.
2.3 No Further Ownership Rights in SJW Common Stock. Cash paid upon
conversion of shares of SJW Common Stock in accordance with the terms of Article
I and this Article II shall be deemed to have been paid in full satisfaction of
all rights pertaining to the
4.
<PAGE>
shares of SJW Common Stock, subject, however, to the Surviving Corporation's
obligation, if any, to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made by
SJW on such shares of SJW Common Stock prior to the date of this Agreement and
which remain unpaid at the Effective Time.
2.4 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for twelve months after the
Effective Time shall be delivered to the Surviving Corporation or otherwise on
the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and Parent for the Merger
Consideration with respect to the shares of SJW Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, and any dividends on shares of SJW Common Stock to which such
holders are entitled pursuant to Section 2.3.
2.5. No Liability. None of Parent, Merger Sub, SJW, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration or dividends from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
2.6. Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund only in one or more of the following
investments as directed by the Surviving Corporation from time to time: (i)
obligations of the United States government maturing not more than 180 days
after the date of purchase; (ii) certificates of deposit maturing not more than
180 days after the date of purchase issued by a bank organized under the laws of
the United States or any state thereof having a combined capital and surplus of
at least $500,000,000; (iii) a money market fund having assets of at least
$3,000,000,000; or (iv) tax-exempt or corporate debt obligations maturing not
more than 180 days after the date of purchase given the highest investment grade
rating by Standard & Poor's and Moody's Investor Service. Any interest and other
income resulting from such investments shall promptly be paid to the Surviving
Corporation.
2.7. Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
SJW Common Stock formerly represented thereby and unpaid dividends, if any, on
shares of SJW Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.8. Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of SJW Common Stock
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the "Code"), or any provision of
state, local or foreign tax Law or Order. To the extent that amounts are so
5.
<PAGE>
withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of SJW Common Stock in respect of which
such deduction and withholding was made by the Surviving Corporation or Parent,
as the case may be.
2.9. Stock Transfer Books. At the close of business, Pacific time, on the
day Effective Time occurs, the stock transfer books of SJW shall be closed and
there shall be no further registration of transfers of shares of SJW Common
Stock thereafter on the records of SJW. From and after the Effective Time, the
holders of Certificates shall cease to have any rights with respect to such
shares of SJW Common Stock formerly represented thereby, except as otherwise
provided herein or by Law. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Parent for any reason shall be exchanged for
the Merger Consideration with respect to the shares of SJW Common Stock formerly
represented thereby and any dividends to which the holders thereof are entitled
pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of SJW. Except as set forth in the
Disclosure Schedule delivered by SJW to Parent prior to the execution of this
Agreement (the "SJW Disclosure Schedule"), SJW represents and warrants to Parent
as follows:
(a) Organization, Standing and Power. Each of SJW and its
Subsidiaries (as defined in Section 8.11(h)) is a corporation duly incorporated
or otherwise organized, validly existing and in good standing under the Laws of
its jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of SJW and its Subsidiaries is duly qualified and
in good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure so to qualify or be
in good standing would not, individually or in the aggregate, have a Material
Adverse Effect (as defined in Section 8.11(e)) on SJW. Section 3.1(a) of the SJW
Disclosure Schedule sets forth a complete and accurate list of each direct and
indirect Subsidiary of SJW. The copies of the articles of incorporation and by-
laws of SJW and its Subsidiaries that were previously furnished to Parent are
true, complete and correct copies of such documents as in effect on the date of
this Agreement.
(b) Capital Structure.
(i) As of the date of this Agreement, the authorized capital
stock of SJW consisted of 6,000,000 shares of SJW Common Stock. As of October
28, 1999, 3,045,147 shares of SJW Common Stock were issued and outstanding. All
issued and outstanding shares of SJW Common Stock are duly authorized, validly
issued, fully paid and nonassessable, and holders of SJW Common Stock are not
entitled to preemptive rights. There are outstanding no options, warrants or
other rights to acquire capital stock from SJW. No options or warrants or other
rights to acquire capital stock from SJW have been issued or granted and remain
outstanding.
6.
<PAGE>
(ii) No bonds, debentures, notes or other indebtedness of SJW
or any of its Subsidiaries having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders may vote ("SJW Voting Debt") are issued or outstanding.
(iii) There are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which SJW or any of its Subsidiaries is a party, or by which any of them is
bound, obligating SJW or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other securities of SJW or any of its Subsidiaries or, securities convertible
into or exchangeable for shares of capital stock or securities of SJW or any of
its Subsidiaries, or obligating SJW or any of its Subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
obligations of SJW or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of SJW or any of its Subsidiaries or to
provide funds to, or make any investment in any other Person, other than a
wholly owned Subsidiary of SJW, or to vote or to dispose of any shares of the
capital stock of any of the Subsidiaries.
(iv) All of the outstanding shares of capital stock of each
Subsidiary of SJW are duly authorized, validly issued, fully paid and
nonassessable and, along with any equity interest in any Subsidiary that is a
partnership, limited liability company or other similar entity, are owned,
beneficially and of record, by SJW or a Subsidiary, which is wholly owned,
directly or indirectly, by SJW, free and clear of any liens, claims, mortgages,
encumbrances, pledges, security interests, or any other restrictions with
respect to the transferability or assignability thereof (collectively,
"Encumbrances").
(c) Authority; No Violations.
(i) SJW has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby, subject in the case of the
consummation of the Merger to the approval of this Agreement by the Required SJW
Vote (as defined in Section 3.1(p)). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
SJW, and no other corporate or shareholder proceedings on the part of SJW are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than in the case of the consummation of the Merger,
the approval of this Agreement by the Required SJW Vote). This Agreement has
been duly and validly executed and delivered by SJW and constitutes a valid and
binding agreement of SJW, enforceable against it in accordance with its terms.
(ii) The execution and delivery of this Agreement by SJW do not
or will not, as the case may be, and the performance of the Agreement and the
consummation of the Merger by SJW and the other transactions contemplated hereby
will not, result in any violation of, conflict with or constitute a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, amendment, cancellation or acceleration of any obligation
or the loss of a benefit under, or the creation of an Encumbrance on any assets
of SJW
7.
<PAGE>
or any of its Subsidiaries (any such violation, default, right of termination,
amendment, cancellation or acceleration, loss or creation, a "Violation")
pursuant to: (A) any provision of the articles of incorporation or by-laws or
similar organizational document of SJW or any Subsidiary of SJW or (B) except as
would not, individually or in the aggregate, have a Material Adverse Effect on
SJW, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in paragraph
(iii) below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, or license to which SJW or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
(collectively, "Contracts"), or any statute, law, ordinance, rule, regulation,
whether federal, state, local or foreign (collectively, "Laws"), or any
judgment, order, writ, injunction or decree, whether federal, state, local or
foreign (collectively, "Orders") applicable to SJW or any Subsidiary of SJW or
their respective properties or assets.
(iii) No consent, approval, permit, order or authorization of,
or registration, declaration or filing with, or notice to, any foreign,
supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or quasi governmental
authority (a "Governmental Entity"), is required by or with respect to SJW or
any Subsidiary of SJW in connection with the execution and delivery of this
Agreement by SJW or the performance of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby, except for those
required under or in relation to (A) the Hart Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (B) the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (C) the CCC with respect
to the filing of the Agreement of Merger, (D) Laws, practices and Orders of any
state public utility control or public service commissions or similar state
regulatory bodies ("PUCs"), each of which is identified in Section
3.1(c)(iii)(D) of the SJW Disclosure Schedule, (E) Laws, practices and Orders of
any state or local departments of public health or departments of health or
similar state or local regulatory bodies or of any federal, state or local
regulatory body having jurisdiction over environmental protection or
environmental conservation or similar matters ("Health Agencies"), each of which
is identified in Section 3.1(c)(iii)(E) of the SJW Disclosure Schedule, (F)
rules and regulations of the American Stock Exchange, Inc. (the "AMEX"), and (G)
such consents, approvals, permits, Orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on SJW and
would not reasonably be expected to prevent or materially delay the consummation
of the Merger. Consents, approvals, permits, Orders, authorizations,
registrations, declarations and filings required under or in relation to any of
the foregoing clauses (A) through (F) are hereinafter referred to as "SJW
Required Consents." The parties hereto agree that references in this Agreement
to "obtaining" SJW Required Consents means obtaining such consents, approvals or
authorizations, making such registrations, declarations or filings, giving such
notices, and having such waiting periods expire as are necessary to avoid a
violation of Law or an Order.
(d) Reports and Financial Statements. SJW has filed all required
reports, schedules, forms, statements and other documents required to be filed
by it under the Exchange Act or the Securities Act (together with the rules and
regulations thereunder) with the
8.
<PAGE>
Securities and Exchange Commission (the "SEC") since January 1, 1998
(collectively, including all exhibits thereto, the "SJW SEC Reports"). No
Subsidiary of SJW is required to file any form, report or other document with
the SEC, any stock exchange or any comparable Governmental Entity. None of SJW
SEC Reports including, without limitation, any financial statements or schedules
included therein, as of their respective dates (and, if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing),
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the audited consolidated financial statements and
unaudited interim financial statements (including the related notes) included in
the SJW SEC Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of SJW
and its Subsidiaries as of the respective dates or for the respective periods
set forth therein, all in conformity with United States generally accepted
accounting principles ("GAAP") consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the unaudited
interim financial statements, to normal and recurring year-end adjustments that
have not been and are not expected to be material in amount. All of such SJW SEC
Reports, as of their respective dates (and as of the date of any amendment to
the respective SJW SEC Report), complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Exchange Act and the rules and regulations promulgated thereunder.
(e) Absence of Liabilities. Except for liabilities or obligations
which are accrued or reserved against in SJW's most recent financial statements
dated prior to the date hereof (or in the related notes thereto) included in the
SJW SEC Reports or which were incurred in the ordinary course of business and
consistent with past practices since the date of SJW's most recent financial
statements included in the SJW SEC Reports, SJW and each of its Subsidiaries do
not have any material, known liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of a nature required by GAAP to be reflected
in a consolidated balance sheet (or reflected in the notes thereto) of SJW.
(f) Compliance.
(i) Except as set forth in the SJW SEC Reports filed prior to
the date hereof, neither SJW nor any of its Subsidiaries is in violation of, is,
to the knowledge of SJW, under investigation with respect to any violation of,
or has been given notice or threatened with any violation of, any Laws or Orders
(excluding for purposes of this Section 3.1(f) Environmental Laws), except for
violations or possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect on SJW. SJW and its Subsidiaries have
all permits, licenses, franchises and other governmental authorizations,
consents and approvals ("Permits") necessary to conduct their businesses as
presently conducted, except for such Permits, the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on SJW.
Neither SJW nor any of its Subsidiaries is in breach or violation of, or in
default in the performance or observance of (i) any provision of its article of
incorporation or by-laws, or (ii) except as would not, individually or in the
aggregate, have a Material Adverse Effect on SJW or would not reasonably be
expected to prevent or materially delay the consummation of the Merger, any
Contract or Permit applicable to SJW or any Subsidiaries of SJW or their
respective properties or assets.
9.
<PAGE>
(ii) All filings required to be made by SJW or any of its
Subsidiaries since December 31, 1997, under any applicable Laws or Orders
relating to the regulation of public utilities, have been filed with the
appropriate PUC or Health Agency or any other appropriate Governmental Entity
(including, without limitation, to the extent required, the state public utility
regulatory agencies in California), as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, including but not limited to
all rates, tariffs, franchises, service agreements and related documents and all
such filings complied, as of their respective dates, in all material respects
with all applicable requirements of the appropriate Laws or Orders, except for
such filings or such failures to comply that would not, individually or in the
aggregate, have a Material Adverse Effect on SJW.
(g) Environmental Matters.
(i) SJW and each of its Subsidiaries are in compliance with all
applicable Environmental Laws (as defined in Section 3.1(g)) (which compliance
includes, but is not limited to, the possession by SJW of all Permits and other
governmental authorizations required under applicable Environmental Laws
("Environmental Permits"), and compliance with the terms and conditions
thereof), except where the failure to be in compliance would not, individually
or in the aggregate, have a Material Adverse Effect on SJW. SJW has not received
any written communication, whether from a Governmental Entity, citizens group,
employee or otherwise, alleging that SJW or any of its Subsidiaries are not in
such compliance, and there are no past or present (or to the knowledge of SJW,
future) actions, activities, circumstances, conditions, events or incidents that
may prevent or interfere with such compliance in the future, except for such
failure to be in compliance and such actions, activities, circumstances,
conditions, events or incidents that would not, individually or in the
aggregate, have a Material Adverse Effect on SJW.
(ii) There are no Environmental Claims (as defined in Section
3.1(g)) pending or, to the knowledge of SJW, threatened, against SJW or any of
its Subsidiaries, or any Person whose liability for any such Environmental Claim
SJW or any of its Subsidiaries has retained or assumed either contractually or
by operation of Law or Order.
(iii) To the knowledge of SJW, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the Release (as defined in Section 3.1(g)), threatened
Release or presence of any Hazardous Material (as defined in Section 3.1(g)),
that could form the basis of any Environmental Claim against SJW or any of its
Subsidiaries, or to the best knowledge of SJW against any Person whose liability
for any Environmental Claim SJW or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of Law or Order, except
for such liabilities which would not, individually or in the aggregate, have a
Material Adverse Effect on SJW.
(iv) As used in this Agreement:
(A) "Environmental Claim" means any suit, proceeding,
action, cause of action, investigation or written claim or notice by any Person
alleging potential
10.
<PAGE>
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, diminution of value, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or Release of any Hazardous
Materials at any location, whether or not owned or operated by SJW, or (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
(B) "Environmental Law" means all Laws relating to
pollution or protection of human health or the environment, including without
limitation, Laws relating to Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, Release, disposal, transport or handling of Hazardous
Materials and all Laws with regard to recordkeeping, notification, disclosure
and reporting requirements respecting Hazardous Materials.
(C) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, natural
gas, liquified natural gas, natural gas liquids, gas useable fuels, or Hazardous
Substances, Oils, Pollutants or Contaminants defined as such by, or regulated as
such under, any Environmental Law.
(D) "Release" means any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any property or structure, including the movement of
Hazardous Materials through or in the air, soil, surface water, groundwater or
property.
(h) Employee Benefit Plans; ERISA.
(i) Section 3.1(h)(i) of the SJW Disclosure Schedule contains a
true and complete list of each deferred compensation and each bonus or other
incentive compensation, stock purchase, stock option and other equity
compensation or ownership plan, program, agreement or arrangement, each
severance or termination pay, medical, surgical, hospitalization, life insurance
and other "welfare" plan, fund or program (within the meaning of Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder ("ERISA")) (excluding any payroll
practices, compensation arrangements and fringe benefits or perquisites which,
individually or in the aggregate, are not material); each profit-sharing, stock
bonus or other "pension" plan, fund or program (within the meaning of Section
3(2) of ERISA); each employment, retention, consulting, termination or severance
agreement with any officer or director or any other employee (if the cash
severance amount payable to such employee under such agreement could be
reasonably expected to exceed $200,000); and each other material employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by SJW
or by any trade or business, whether or not incorporated (an "ERISA Affiliate"),
that together with SJW would be deemed a "single employer" within the meaning of
section 4001(b) of ERISA, or to which SJW or an ERISA Affiliate is party for the
benefit of any employee or former employee of SJW or any Subsidiary of SJW, in
respect of which SJW or any Subsidiary of SJW will have continuing liability on
or
11.
<PAGE>
after the Effective Time (the "SJW Benefit Plans"). Notwithstanding the
foregoing, at any time prior to the twentieth Business Day following the date of
this Agreement, SJW may amend or supplement the list set forth in Section
3.1(h)(i) of the SJW Disclosure Schedule, so long as such changes are made in
respect of actions permitted in accordance with Section 4.1(h)
(ii) With respect to each SJW Benefit Plan, (A) no amendments
have been made thereto since the date hereof, or in the case of a pension
benefit plan intended to be "qualified" under Section 401(a) of the Code, since
the date of its most recent favorable determination letter from the Internal
Revenue Service (other than as required by applicable Law or as would not result
in any increased cost that would have a Material Adverse Effect), and (B) SJW
has heretofore delivered or made available to Parent true and complete copies of
the SJW Benefit Plans, any related trust or other funding vehicle, the most
recent annual report on Form 5500, the current summary plan description and the
most recent determination letter received from the IRS with respect to each SJW
Benefit Plan intended to qualify under Section 401 of the Code.
(iii) No liability under Title IV has been incurred by SJW or
any ERISA Affiliate that has not been satisfied in full, and, to the knowledge
of SJW, no condition exists that presents a material risk to SJW or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
the Pension Benefit Guaranty Corporation (which premiums have been paid when
due), where any such liability has had, or would have a Material Adverse Effect.
(iv) No SJW Benefit Plan that is subject to Title IV (a "SJW
Title IV Plan") is a "multiemployer pension plan," as defined in section 3(37)
of ERISA, nor is any SJW Title IV Plan a plan described in section 4063(a) of
ERISA. At no time since December 31, 1992, have SJW or any ERISA Affiliate, been
required to contribute to, or incurred any withdrawal liability, within the
meaning of Section 4201 of ERISA to any multiemployer pension plan nor does SJW
or any ERISA Affiliate have any potential withdrawal liability arising from a
transaction described in Section 4204 of ERISA. Any withdrawal liability
incurred with respect to any multiemployer plan has been fully paid as of the
date hereof.
(v) Each SJW Benefit Plan has been operated and administered in
accordance with its terms, the terms of any applicable collective bargaining
agreement and applicable Law, including but not limited to ERISA and the Code,
except as would not be reasonably expected to result in a Material Adverse
Effect, and each SJW Benefit Plan intended to be "qualified" within the meaning
of Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service.
(vi) None of the terms of the SJW Benefit Plans provide that
the consummation of the transactions contemplated by this Agreement will, either
alone or in combination with another event, (A) entitle any current or former
employee or officer of SJW or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (B) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
12.
<PAGE>
(vii) There are no pending, or to the knowledge of SJW,
threatened or anticipated claims by or on behalf of any SJW Benefit Plan, by any
employee or beneficiary covered under any such SJW Benefit Plan, or otherwise
involving any such SJW Benefit Plan (other than routine claims for benefits)
that would be reasonably expected to result in liability that would have a
Material Adverse Effect.
(viii) Neither the Company nor any ERISA Affiliate has incurred
or is reasonably likely to incur any liability with respect to any plan or
arrangement that would be included within the definition of "Benefit Plan"
hereunder but for the fact that such plan or arrangement was terminated before
the date of this Agreement.
(i) Absence of Certain Changes or Events. Except as disclosed in the
SJW SEC Reports filed with the SEC prior to the date hereof, since June 30, 1999
(a) the businesses of SJW and its Subsidiaries have been conducted in the
ordinary course, consistent with past practices and (b) there has not been any
event, occurrence, development or state of circumstances or facts that has had,
or would have, individually or in the aggregate, a Material Adverse Effect on
SJW.
(j) Year 2000. The computer software operated by SJW and its
Subsidiaries which is used in the conduct of their businesses is, as of the date
hereof, capable of providing or being adapted to provide, and as of the
Effective Time will provide, uninterrupted millennium functionality to record,
store, process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with the same functionality as such software
records, stores, processes and presents such calendar dates falling on or before
December 31, 1999, other than such interruptions in millennium functionality
that would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on SJW. SJW believes that the remaining cost
of adaptions referred to in the foregoing sentence is not reasonably likely to
have a Material Adverse Effect on SJW.
(k) Taxes.
(i) SJW and its Subsidiaries have (A) duly filed (or there has
been filed on their behalf) with the appropriate Governmental Entities all Tax
Returns (as defined in Section 3.1(k)(vii)(B)) required to be filed by them on
or prior to the date hereof, other than those Tax Returns the failure of which
to file would not, individually or in the aggregate, result in a Material
Adverse Effect on SJW, and such Tax Returns are true, correct and complete in
all material respects, and (B) duly paid in full (or there has been paid) all
Taxes (as defined in Section 3.1(k)(vii)(A)) shown to be due on such Tax
Returns.
(ii) Except as set forth in Section 3.1(k) of the SJW
Disclosure Schedule, there are no ongoing federal, state, local or foreign
audits or examinations of any Tax Return of SJW or any of its Subsidiaries.
(iii) There are no outstanding requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to the
assessment of any Taxes or deficiencies against SJW or any of its Subsidiaries,
and no power of attorney granted by either SJW or any of its Subsidiaries with
respect to any Taxes is currently in force.
13.
<PAGE>
(iv) Neither SJW nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(v) No consent under Section 341(f) of the Code has been filed
with respect to SJW or any of its Subsidiaries.
(vi) The accruals for Taxes reflected in SJW's most recent
balance sheet included in the SJW SEC Reports are adequate to cover all
liabilities for Taxes of SJW and its Subsidiaries for all periods ending on or
before the date of such balance sheet and nothing has occurred subsequent to the
date of such balance sheet to make any of such accruals inadequate.
(vii) For purposes of this Agreement: (A) "Taxes" means any and
all federal, state, local, foreign or other taxes of any kind (together with any
and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto) imposed by any taxing authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation or net worth, and taxes or other charges in the nature of excise,
withholding, ad valorem or value added, and (B) "Tax Return" means any return,
report or similar statement (including the attached schedules) required to be
filed with respect to any Tax, including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
(l) Insurance. Each of SJW and its Subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies in the United States conducting the business
conducted by SJW and its Subsidiaries during such time period, except for such
insurance the absence of which would not have a Material Adverse Effect. Neither
SJW nor any of its Subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy of SJW or any
Subsidiary of SJW. SJW has fulfilled all of its obligations under each material
insurance policy, including the timely payment of premiums, other than such
failures to fulfill its obligations that would not reasonably be expected,
individually or in the aggregate, to reduce or nullify the benefits under such
policy.
(m) Property Franchises. SJW and its Subsidiaries own or have
sufficient rights and consents to use under existing franchises, easements,
leases, and license agreements all properties, rights and assets necessary for
the conduct of their businesses and operations as currently conducted, except
where the failure to own or have sufficient rights and consents to use such
properties, rights and assets would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on SJW.
(n) Water Quality. The quality of water supplied by SJW and its
Subsidiaries to their respective customers complies in all material respects
with all applicable standards for quality and safety of water imposed by
applicable Laws and Orders.
(o) Board Approval. The Board of Directors of SJW, by resolutions
duly and unanimously adopted at a meeting duly called and held and not
subsequently rescinded
14.
<PAGE>
or modified in any way (the "SJW Board Approval"), has duly (i) determined that
this Agreement and the Merger are advisable and in the best interests of SJW and
its shareholders, (ii) approved this Agreement and the Merger and (iii)
recommended that the shareholders of SJW approve and adopt this Agreement.
Assuming the accuracy of the representations and warranties set forth in
Sections 3.2(g) and 3.3(e), the Board of Directors of SJW has taken the
necessary action to make inapplicable the restrictions on business combinations
set forth in Section 203 of the CCC and any other similar applicable
antitakeover Laws.
(p) Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of SJW Common Stock to adopt this Agreement
(the "Required SJW Vote") is the only vote of the holders of any class or series
of SJW capital stock necessary to adopt this Agreement and approve the
transactions contemplated hereby.
(q) Brokers or Finders. 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 financial advisor's fee or any other similar commission or
fee in connection with any of the transactions contemplated by this Agreement,
except Morgan Stanley & Co. Incorporated (the "SJW Financial Advisor"), whose
fees and expenses will be paid by SJW in accordance with SJW's agreement with
such firm, based upon arrangements made by or on behalf of SJW and previously
disclosed to Parent in writing.
(r) Opinion of SJW Financial Advisor. SJW has received the opinion
of SJW Financial Advisor, dated the date of this Agreement, to the effect that,
as of such date, the Merger Consideration is fair, from a financial point of
view, to the holders of SJW Common Stock and such opinion has not been withdrawn
or modified.
(s) Regulation as a Utility. Certain Subsidiaries of SJW are
regulated as public utilities in California. Neither SJW nor any "subsidiary
company" or "affiliate" (as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act")) of SJW is subject to
regulation as a public utility or public service company (or similar
designation) by any other state in the United States, by the United States or
any agency or instrumentality of the United States or by any foreign country.
SJW is not a holding company under the 1935 Act. From December 31, 1989 to the
date of this Agreement no Governmental Entity has denied the request of SJW or
any of its Subsidiaries to include any asset then in utility service in rate
base for recovery in the amount of $500,000 or more.
(t) Litigation. Except for claims, actions, suits, proceedings or
investigations that would not have a Material Adverse Effect on SJW
(collectively, "Claims"), there are no claims, actions, suits, proceedings or
investigations pending or, to SJW's knowledge, threatened against SJW or any of
its Subsidiaries, or any properties or rights of SJW or any of its Subsidiaries,
by or before any Governmental Entity. Section 3.1(a) of the SJW Disclosure
Schedule sets forth all Claims which are pending or, to SJW's knowledge,
threatened against any of SJW or its Subsidiaries. Neither SJW nor any of its
Subsidiaries is subject to any outstanding Order that could reasonably be
expected to have a Material Adverse Effect on SJW or prevent or materially delay
the consummation of the Merger.
15.
<PAGE>
(u) No Parent Capital Stock. SJW does not own or hold directly or
indirectly any capital stock of Parent, or any options, warrants or other rights
to acquire any capital stock of Parent, or in each case, any interests therein.
(v) Contracts. All contracts which are material to the Company and
its Subsidiaries ("Material Contracts") have been provided to Parent. All
Material Contracts to which SJW or any of its Subsidiaries are a party or by
which its assets are bound are a valid and binding obligation of SJW or such
Subsidiary and, to the knowledge of SJW, the valid and binding obligation of
each other party thereto. Neither SJW nor any of its Subsidiaries, nor to the
knowledge of SJW or any other party thereto, is in violation of or in default
under (nor does there exist any condition which upon the passage of time or the
giving of notice would cause such a violation or default under) any Material
Contract, except for such violations or defaults that could not be reasonably
expected to result in a Material Adverse Effect.
(w) Real Estate. Except for such matters that would not,
individually or in the aggregate, have a Material Adverse Effect on SJW:
(i) All structures and other improvements on such properties
are within the lot lines and do not encroach on the properties of any other
person. Neither SJW nor any of its Subsidiaries has received any written or oral
notice for assessments for public improvements against SJW Real Property which
remains unpaid, and to the knowledge of SJW, no such assessment has been
proposed.
(ii) SJW and each of its Subsidiaries has obtained all
authorizations, permits, easements and rights of way, including proof of
dedication ("Access Rights"), which are necessary to ensure continued
uninterrupted (1) vehicular and pedestrian ingress and egress to and from SJW
Real Property and (2) continued use, operation, maintenance, repair and
replacement of all existing and currently committed water lines used by SJW and
each of its Subsidiaries in connection with their respective businesses. All
Access Rights are in full force and effect. Neither SJW nor any of its
Subsidiaries is in breach or default under the easement rights and rights of way
enjoyed by SJW or its Subsidiaries, and to the knowledge of SJW, none of the
grantors of such rights are in breach or default thereunder. There are no
restrictions on entrance to or exit from SJW Real Property to adjacent public
streets, and no conditions exist which will or with the giving of notice, the
passage of time or both, could materially and adversely affect such Access
Rights.
(iii) As of the Effective Time, SJW Real Property will be
adequate to operate the businesses of SJW and its Subsidiaries consistent with
past practice.
(iv) SJW Real Property has adequate arrangements for supplies
of electricity, gas, oil, coal and sewer for all operations at the 1998 or
current operating levels, whichever is greater. There are no actions or
proceedings pending or, to SJW's knowledge, threatened that would adversely
affect the supply of electricity, gas, coal or sewer to SJW Real Property.
16.
<PAGE>
(v) There are no pending, or to SJW's knowledge, threatened
eminent domain, condemnation or other governmental action affecting or taking of
any SJW Real Property.
(x) Intellectual Property. SJW or its Subsidiaries owns, leases or
licenses free and clear of all Encumbrances all Intellectual Property Rights
necessary to conduct the business of SJW, except where the failure to own, lease
or license would not have, individually or in the aggregate, a Material Adverse
Effect on SJW. Except for such claims, infringements and misappropriations that
would not have, individually or in the aggregate, a Material Adverse Effect on
SJW, (i) there has been no claim made against SJW or any of its Subsidiaries
asserting the invalidity, misuse or unenforceability of any Intellectual
Property Rights, (ii) SJW is not aware of any infringement or misappropriation
of any of the Intellectual Property Rights, and (iii) neither SJW nor any of its
Subsidiaries has infringed or misappropriated any intellectual property or
proprietary right of any other entity. As used herein, "Intellectual Property
Rights" mean any trademark, servicemark, registration therefor or application
for registration therefor, trade name, invention, patent, patent application,
trade secret, know-how, copyright, copyright registration, application for copy
registration, or any other similar type of proprietary intellectual property, in
each case owned, leased or licensed and used or held for use by the SJW or any
Subsidiary.
(y) Product Liability. Except for such matters that would not,
individually or in the aggregate, have a Material Adverse Effect on SJW, there
are no (i) liabilities of SJW or any of its Subsidiaries, fixed or contingent,
asserted or, to the knowledge of SJW, unasserted, with respect to any product
liability or similar claim that relates to any product or service sold by SJW or
any of its Subsidiaries or (ii) liabilities of SJW or any of its Subsidiaries,
fixed or contingent, asserted or, to the knowledge of SJW unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by SJW or any of
its Subsidiaries to others.
(z) Condition of Assets. The buildings, machinery, equipment,
tools, furniture, improvements and other fixed intangible assets of SJW and its
Subsidiaries are structurally sound and free from known defects, subject to
ordinary wear and tear, and shall be maintained by SJW or such Subsidiaries in
such good operating condition and repair through the Effective Time so as to
have the capacity to permit the operation of SJW's or such Subsidiaries'
business as presently conducted. The assets and properties of SJW and its
Subsidiaries include all assets, rights, properties and contracts, the use of
which is necessary to the continued conduct after the Effective Time of SJW's
and each of its Subsidiaries' business by the Surviving Corporation
substantially in the manner as it is presently conducted.
3.2 Representations and Warranties of Parent. Parent represents and
warrants to SJW as follows:
(a) Organization, Standing and Power. Parent is a corporation duly
incorporated and validly existing under the Laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
17.
<PAGE>
such qualification necessary other than in such jurisdictions where the failure
so to qualify or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(b) Authority; No Violations.
(i) Parent has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Parent. This Agreement has been duly and validly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, enforceable
against it in accordance with its terms.
(ii) The execution and delivery of this Agreement by Parent do
not or will not, as the case may be, and the performance of this Agreement and
the consummation by Parent of the Merger and the other actions contemplated
hereby will not, result in a Violation pursuant to: (A) any provision of the
articles of incorporation or by-laws of Parent or any Subsidiary of Parent or
(B) except as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any Contract, Laws or Orders applicable to
Parent or any Subsidiary of Parent or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental Entity
is required by or with respect to Parent or any Subsidiary of Parent in
connection with the execution and delivery of this Agreement by Parent or the
performance of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby, except for those required under or in relation
to (A) the HSR Act, (B) Laws of any PUCs and set forth in Section 3.1
(c)(iii)(D) of the SJW Disclosure Schedule, (C) rules and regulations of the New
York Stock Exchange, and (D) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or obtain
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent. Consents, approvals, orders, authorizations, registrations, declarations
and filings required under or in relation to the foregoing clauses (A) through
(D) are hereinafter referred to as the "Parent Required Consents". The parties
hereto agree that references in this Agreement to "obtaining" Parent Required
Consents means obtaining such consents, approvals or authorizations, making such
registrations, declarations or filings, giving such notices; and having such
waiting periods expire as are necessary to avoid a violation of Law or an Order.
(c) Board Approval. The Board of Directors of Parent, by
resolutions duly adopted at a meeting duly called and held and not subsequently
rescinded or modified in any way, has duly (i) determined that this Agreement
and the Merger are in the best interests of Parent and its shareholders and (ii)
approved this Agreement and the Merger.
18.
<PAGE>
(d) Vote Required. No vote of the holders of any class or series of
Parent capital stock is necessary to approve this Agreement, the Merger or the
other transactions contemplated hereby.
(e) Brokers or Finders. 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 similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent, except Greenhill & Company (the "Parent Financial
Advisor"), whose fees and expenses will be paid by Parent in accordance with
Parent's agreement with such firm based upon arrangements made by or on behalf
of Parent.
(f) Litigation. As of the date hereof, there are no claims,
actions, suits, proceedings or investigations pending or, to Parent's knowledge,
threatened against Parent or any of its Subsidiaries, or any properties or
rights of Parent or any of its Subsidiaries, before any Governmental Entity that
(i) seek to materially delay or prevent the consummation of the Merger or the
other transactions contemplated hereby or (ii) could reasonably be expected to
affect adversely the ability of Parent to fulfill its obligations hereunder,
including Parent's obligations under Article I and Article II.
(g) No SJW Capital Stock. Except for 400 shares of SJW Common
Stock, Parent does not own or hold directly or indirectly any shares of SJW
Common Stock or any other capital stock of SJW, or any options, warrants or
other rights to acquire any shares of SJW Common Stock or any other capital
stock of SJW, or in each case, any interests therein, other than pursuant to the
Merger as contemplated by this Agreement.
(h) Financing. Parent has or will have available, prior to the
Effective Time, sufficient funds to pay the Merger Consideration pursuant to
this Agreement and otherwise to satisfy its obligations hereunder.
3.3. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub represent and warrant to SJW as follows:
(a) Organization, Standing and Power. Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the Laws of
Delaware. Merger Sub is a wholly-owned subsidiary of Parent.
(b) Authority; No Violations.
(i) Merger Sub has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance by Merger Sub of this Agreement and the consummation by Merger Sub
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate and shareholder action on the part of Merger Sub. This
Agreement has been duly and validly executed and delivered by Merger Sub and
constitutes a valid and binding agreement of Merger Sub, enforceable against it
in accordance with its terms.
19.
<PAGE>
(ii) The execution and delivery of this Agreement by Merger Sub
do not or will not, as the case may be, and the performance of this Agreement
and the consummation by Merger Sub of the Merger and the other transactions
contemplated hereby will not, result in a Violation pursuant to: (A) any
provision of the articles of incorporation or by-laws of Merger Sub or (B)
except as would not, individually or in the aggregate, have a Material Adverse
Effect on Parent, subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any Contract, Laws or Orders applicable to Merger Sub or
its properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Merger Sub in connection with the execution and delivery of
this Agreement by Merger Sub or the consummation of the Merger and the other
transactions contemplated hereby, except for the Parent Required Consents, the
filing of the Agreement of Merger pursuant to the CCC and DGCL and such
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(c) Board and Shareholder Approval. The Board of Directors of
Merger Sub, by resolutions duly adopted without a meeting by unanimous consent
thereto in writing and not subsequently rescinded or modified in any way, has
duly (i) determined that this Agreement and the Merger are advisable and in the
best interest of Merger Sub and its shareholder, (ii) approved this Agreement
and the Merger and (iii) recommended that the shareholder of Merger Sub adopt
this Agreement. Following the adoption of such resolutions by the Board of
Directors of Merger Sub, the sole shareholder of Merger Sub, without a meeting
by consent in writing, has duly adopted this Agreement.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with its organization, the negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
(e) No SJW Capital Stock. Merger Sub does not own or hold directly
or indirectly any shares of SJW Common Stock or any other capital stock of SJW,
or any options, warrants or other rights to acquire any shares of SJW Common
Stock or any other capital stock of SJW, or in each case, any interests therein.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of SJW. During the period from the date of this Agreement
and continuing until the Effective Time, SJW agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated in Section 4.1 of the SJW Disclosure
Schedule or as required by a Governmental Entity of competent jurisdiction
(written notice of which will be given promptly to Parent) or to the extent that
Parent shall otherwise consent in writing):
20.
<PAGE>
(a) Ordinary Course.
(i) SJW and each of its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course, in all material
respects, in substantially the same manner as heretofore conducted, and shall
use all reasonable efforts to preserve intact their present lines of business,
business organizations and reputations, maintain their rights, franchises and
permits, keep available the services of their officers and key employees,
maintain their assets and properties in good working order and condition,
ordinary wear and tear excepted, and preserve their relationships with
customers, suppliers and others having business dealings with them to the end
that their ongoing businesses shall not be impaired in any material respect at
the Effective Time; provided, however, that no action by SJW or its Subsidiaries
with respect to matters specifically addressed by any other provision of this
Section 4.1 shall be deemed a breach of this Section 4.1(a)(i) unless such
action would constitute a breach of one or more of such other provisions.
(ii) Other than with the consent of Parent, which shall not be
unreasonably withheld, SJW shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new material line of business or (B) incur
or commit to any capital expenditures other than capital expenditures
contemplated in SJW's capital budget, reasonable amounts required to meet
emergencies, and such additional amounts as may be required to comply with Laws
and Orders then in effect or required by a Governmental Entity.
(b) Dividends; Changes in Share Capital. SJW shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare,
set aside or pay any dividends on or make other distributions (whether in cash
or otherwise) in respect of any of its capital stock, except (x) dividends by
wholly owned Subsidiaries of SJW to such Subsidiary's parent or another wholly
owned Subsidiary of SJW and (y) the regular quarterly dividends on SJW Common
Stock in the amount of $0.60 per share of SJW Common Stock payable in the third
and fourth quarter of 1999, and $0.615 per share of SJW Common Stock per quarter
thereafter, (ii) split, combine, subdivide or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
except for any such transaction by a wholly owned Subsidiary of SJW which
remains a wholly owned Subsidiary of SJW after consummation of such transaction,
(iii) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or (iv) directly or
indirectly repurchase, redeem or otherwise acquire any shares of its capital
stock or any securities convertible into or exercisable for any shares of its
capital stock.
(c) Issuance of Securities. SJW shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, pledge or encumber, or authorize
or propose the issuance, delivery or sale, pledge or encumbrance of, any shares
of its capital stock of any class, any SJW Voting Debt or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares or SJW Voting Debt, or enter into any agreement with
respect to any of the foregoing, other than issuances by a wholly owned
Subsidiary of SJW of capital stock to such Subsidiary's Parent or another wholly
owned Subsidiary of SJW.
21.
<PAGE>
(d) Governing Documents. Except to the extent required to comply
with their respective obligations hereunder or, following written notice to
Parent, as may be required by Law or Order or required by the rules and
regulations of the AMEX, SJW shall not, and shall not permit any of its
Subsidiaries to, amend or propose to amend their respective articles of
incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than with the consent of Parent, which
shall not be unreasonably withheld, SJW shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets other than the acquisition of
assets as are used in the operations of the business of SJW and its Subsidiaries
in the ordinary course, consistent with past practice.
(f) No Dispositions. Other than (i) with the consent of Parent,
which shall not be unreasonably withheld, (ii) as set forth in Section 4.1(f) of
the Disclosure Schedule and (iii) transfers between SJW and the wholly-owned
Subsidiaries of SJW and between the wholly-owned Subsidiaries of SJW. SJW shall
not, and shall not permit any Subsidiary of SJW to, sell, lease, transfer,
encumber or otherwise dispose of, or agree to sell, lease, transfer, encumber or
otherwise dispose of, any of its assets (including capital stock of Subsidiaries
of SJW) which are material to SJW.
(g) Investments; Indebtedness. SJW shall not, and shall not permit
any of its Subsidiaries to, (i) other than as set forth on Schedule 4.1(g) of
the Disclosure Schedule, make any loans, advances or capital contributions to,
or investments in, any other Person, other than loans, advances, capital
contributions and investments by SJW or a Subsidiary of SJW to or in SJW or any
wholly owned Subsidiary of SJW, (ii) pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than payments, discharges, settlements or
satisfactions incurred or committed to in the ordinary course of business
consistent with past practice or reflected in the most recent consolidated
financial statements (or the notes thereto) of SJW included in the most recent
SJW SEC Reports filed prior to the date of this Agreement or (iii) other than as
set forth on Schedule 4.1(g) of the Disclosure Schedule, create, incur, assume
or suffer to exist any indebtedness, guarantees, loans or advances or any debt
securities or any warrants or rights to acquire any debt securities not in
existence as of the date of this Agreement except for short-term indebtedness
incurred under SJW's current short-term facilities (and any replacements
thereof) in the ordinary course of business, consistent with past practices, and
which shall not exceed $20,000,000 in the aggregate without the consent of
Parent, which shall not be unreasonably withheld, in each case as such
facilities and other existing indebtedness may be amended, extended, modified,
refunded, renewed, refinanced or replaced after the date of this Agreement, but
only if the aggregate principal amount thereof is not increased thereby, the
term thereof is not extended thereby (or, in the case of replacement
indebtedness, the term of such indebtedness is not for a longer period of time
than the period of time applicable to the indebtedness so replaced) and the
other terms and conditions thereof, taken as a whole, are not less advantageous
to SJW and its Subsidiaries than those in existence as of the date of this
Agreement.
22.
<PAGE>
(h) Compensation. Except as otherwise agreed by Parent, SJW shall
not, and shall not permit any of its Subsidiaries to, (i) materially increase
the amount of compensation of any executive officer, director or employee, (ii)
make any material increase in or commitment to increase any employee benefits,
(iii) issue any equity-based awards or shares of SJW Common Stock pursuant to
SJW Benefit Plans, adopt or make any commitment to enter into, adopt, amend in
any material manner or terminate any SJW Benefit Plan, or any other agreement,
arrangement, plan or policy between SJW or one of its Subsidiaries and one or
more of its directors, officers or employees, or (iv) make any contribution,
other than regularly scheduled contributions, to any SJW Benefit Plan.
(i) Other Actions. SJW shall not, and shall not permit any of its
Subsidiaries to take any action that would, or fail to take any action which
failure would, or that could reasonably be expected to, result in, (i) a
material breach of any provision of this Agreement, or (ii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
(j) Accounting Methods; Income Tax Matters. Except as disclosed in
the SJW SEC Reports filed prior to the date of this Agreement, or as required by
a Governmental Entity, SJW shall not, nor shall it permit any of its
Subsidiaries to, change its methods of accounting or accounting practices in
effect at December 31, 1998, except as required by GAAP. SJW shall not, nor
shall it permit any of its Subsidiaries to, (i) change its fiscal year, (ii)
make or rescind any material tax election, (iii) settle or compromise any claim,
action, suit, litigation, proceeding, arbitration, investigation, audit, or
controversy in respect of Taxes for any amount in excess of the amount reserved
therefor and reflected in the most recent consolidated financial statements (or
the notes thereto) of SJW included in the most recent SJW SEC Report, or (iv)
change in any material respect any of its methods of reporting income,
deductions or accounting for federal income Tax purposes from those employed in
the preparation of its federal income Tax Return for the taxable year ending
December 31, 1998.
(k) Contracts. SJW shall not, nor shall it permit any of its
Subsidiaries, except in the ordinary course of business consistent with past
practice (i) to modify, amend, terminate or fail to use commercially reasonable
efforts to renew any material Contract or waive, release or assign any material
rights or claims under a Contract to which SJW or any of its Subsidiaries is a
party or (ii) to enter into any new material Contracts.
(l) Regulatory Matters. Except for filings in the ordinary course
of business consistent with past practice that would not have a Material Adverse
Effect on SJW, SJW shall inform Parent reasonably in advance of making a filing
to implement any changes in any of its or its Subsidiaries' rates or surcharges
for water service or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and shall, and shall cause its
Subsidiaries to, deliver to Parent a copy of each such filing or agreement. SJW
shall, and shall cause its Subsidiaries to, make all such filings (A) only in
the ordinary course of business consistent with past practice or (B) as required
by a Governmental Entity.
(m) Compromise; Settlement. Neither SJW nor any of its Subsidiaries
shall settle or compromise any pending or threatened claims or arbitrations
(other than any Claims or arbitrations relating to matters set forth in the SJW
SEC Reports), other than settlements which involve solely the payment of money
(without admission of liability) that
23.
<PAGE>
would not result in an uninsured payment by or liability of SJW in excess of
$300,000 in the aggregate above the reserves established specifically therefor
on the books of SJW as of the date hereof.
4.2 Covenants of Parent. During the period from the date of this
Agreement and continuing until the Effective Time, Parent agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as required by a Governmental Entity of competent jurisdiction
(written notice of which will be given promptly to SJW) or to the extent that
SJW shall otherwise consent in writing) Parent shall not, and shall not permit
any of its Subsidiaries to, take any action that would, or fail to take any
action which failure would impair Parent's ability to have available sufficient
funds to pay the Merger Consideration pursuant to this Agreement and otherwise
to satisfy its obligations hereunder.
4.3. Advice of Changes; Governmental Filings. Each party shall (a) confer
on a regular and frequent basis with the other, with respect to matters relevant
to the Merger and (b) report (to the extent permitted by Law, Order or any
applicable confidentiality agreement) on operational matters with respect to SJW
and its Subsidiaries, and SJW shall promptly advise Parent, orally and in
writing, of any material change or event affecting its business or operations,
including any complaint, investigation or hearing by any Governmental Entity (or
communication indicating the same may be contemplated) or the institution or
threat of material litigation. SJW shall timely file all reports required to be
filed by it with the SEC (and all other Governmental Entities) between the date
of this Agreement and the Effective Time and shall (to the extent permitted by
Law, Order or any applicable confidentiality agreement) deliver to Parent copies
of all such reports, announcements and publications promptly after the same are
filed. Except as otherwise required by Section 4.1(l) and subject to applicable
Laws and Orders relating to the exchange of information, each of SJW and Parent
shall have the right to review in advance, and will consult with the other with
respect to, all the information relating to the other party and each of their
respective Subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party agrees that, to the
extent practicable and as timely as practicable, it will consult with, and
provide all appropriate and necessary assistance to, the other party with
respect to the obtaining of all permits, consents, approvals and authorizations
of all third parties and Governmental Entities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other party apprised of the status of matters relating to completion of
the transactions contemplated hereby.
4.4 Transition Planning; Continued Operations of SJW.
(a) SJW and Parent shall each appoint three (3) officers to serve
from time to time as their respective representatives on a committee that will
be responsible for coordinating transition planning and implementation relating
to the Merger. The initial representatives of SJW shall be W. Richard Roth,
Angela Yip and Scott Yoo. The initial representatives of Parent shall be Daniel
Kelleher, W. Timothy Pohl and Ellen Wolf.
24.
<PAGE>
(b) Between the date of this Agreement and the Effective Time,
Parent at its discretion may locate up to two of its representatives at the
offices of SJW (it being understood that such representatives shall not
interfere with the business and operations of SJW or its Subsidiaries and shall
have no authority whatsoever with respect to the operation of the business of
SJW or any of its subsidiaries). During such period SJW shall cause one or more
of its designated representatives to consult as requested by Parent with such
representatives of Parent and to discuss the general status of the business of
SJW and its Subsidiaries consistent with Sections 4.4 and 5.2 hereof.
4.5. Control of SJW's Business. Nothing contained in this Agreement shall
be deemed to give Parent, directly or indirectly, the right to control or direct
SJW's operations prior to the Effective Time. Prior to the Effective Time, SJW
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision over its operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Preparation of SJW Proxy Statement; SJW Shareholders Meeting.
(a) As promptly as practicable following the date hereof, SJW shall,
in cooperation with Parent, prepare and file with the SEC preliminary proxy
materials relating to the SJW Shareholders Meeting (such proxy statement, and
any amendments or supplements thereto, the "SJW Proxy Statement"). The SJW Proxy
Statement shall comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder, and
shall include a statement that the Board of Directors finds the Merger to be
advisable, fair to and in the best interests of SJW. Each of SJW and Parent
shall use all reasonable efforts to have the SJW Proxy Statement cleared by the
SEC as promptly as practicable after filing with the SEC. SJW shall, as promptly
as practicable after receipt thereof, provide copies of any written comments
received from the SEC with respect to the SJW Proxy Statement to Parent and
advise Parent of any oral comments with respect to the SJW Proxy Statement
received from the SEC. If at any time prior to the SJW Shareholders Meeting
there shall occur any event that should be set forth in an amendment or
supplement to the SJW Proxy Statement, SJW shall promptly prepare and mail to
its shareholders such an amendment or supplement. SJW shall cause the SJW Proxy
Statement to be mailed to its shareholders at the earliest practicable date
following clearance of the SJW Proxy Statement by the SEC and, subject to
Section 5.4, shall include in the SJW Proxy Statement the recommendation of the
Board of Directors of SJW that the shareholders of SJW vote in favor of the
approval of the Merger Agreement.
Parent agrees that none of the information supplied or to be supplied by Parent
for inclusion or incorporation by reference in the SJW Proxy Statement and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of SJW Shareholders Meeting, will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. SJW agrees that none of the information supplied or to be
supplied by SJW for inclusion or incorporation by reference in the SJW Proxy
Statement and each
25.
<PAGE>
amendment or supplement thereto, at the time of mailing thereof and at the time
of SJW Shareholders Meeting, will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. SJW will provide Parent and its counsel with a reasonable
opportunity to review and comment on the SJW Proxy Statement and all responses
to requests for additional information by and replies to comments of the SEC
prior to filing such with, or sending such to, the SEC, and will provide Parent
and its counsel with a copy of all such filings made with the SEC. No amendment
or supplement to the information supplied by Parent for inclusion in the SJW
Proxy Statement shall be made without the approval of Parent, which approval
shall not be unreasonably withheld or delayed.
(b) Subject to Sections 5.4 and 7.1(f), SJW shall, as promptly as
practicable following the execution of this Agreement, duly call, give notice
of, convene and hold a meeting of its shareholders (the "SJW Shareholders
Meeting") for the purpose of obtaining the Required SJW Vote with respect to the
transactions contemplated by this Agreement, shall take all lawful action to
solicit the adoption of this Agreement by the Required SJW Vote and the Board of
Directors of SJW shall recommend adoption of this Agreement by the shareholders
of SJW.
5.2 Access to Information. Upon reasonable notice, SJW shall (and shall
cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of Parent reasonable
access during normal business hours, during the period prior to the Effective
Time, to all its facilities, operations, officers, employees, agents and
accountants and its properties, books, contracts, commitments and records
(including, without limitation, Environmental Permits and environmental reports,
audits and assessments) and, during such period, SJW shall (and shall cause its
Subsidiaries to) furnish promptly to Parent (or in the case of the documents
referred to in clause (a)(ii) below, make available to any representatives of
Parent): (a) (i) a copy of each report, schedule, registration statement and
other document filed, published, announced or received by it during such period
pursuant to the requirements of Federal or state securities Laws, as applicable;
and (ii) each report, schedule, statement and other document filed with or
received by any other Governmental Entity (other than, in the case of clause (i)
or (ii), documents which such party is not permitted to disclose under
applicable Law or Orders), and (b) all other information concerning its
business, properties and personnel as Parent may reasonably request; provided,
however, that SJW may restrict the foregoing access to the extent that (x) a
Governmental Entity requires SJW or any of its Subsidiaries to restrict access
to any properties or information reasonably related to any such contract on the
basis of applicable Laws or Orders with respect to national security matters or
(y) any Law or Order of any Governmental Entity applicable to SJW requires SJW
or its Subsidiaries to restrict access to any properties or information. Parent
will hold any information provided under this Section 5.2 or Sections 4.3 or 4.4
that is non-public in confidence to the extent required by, and in accordance
with, the provisions of the letter dated August 5, 1999 between SJW and Parent
(the "Confidentiality Agreement"). Any investigation by Parent shall not affect
the representations and warranties of SJW.
26.
<PAGE>
5.3. Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each
party will use its reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
the Merger and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof and to cause the conditions set forth in
Article VI to be satisfied on or prior to Closing. In furtherance and not in
limitation of the foregoing, each party hereto agrees to make an appropriate
filing of a Notification and Report Form pursuant to the HSR Act with respect to
the transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and to take
all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable. Nothing
contained in this Agreement (including but not limited to Sections 5.3(a) and
5.3(d)) will require or obligate the Parent or any of its Subsidiaries (i) to
agree to or otherwise become subject to any adjustment in, or forbearance from
requesting changes in, authorized rates of Parent or any of its respective
Subsidiaries, or to any material limitations on (A) the right of Parent, Merger
Sub, SJW or their affiliates to acquire, hold or effectively to control or
operate the business, assets or operations of SJW or (B) the right of Parent to
exercise full rights of ownership of the SJW Common Stock acquired by Parent
including, without limitation, the right to vote any SJW Common Stock held by
Parent on all matters properly presented to the shareholders, or (ii) to agree
or otherwise be required to sell or otherwise dispose of, hold separate (through
the establishment of a trust or otherwise), or divest itself of all or any
portion (other than a de minimis portion) of the business, assets, or operations
of SJW, Parent or any of their respective subsidiaries. Notwithstanding anything
to the contrary contained herein, in no event will any party or their respective
subsidiaries be required to waive any of the conditions to the Merger set forth
in Article VI of this Agreement as they apply to such party.
(b) Each of Parent and SJW shall, in connection with the efforts
referenced in Section 5.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement under
the HSR Act or any other applicable Law or Order, use its reasonable best
efforts to (i) make all appropriate filings and submissions with any PUC, Health
Agency or other Governmental Entity that may be necessary, proper or advisable
under applicable Laws or Orders in respect of any of the transactions
contemplated by this Agreement, (ii) cooperate in all respects with each other
in connection with any such filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (iii) promptly inform the other party of any communication received by
such party from, or given by such party to, PUCs, Health Agencies, the Antitrust
Division of the Department of Justice (the "DOJ") or any other Governmental
Entity and of any material communication received or given in connection with
any proceeding by a private party, in each case regarding any of the
transactions contemplated hereby and (iv) permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, PUCs, Health Agencies, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other Person, in each case regarding any of the transactions
contemplated hereby, and to the extent permitted by PUCs, Health Agencies, the
DOJ or such other applicable Governmental Entity or
27.
<PAGE>
other Person, give the other party the opportunity to attend and participate in
such meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the
parties contained in Sections 5.3(a) and 5.3(b), if any administrative or
judicial action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any applicable Law or Order, each
of Parent and SJW shall cooperate in all respects with each other and use its
respective reasonable best efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement. Notwithstanding
the foregoing or any other provision of this Agreement, nothing in this Section
5.3 shall limit a party's right to terminate this Agreement pursuant to Section
7.1(b) or 7.1(c) so long as such party has up to then complied in all respects
with its obligations under this Section 5.3.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any applicable Law or Order or if any suit is
instituted by any Governmental Entity or any private party challenging any of
the transactions contemplated hereby as violative of any applicable Law or
Order, each of Parent and SJW shall use its reasonable best efforts to resolve
any such objections or challenge as such Governmental Entity or private party
may have to such transactions under such Law or Order so as to permit
consummation of the transactions contemplated by this Agreement.
5.4. Acquisition Proposals.
(a) SJW shall, and shall instruct each of its Subsidiaries and
Representatives (as defined below) to, immediately cease all existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any Acquisition Proposal (as defined below). SJW shall not directly
or indirectly, and it shall cause its Subsidiaries, officers, directors,
employees, representatives, agents and affiliates, including any investment
bankers, attorneys and accountants ("Representatives") retained by SJW or any of
its Subsidiaries or affiliates, not to, directly or indirectly, (i) solicit,
initiate, encourage or otherwise facilitate (including by way of furnishing
information) any inquiries or proposals that constitute, or could reasonably be
expected to lead to, any inquiry, proposal or offer (or any improvement,
restatement, amendment, renewal or reiteration thereof) from any Person relating
to any direct or indirect acquisition or purchase of SJW or any of its
Subsidiaries, a merger, recapitalization, consolidation, business combination,
sale of a significant portion of the assets of SJW and its Subsidiaries, taken
as a whole, sale of 10% or more of the shares of capital stock (including by way
of a tender offer, share exchange or exchange offer) or similar or comparable
transactions involving SJW or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any such inquiry, proposal or offer
(or improvement, restatement, amendment, renewal or reiteration thereof) (other
than made by Parent or an affiliate thereof) being herein referred to as an
"Acquisition Proposal"), or (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any Person relating to, any
Acquisition Proposal. Notwithstanding any other provision of this Agreement, the
Board of Directors of SJW may, at any time prior to approval of this Agreement
by the shareholders of SJW, furnish
28.
<PAGE>
information (pursuant to a customary confidentiality agreement no more
favorable, in the aggregate, to the party receiving information than the
Confidentiality Agreement (it being understood that SJW may enter into a
confidentiality agreement without a standstill or with a standstill provision
less favorable to SJW if it waives or similarly modifies the standstill
provision in the Confidentiality Agreement; provided that in no circumstances
shall any such standstill provision in any such further confidentiality
agreement be more favorable to the other Person with respect to the purchase of
shares of SJW Common Stock)) to, or engage in discussions or negotiations with,
any Person in response to such Person's Superior Proposal that did not otherwise
result from a breach of this Section 5.4 (as defined in Section 8.11(i)) made by
such Person if, and only to the extent that, prior to taking such action, (A)
the Board of Directors of SJW consults in good faith with its independent legal
counsel as to the advisability of furnishing information to, or engaging in
discussions or negotiations with, such Person and determines in good faith based
upon the advice of its independent legal counsel that the failure to take such
action would constitute a breach by the Board of Directors of SJW of their
fiduciary duties to the Company's shareholders under applicable law, and (B) SJW
provides reasonable advance notice to Parent to the effect that it is taking
such action.
(b) Except and only to the extent provided in paragraph (c) below,
neither the Board of Directors of SJW nor any committee thereof shall (i)
withdraw, modify or change, or propose to withdraw, modify or change, in any
manner adverse to Parent, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
(iii) cause SJW to enter into any agreement (other than a confidentiality
agreement entered into in accordance with Section 5.4(a)), letter of intent,
agreement in principle, acquisition agreement or other similar agreement
relating to any Acquisition Proposal.
(c) Notwithstanding any other provision of this Agreement, in
response to a Superior Proposal and after consulting in good faith with its
independent legal counsel as to the advisability of such action and determines
in good faith based upon the advice of its independent legal counsel that the
failure to take such action would constitute a breach by the Board of Directors
of SJW of their fiduciary duties to the Company's shareholders under applicable
law, SJW's Board of Directors shall be permitted (subject to this and the
following sentences), at any time prior to the adoption of this Agreement by the
shareholders of SJW, (i) to withdraw, modify or change, or propose to withdraw,
modify or change, the approval or recommendation by the Board of Directors of
this Agreement, the Merger or the other transactions contemplated by this
Agreement or (ii) to approve or recommend, or propose to approve or recommend,
any Superior Proposal, but only in each case referred to in clauses (i) and
(ii), after the third Business Day following Parent's receipt of written notice
advising Parent that the Board of Directors of SJW has received a Superior
Proposal, specifying the principal terms of such Superior Proposal and stating
that it intends to take any action described in clause (i) or (ii) above. After
providing such notice, SJW shall provide a reasonable opportunity to Parent
within such three Business Day-period to make such adjustments in the terms and
conditions of this Agreement as would enable SJW to proceed with its
recommendation to the shareholders of SJW without taking any action described in
clauses (i) or (ii) of the preceding sentence; provided that any such
adjustments shall be at the discretion of Parent at such time.
29.
<PAGE>
(d) SJW shall immediately advise Parent of any request for
information or any Acquisition Proposal, the material terms of such request or
Acquisition Proposal (and in the case of a Superior Proposal, the identity of
such Person making such proposal). SJW will keep Parent reasonably informed of
the status and material terms (including amendments or proposed amendments) of
any such request or Acquisition Proposal.
(e) Nothing contained in this Section 5.4 shall prohibit SJW or its
Board of Directors (i) from taking and disclosing to its shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act
or from making any legally required disclosure to the shareholders of SJW with
regard to an Acquisition Proposal or (ii) prior to the adoption of this
Agreement by the shareholders of SJW, from taking any action as contemplated by
Section 7.1(f). Nothing in this Section 5.4 shall (x) permit SJW to terminate
this Agreement (except as specifically provided in Article VII hereof) or (y)
affect any other obligation of SJW under this Agreement.
5.5. Employee Benefits Matters.
(a) Employee Benefits.
(i) Obligations of Parent; Comparability of Benefits. Parent
shall cause the Surviving Corporation to assume all employment and other related
Agreements with respect to any current employee of SJW, which shall be performed
in accordance with their terms. In addition, the obligations under each SJW
Benefit Plan (as defined in Section 8.11(a)) as to which SJW or any of its
Subsidiaries has any obligation with respect to any current or former employee
(the "SJW Employees") shall become the obligations of Parent and the Surviving
Corporation at the Effective Time. Thereafter, Parent shall, or shall cause the
Surviving Corporation to, provide benefits to SJW Employees under those of
Parent's Benefit Plans that provide benefits that are most closely analogous to
those provided by the SJW Benefit Plans, on terms and conditions substantially
similar, in the aggregate, to those that apply to similarly situated employees
of Parent's Subsidiaries. Nothing herein shall require the continuation of any
particular SJW Benefit Plan or prevent the amendment or termination thereof
(subject to the maintenance, in the aggregate, of the benefits as provided in
the preceding sentence).
(ii) Pre-Existing Limitations; Deductible; Service Credit.
With respect to any Benefit Plans of Parent or any Subsidiary of Parent in which
SJW Employees participate effective as of the Closing Date, Parent shall, or
shall cause the Surviving Corporation to: (A) not impose any limitations more
onerous than those currently in effect as to pre-existing conditions, exclusions
and waiting periods with respect to participation and coverage requirements
applicable to SJW Employees under any Benefit Plan of Parent or any Subsidiary
of Parent in which such employees may be eligible to participate after the
Effective Time, (B) provide each SJW Employee with credit for any co-payments
and deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare Benefit Plan of
Parent or any Subsidiary of Parent in which such employees may be eligible to
participate after the Effective Time, and (C) recognize all service of SJW
Employees with SJW for purposes of eligibility to participate, vesting credit,
eligibility for benefits and the amount of any such benefits (other than
accruals under any defined benefit pension plan) in any Benefit Plan of Parent
or any Subsidiary of Parent in which such employees may be eligible to
30.
<PAGE>
participate after the Effective Time, to the same extent taken into account
under a comparable SJW Benefit Plan immediately prior to the Closing Date.
(iii) Change of Control. SJW and Parent agree that, for
purposes of the SJW Benefit Plans, the approval or consummation of the
transactions contemplated by this Agreement, as applicable, shall constitute a
"Change in Control", as applicable under such SJW Benefit Plans.
(iv) Certain Plans. Notwithstanding any other provision
hereof, Parent shall, or shall cause the Surviving Corporation to, provide the
benefits under the SJW Corp. Transaction Incentive and Retention Program for Key
Employees and the SJW Corp. Executive Severance Plan, as amended ("Severance
Plan"), including the Supplemental Executive Retirement Plan benefits provided
under the Severance Plan, to those individuals covered by those plans on the
Effective Time in accordance with the terms of such plans as of the date hereof.
5.6. Fees and Expenses. Whether or not the Merger is consummated, all
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except (a) if the Merger is consummated, the Surviving Corporation
shall pay, or cause to be paid, any and all property or transfer taxes imposed
on SJW or its Subsidiaries and (b) as provided in Section 7.2. As used in this
Agreement, "Expenses" includes all out-of-pocket expenses (including all fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the SJW Proxy Statement and the solicitation of shareholder approvals and all
other matters related to the transactions contemplated hereby.
5.7. Directors' and Officers' Indemnification and Insurance.
(a) After the Effective Time through the sixth anniversary of the
Effective Time, Parent and the Surviving Corporation shall, jointly and
severally, indemnify and hold harmless each present (as of the Effective Time)
or former officer, director or employee of SJW and its Subsidiaries (the
"Indemnified Parties"), against all claims, losses, liabilities, damages,
judgments, fines and reasonable fees, costs and expenses (including attorneys'
fees and expenses) incurred in connection with any claim, action, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to (i) the fact that the Indemnified Party is or was an
officer, director or employee of SJW or any of its Subsidiaries to the extent
that such claim, action, proceeding or investigation pertains to matters
existing or occurring at or prior to the Effective Time (including this
Agreement and the transactions and actions contemplated hereby) (a "Claim"),
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under applicable Law or Order; provided that no
Indemnified Party may settle any such claim without the prior approval of Parent
(which approval shall not be unreasonably withheld or delayed). Each Indemnified
Party will be entitled to advancement of expenses incurred in the defense of any
claim, action, proceeding or investigation from Parent or the Surviving
Corporation within ten Business Days of receipt by
31.
<PAGE>
Parent or the Surviving Corporation from the Indemnified Party of a request
therefor to the extent permitted under the CCC; provided that any Person to whom
expenses are advanced provides an undertaking, to the extent required by the
CCC, to repay such advances if it is ultimately determined that such Person is
not entitled to indemnification.
(b) Unless a modification is required by law, the Surviving
Corporation shall cause to be maintained in effect (i) in its articles of
incorporation and by-laws for a period of six years after the Effective Time,
the current provisions regarding elimination of liability of directors and
indemnification of, and advancement of expenses to, officers, directors and
employees contained in the articles of incorporation and by-laws of SJW on the
date of this Agreement (provided that the Surviving Corporation may make any
amendments or other modifications to such provisions that would not adversely
affect the rights thereunder of persons who at any time prior to the Effective
Time were identified as indemnitees under the articles of incorporation or by-
laws of SJW with respect to matters existing or occurring at or prior to the
Effective Time, and (ii) for a period of six years after the Effective Time, the
current policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by SJW (provided that the Surviving Corporation
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred on or before the Effective Time; provided, however, that in no
event shall the Surviving Corporation be required to expend in any one year an
amount in excess of 200% of the annual premiums currently paid by SJW for such
insurance; and, provided, further, that if the annual premiums of such insurance
coverage exceed such amount, the Surviving Corporation shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
(c) Notwithstanding anything herein to the contrary, if any claim,
action, proceeding or investigation (whether arising before, at or after the
Effective Time) is made against any Indemnified Party on or prior to the sixth
anniversary of the Effective Time, the provisions of this Section 5.7 shall
continue in effect until the final disposition of such claim, action, proceeding
or investigation. Parent or the Surviving Corporation shall have the right to
assume the defense of any Claim for which indemnification is provided herein,
and neither Parent nor the Surviving Corporation will be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that an Indemnified Party will have
the right to retain separate counsel, reasonably acceptable to Parent, at the
expense of the indemnifying party if the named parties to any such proceeding
include both the Indemnified Party and the Parent (or Surviving Corporation), or
their respective successors, and counsel for Parent determines that the
representation of such parties by the same counsel would be inappropriate due to
a conflict of interest between them based upon the standards of professional
responsibility applicable thereto.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of the Surviving
Corporation shall succeed to the obligations set forth in Section 5.5 and this
Section 5.7.
32.
<PAGE>
5.8. Public Announcements. SJW and Parent shall use all reasonable
efforts to develop a joint communications plan. Each of the parties agrees that
it shall not, nor shall any of their respective affiliates, issue or cause to be
issued, any press releases and other public statements with respect to this
Agreement or the transactions contemplated hereby unless otherwise required by
applicable Law or by obligations pursuant to any listing agreement with or rules
of any securities exchange, provided that, if such disclosure is required by
applicable law or by obligations pursuant to any listing agreement with or rules
of any securities exchange, each of the parties agrees to consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or the transactions contemplated hereby.
5.9. Disclosure Schedule Supplements. From time to time after the date of
this Agreement and prior to the Effective Time, SJW will promptly supplement or
amend the SJW Disclosure Schedule with respect to any matter hereafter arising
which, if existing or occurring at or prior to the date of this Agreement, would
have been required to be set forth or described in the SJW Disclosure Schedule
or which is necessary to correct any information in a schedule or in any
representation and warranty of SJW which has been rendered inaccurate thereby.
From time to time after the date of this Agreement and prior to the Effective
Time, Parent will promptly disclose in writing to SJW any matter hereafter
arising which, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in a disclosure
schedule or which is necessary to correct any information in a schedule or in
any representation and warranty of Parent or Merger Sub which has been rendered
inaccurate thereby (including, for purposes of this Section 5.9 only, any
representation or warranty set forth in Section 3.2(f) without regard to the
words "As of the date hereof" therein). Each of SJW and Parent shall, within a
reasonable period of time following any such disclosure, supplement or
amendment, negotiate in good faith with respect to the consequences of any such
disclosure, supplement or amendment. For purposes of determining the accuracy of
the representations and warranties of SJW contained in this Agreement in order
to determine the fulfillment of the conditions set forth in Section 6.2(a), the
SJW Disclosure Schedule shall be deemed to include only that information
contained therein on the date of this Agreement and shall be deemed to exclude
any information contained in any subsequent supplement or amendment thereto. For
purposes of determining the accuracy of the representations and warranties of
Parent contained in this Agreement in order to determine the fulfillment of the
conditions set forth in Section 6.3(a), there shall be deemed to be no
disclosure schedule of Parent, and the information contained in any written
disclosure by Parent pursuant to this provision shall not be considered.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of SJW, Parent and Merger Sub to effect the Merger are
subject to the satisfaction or waiver at or prior to the Closing of the
following conditions:
(a) Shareholder Approval. SJW shall have obtained the Required SJW
Vote for the adoption of this Agreement by the shareholders of SJW.
33.
<PAGE>
(b) No Injunctions or Restraints; Illegality. No federal, state,
local or foreign, if any, Law shall have been adopted or promulgated, and no
temporary restraining Order, preliminary or permanent injunction or other Order
issued by a court or other Governmental Entity of competent jurisdiction shall
be in effect, having the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(c) Governmental Approvals. All Parent Required Consents and the SJW
Required Consents shall have been obtained prior to the Effective Time, and
shall have become Final Orders. The Final Orders shall not, individually or in
the aggregate, impose terms and conditions that materially impair the ability of
the parties to complete the Merger or the other transactions contemplated
hereby. "Final Order" for purposes of this Agreement means action by the
relevant regulatory authority which has not been reversed, stayed, enjoined, set
aside or annulled, and with respect to which any waiting period prescribed by
any Law or Order before the Merger and other transactions contemplated hereby
may be consummated has expired, and as to which all conditions to be satisfied
before the consummation of such transactions prescribed by Law or Order have
been satisfied.
(d) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
6.2. Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by Parent, at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties. At the time of Closing:
(i) Each of the representations and warranties of SJW set
forth in the first and last sentence of Section 3.1(a) and
Sections 3.1(b), 3.1(c)(i), 3.1(o), 3.1(p) and 3.1(r)
shall be true and correct in all material respects; and
(ii) Each of the other representations and warranties of
SJW set forth in the Agreement shall be true and correct
without giving effect to any qualification for Material
Adverse Effect, materiality or correlative term, except to
the extent that such failure to be true and correct would
not, in the aggregate and when taken together with all
such failures, have a Material Adverse Effect;
as if such representations and warranties referred to in clauses (i) and (ii)
above were made at the Effective Time except (A) to the extent any such
representation or warranty speaks by its terms as of a certain date, and (B) for
changes specifically permitted by this Agreement; and Parent shall have received
a certificate of the chief executive officer and the chief financial officer of
SJW to such effect.
(b) Performance of Obligations of SJW. SJW shall have performed or
complied in all material respects with all agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate of the chief executive officer and the
chief financial officer of SJW to such effect.
34.
<PAGE>
(c) Final Orders. The Final Orders referred to in Section 6.1(c)
shall not, individually or in the aggregate, impose terms and conditions that
could reasonably be expected to result in a Material Adverse Effect on SJW or
Parent.
(d) Product Liability. No event has occurred which could reasonably
be likely to result in any liability of SJW or its Subsidiaries for death or
serious personal injury, fixed or contingent, asserted or unasserted, with
respect to any product or service sold by SJW or its Subsidiaries such that the
reputation of SJW, Parent or any of their Subsidiaries might be significantly
impaired.
6.3. Additional Conditions to Obligations of SJW. The obligations of SJW
to effect the Merger are subject to the satisfaction of, or waiver by SJW, at or
prior to the Closing of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct (other than any representation or warranty, or any portion of a
representation or warranty, that is not qualified as to Material Adverse Effect,
which representations and warranties shall be true and correct in all material
respects), as if such representations or warranties were made as of the
Effective Time, except (i) to the extent given as of a certain date and (ii) for
changes specifically permitted by this Agreement, and SJW shall have received a
certificate of the chief executive officer and the chief financial officer of
Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date, and SJW shall have received a certificate of the chief executive officer
and the chief financial officer of Parent to such effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, and except as provided below, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of SJW or Merger Sub:
(a) By mutual written consent of Parent and SJW, by action of their
respective Boards of Directors;
(b) By either SJW or Parent, by written notice to the other party,
if the Effective Time shall not have occurred on or before the first anniversary
of the date of this Agreement (the "Termination Date"); provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement (including without limitation Section 5.3) has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date; provided further that if, on such first anniversary, (i) the
condition set forth in Section 6.1(c) has not been satisfied or waived, (ii) all
of the other conditions to the consummation of the
35.
<PAGE>
Merger set forth in Article VI have been satisfied or waived or can readily be
satisfied and (iii) any approvals required in order for the condition set forth
in Section 6.1(c) to be satisfied that have not yet been obtained are being
pursued diligently and in good faith, then the Termination Date shall, without
any action by any of the parties, be extended to the earlier of (x) the date
that is six months after the first anniversary of the date hereof and (y) the
date that such approvals are no longer being pursued diligently and in good
faith by any party necessary to the prosecution thereof;
(c) By either SJW or Parent if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which the
parties shall have used their reasonable best efforts to resist, resolve or
lift, as applicable, in accordance with Section 5.3) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action (which order, decree, ruling or other action
the parties shall have used their reasonable best efforts to obtain, in
accordance with Section 5.3), in each case (i) and (ii) that is necessary to
fulfill the conditions set forth in subsections 6.1(c) and (d), as applicable,
and such denial of a request to issue such order, decree, ruling or take such
other action shall have become final and nonappealable; provided, however, that
the right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party whose failure to comply with Section 5.3 has been the
cause of such action or inaction;
(d) By either SJW or Parent if the approval by the shareholders of
SJW required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the Required SJW Vote upon the taking of such
vote at a duly held meeting of shareholders of SJW, or at any adjournment
thereof;
(e) By Parent if the Board of Directors of SJW shall have taken or
resolved to take any of the actions set forth in clauses (i) or (ii) of Section
5.4(b) or if the Board of Directors of SJW shall have refused to affirm its
recommendation of the Merger and the transactions contemplated by this Agreement
as promptly as practicable (but in any case within ten business days) after
receipt of written request from Parent therefor;
(f) By SJW at any time prior to adoption of this Agreement by the
shareholders of SJW if the Board of Directors of SJW (i) shall have approved a
Superior Proposal or (ii) shall have entered into a definitive agreement with
respect to a Superior Proposal; provided, however, that SJW shall have complied
with Section 5.4;
(g) By Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of SJW set forth in this Agreement, or if any
representation or warranty of SJW shall have become untrue, incomplete or
incorrect, in either case such that the conditions set forth in Section 6.2(a)
would not be satisfied (a "Terminating SJW Breach"); provided, however, that if
such Terminating SJW Breach is curable by SJW through the exercise of its
reasonable efforts within 10 days, Parent may not terminate this Agreement under
this Section 7.1(g) until the expiration of such 10 day period or the time SJW
fails to maintain reasonable efforts, whichever occurs earlier; and provided,
further, that the preceding proviso
36.
<PAGE>
shall not in any event be deemed to extend any date set forth in paragraph (b)
of this Section 7.1; or
(h) By SJW, upon breach of any representation, warranty, covenant or
agreement on the part of Parent or Merger Sub set forth in this Agreement, or if
any representation or warrant of Parent shall have become untrue, incomplete or
incorrect, in either case such that the conditions set forth in Section 6.3(a)
would not be satisfied ("Terminating Parent Breach"); provided, however, that if
such Terminating Parent Breach is curable by Parent through the exercise of its
reasonable efforts within 10 days and for so long as Parent continues to
exercise such reasonable efforts, Company may not terminate this Agreement under
this Section 7.1(h) until the expiration of such 10 day period or the time SJW
fails to maintain reasonable efforts, whichever occurs earlier; and provided,
further, that the preceding proviso shall not in any event be deemed to extend
any date set forth in paragraph (b) of this Section 7.1.
7.2. Effect of Termination.
(a) In the event of termination of this Agreement by either SJW or
Parent as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or SJW or their respective officers or directors except with respect to the
second sentence of Section 5.2, Section 5.6, this Section 7.2 and Article VIII;
provided, however, that nothing herein shall relieve any party from liability
for the willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
(b) Parent and SJW agree that SJW shall pay to Parent the sum of
$17.5 million (the "Termination Fee") if (i) SJW or Parent shall terminate this
Agreement pursuant to Section 7.1(d), Section 7.1(e), or Section 7.1(f)(i), and
at any time after the date of this Agreement and at or before the time of the
event giving rise to such termination there shall exist an Acquisition Proposal
with respect to SJW or any of its Subsidiaries and within 18 months following
the termination of this Agreement, SJW enters into a definitive agreement with a
third party with respect to an Acquisition Proposal or an Acquisition Proposal
is consummated or (ii) SJW shall terminate this Agreement pursuant to Section
7.1(f)(ii).
(c) The Termination Fee required to be paid to Parent pursuant to
Section 7.2(b) shall be made to Parent not later than five Business Days after
the entering into of a definitive agreement with respect to, or the consummation
of, an Acquisition Proposal, as applicable. Payment under this Section 7.2 shall
be made by wire transfer of immediately available funds to an account designated
by Parent in the amount of the Termination Fee, plus interest, if any, accrued
from the date when payment was due to the payment date at the prime rate in
effect at Wells Fargo Bank, San Francisco.
7.3. Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of SJW and Merger Sub, but, after any such approval, no
amendment shall be made which by Law or in accordance with the rules of any
relevant stock exchange requires further approval by such
37.
<PAGE>
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, 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 contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. 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. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Non-Survival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII. Nothing in this Section 8.1 shall relieve any party for any
breach of any representation, warranty, covenant or other agreement in this
Agreement occurring prior to termination.
8.2. Notices. All notices and other communications hereunder shall be in
writing (including telecopy or other similar writing) and shall be deemed duly
given (a) on the date of delivery if delivered personally, or by telecopy or
telefacsimile, upon confirmation of receipt, (b) on the first Business Day
following the date of dispatch if delivered by a recognized next-day courier
service, (c) on the tenth Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid or (d) if given by any other means, when received at the address
specified in this Section 8.2, except, in each case, for a notice of a change of
address, which shall be effective only upon receipt thereof. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to Parent or Merger Sub, to
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, NJ 08043
Fax: 856-346-8299
Attention: W. Timothy Pohl
38.
<PAGE>
with a copy to
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Fax: 215-994-2222
Attention: John LaRocca
(b) if to SJW to
SJW Corp.
374 W. Santa Clara St.
San Jose, CA 95113 (courier) or 95196 (mail)
Fax: (408) 279-7932
Attention: Richard Roth
with a copy to
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Fax: (415) 442-1010
Attention: Ronald B. Moskovitz
8.3. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The inclusion of any matter in the SJW
Disclosure Schedule in connection with any representation, warranty, covenant or
agreement that is qualified as to materiality or "Material Adverse Effect" shall
not be an admission by SJW that such matter is material or would have a Material
Adverse Effect. Notwithstanding anything to the contrary, in no event shall any
risk factors or similar cautionary language included in any SJW SEC Reports
under the heading "Forwarding Looking Statements" be disclosed or deemed
disclosed for purposes of the representations, warranties, or covenants
contained in this Agreement except as otherwise specifically disclosed herein or
therein.
8.4. 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 each party shall have received counterparts hereof
signed by all other parties hereto, it being understood that the parties need
not sign the same counterpart.
39.
<PAGE>
8.5. Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement together with the SJW Disclosure Schedule, and
exhibits hereto 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, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, other than
Section 5.7 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
8.6. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without regard to
principles of conflict of laws.
8.7. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Law, Order or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8. Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of Law, Order or otherwise), without the
prior written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. SJW
agrees that, at the request of Parent and Merger Sub at any time prior to
adoption of this Agreement by the shareholders of SJW, SJW will take all actions
required by the CCC in order to effect, after all actions required by the CCC
and DGCL are taken by Parent and Merger Sub, the substitution of another direct
or indirect wholly owned Subsidiary of Parent for Merger Sub in this Agreement;
provided that each of Parent and such substitute Subsidiary shall represent and
warrant to SJW, on the date such substitution is to be effective, the
representations and warranties set forth in Section 3.3; and provided, further,
that no action shall be taken that would require SJW to amend or supplement the
SJW Proxy Statement at any time after the SJW Proxy Statement has first been
mailed to SJW's shareholders.
8.9. Submission to Jurisdiction; Waivers. Each of Parent, Merger Sub and
SJW irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by any party hereto or its
40.
<PAGE>
successors or assigns may be brought and determined in the Santa Clara County
Superior Court of the State of California, or in the United States Courts in or
for the Northern District of California, in each case having subject matter
jurisdiction, and each of Parent, Merger Sub and SJW hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of the
aforesaid courts. Each of the parties hereto hereby agrees that service of any
process, summons, notice or document by U.S. registered mail to its respective
address set forth in Section 8.2 shall be effective service of process for any
such legal action or proceeding brought against it in any such court. Each of
Parent, Merger Sub and SJW hereby irrevocably waives, and agrees not to assert,
by way of motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process in accordance with this Section 8.9, (b)
that it or its property is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts (whether through service of
notice, attachment prior to judgment, attachment in aid of execution of
judgment, execution of judgment or otherwise) and (c) to the fullest extent
permitted by applicable Law or Order, that (i) the suit, action or proceeding in
any such court is brought in an inconvenient forum, (ii) the venue of such suit,
action or proceeding is improper and (iii) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts. Notwithstanding anything
contained herein to the contrary, SJW understands and agrees that this Section
8.9 is not intended to and shall not be deemed to be a consent by Parent to
jurisdiction for any purpose other than the limited purpose of enforcing this
Agreement in accordance with its terms.
8.10. Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at Law, Order or in
equity.
8.11. Definitions. As used in this Agreement:
(a) "Benefit Plans" means, with respect to any Person, each
employee or director benefit plan, program, arrangement and contract (including
any "employee benefit plan," as defined in Section 3(3) of ERISA, and any bonus,
deferred compensation, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, stay agreement or bonus, change in control and
severance plan, program, arrangement and contract) in effect on the date of this
Agreement or disclosed on Section 4.1(c) of the SJW Disclosure Schedule, to
which such Person or its Subsidiary is a party, which is maintained or
contributed to by such Person, or with respect to which such Person could incur
material liability under Section 4069, 4201 or 4212(c) of ERISA.
(b) "Board of Directors" means the Board of Directors of any
specified Person and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the city of San Francisco.
41.
<PAGE>
(d) "knowledge" when used with respect to any party means the
knowledge of any executive officer of such party after reasonable inquiry.
(e) "Material Adverse Effect" means, with respect to any Person, any
change, circumstance or effect that would reasonably be expected to result in a
materially adverse effect on the business, financial condition or results of
operations of such Person and its Subsidiaries taken as a whole, other than any
change, circumstance or effect relating (i) to reductions in consumer demand or
reductions in supply sources solely as a result of unusual climatic conditions
in the watersheds or in the areas serviced by SJW or any of its Subsidiaries or
(ii) to actions or omissions by either Parent or SJW, or any of their
Subsidiaries, as the case may be, taken with the written permission of the other
party in connection with the transactions contemplated hereby.
(f) "the other party" means, with respect to SJW, Parent and means,
with respect to Parent, SJW.
(g) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(h) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(i) "Superior Proposal" means an unsolicited bona fide written
Acquisition Proposal that the Board of Directors of SJW concludes in good faith
(after consultation with its financial advisors) would, if consummated, provide
greater aggregate value to SJW's shareholders (in their capacities as
shareholders), from a financial point of view, than the transactions
contemplated by this Agreement and for which any required financing is committed
or which, in the good faith judgment of the Board of Directors of SJW (after
consultation with its financial advisors), is reasonably capable of being
financed by the Person making such Acquisition Proposal (provided that for
purposes of this definition the term Acquisition Proposal shall have the meaning
assigned to such term in Section 5.4 except that (x) the reference to "10% or
more of the shares" in the definition of "Acquisition Proposal" shall be deemed
to be a reference to "sale of 50% or more of the shares" and (y) "Acquisition
Proposal" shall only be deemed to refer to a transaction involving SJW, or with
respect to assets (including the shares of any Subsidiary of SJW) of SJW and its
Subsidiaries, taken as a whole, and not any of its Subsidiaries alone.
8.12. Other Agreements. The parties hereto acknowledge and agree that,
except as otherwise expressly set forth in this Agreement, the rights and
obligations of SJW and Parent
42.
<PAGE>
under any other agreement between the parties shall not be affected by any
provision of this Agreement.
[Intentionally Left Blank]
43.
<PAGE>
IN WITNESS WHEREOF, Parent, SJW and Merger Sub have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the day and year first above written.
AMERICAN WATER WORKS COMPANY, INC.
By: W. Timothy Pohl
Name: W. Timothy Pohl
Title: Secretary and General Counsel
SJW ACQUISITION CORP.
By: W. Timothy Pohl
Name: W. Timothy Pohl
Title: Vice President
SJW CORP.
By: W. Richard Roth
Name: W. Richard Roth
Title: President
44.
<PAGE>
EXHIBIT 1.5
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SJW CORP.
1. The name of the Corporation is SJW Corp.
2. The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
3. The Corporation is authorized to issue one class of stock to be
designated "Common Stock". The total number of shares that the Corporation is
authorized to issue is one thousand (1,000) shares, $0.01 par value per share.
4. (a) The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permitted under California
law.
(b) This Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors or otherwise, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the Corporation and its
shareholders.
<PAGE>
SJW DISCLOSURE SCHEDULE
-----------------------
The disclosures set forth herein are made with reference to the
representations and warranties of SJW Corporation, a California corporation
("SJW"), in Article III of the Agreement and Plan of Merger (the "Agreement"),
dated as of October 28, 1999, among American Water Works Company, Inc., a
Delaware corporation (the "Parent"), SJW Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent (the "Merger Sub"), and SJW.
The section numbers in this SJW Disclosure Schedule correspond to the
section numbers in the Agreement; however, any information disclosed herein
under any section number or in any schedule to the Agreement provided by SJW
shall be deemed disclosed and incorporated into any other section or schedule
under the Agreement if it is reasonably apparent on the face of the disclosure
that such disclosure is applicable to such section.
Certain matters are listed in this SJW Disclosure Schedule for
informational purposes only, notwithstanding the fact that, because they do not
rise above applicable materiality thresholds or otherwise, they are not required
to be listed herein by the terms of the Agreement. In no event shall the
listing of such agreements or other matters in this SJW Disclosure Schedule be
deemed or interpreted to broaden or otherwise amplify the SJW's representations
and warranties or covenants contained in the Agreement.
Any term defined in the Agreement shall have the same meaning when used in
this SJW Disclosure Schedule unless the context otherwise requires or unless
otherwise noted. No reference to or disclosure of any item or other matter in
this SJW Disclosure Schedule shall be construed as an admission or indication
that such item or other matter is material or that such item or other matter is
required to be referred to or disclosed in this SJW Disclosure Schedule. No
disclosure in this SJW Disclosure Schedule relating to any possible breach or
violation of any agreement, law or regulation shall be construed as an admission
that any such breach or violation exists or has actually occurred.
<PAGE>
Section 3.1(a)
San Jose Water Company, a California corporation ("SJ Water") and a
wholly-owned Subsidiary.
SJW Land Company, a California corporation ("SJ Land") and a wholly-owned
Subsidiary.
444 West Santa Clara Street, a California limited partnership ("444
Partnership"), of which SJ Land, as limited partner, has a 70%
interest and TBI-444 West Santa Clara Street, L.P., as general
partner, has a 30% interest.
Section 3.1(c)(iii)(D)
California Public Utilities Commission.
Section 3.1(c)(iii)(E)
California Department of Health Services
Section 3.1(g)
On February 5, 1999, SJ Water received a draft order from the California
Regional Water Quality Control Board regarding possible cleanup of soil and
groundwater contamination at 230 Commercial Street in Sunnyvale, California.
The site was previously occupied by Western Precision, a former subsidiary of
SJW.
Section 3.1(h)(i)
The SJW Benefit Plans (as amended to date) are as follows:
San Jose Water Company Retirement Plan
San Jose Water Company Salary Deferral Plan
San Jose Water Company Social Welfare Plan
San Jose Water Company Long Term Disability Plan
San Jose Water Company Supplemental Executive Retirement Plan
San Jose Water Company Directors Retirement Plan
San Jose Land Company Directors Retirement Plan
SJW Corp. Executive Severance Plan
SJW Corp. Directors Retirement Plan
SJW Corp. Transaction Incentive and Retention Program for Key Employees
Deferred Compensation Agreement between Campbell Water Company and Homer
Hyde
Deferred Compensation Agreement between Campbell Water Company and Frank
Kukuk
2.
<PAGE>
Section 3.1(k)(ii)
None.
Section 3.1(s)
Under D 88-01-016, precipitated by the changes in the 1986 Tax Reform Act, the
California Public Utilities Commission (the "Commission") permitted water
utilities to capitalize Interest During Construction (IDC) for ratemaking
purposes. SJ Water's treatment of IDC was reviewed and affirmed by the Advisory
and Compliance Branch of the Commission in 1988 and in subsequent rate filing
and advice letter filings. In connection with SJ Water's 1995 rate filing, the
Office of Ratepayer's Advocate Branch of the Commission contested SJ Water's
ratemaking treatment of IDC. In May 1999, the presiding administrative law
judge rendered a proposed decision disallowing SJ Water's previously capitalized
$621,000 of IDC in ratebase. SJ Water has requested the assigned Commissioner's
Office to perform a legal review of the proposed decision based on the
principles of equity.
Section 3.1(t)
See also Sections 3.1(g) and 3.1(s) above.
In 1993, Valley Title Company filed a lawsuit against SJ Water. Plaintiff
alleged that a fire service pipeline ruptured in 1992, causing water and heating
oil to flood the basement of Valley Title Company. In 1995, SJ Water's
insurance carrier settled with the plaintiff's insurance carrier for $3.5
million for costs to repair the building. It is uncertain whether SJ Water will
be compelled to contribute to the settlement. Separately, a jury awarded $3
million to Valley Title Company for lost business files. A unanimous appellate
court reversed the jury's award and was sustained on appeal by the California
Supreme Court.
In July 1998, Maxxum Management Company, successor to Valley Title Company,
filed a new lawsuit in the California Superior Court of Santa Clara against SJ
Water that alleged a cause of action of inverse condemnation based upon the same
facts as the first lawsuit. In September 1999, the California Superior Court of
Santa Clara issued a decision denying Maxxum Management Company the right to
bring its lawsuit.
Section 3.1(w)(v)
The Valley Transportation Routing Plan for its light rail system would result in
the taking by eminent domain of no more than one contiguous acre of the Delmar
Property.
3.
<PAGE>
Section 4.1(a)(ii)
444 Partnership plans to incur the capital expenditures associated with building
the 22,000 s.f. office building at 444 West Santa Clara Street, San Jose,
California in accordance with the budget that has been provided to Parent.
Section 4.1(f)
Dispositions:
Property Location
- -------- --------
Blossom Hill Blossom Hill/Cahalan, San Jose
Section 4.1(g)
The 444 Partnership has negotiated a loan of approximately $4.4 million to fund
the construction of an office building at 444 West Santa Clara, San Jose,
California.
SJ Water may incur up to $20,000,000 of long-term indebtedness to repay short-
term indebtedness and to finance construction of a utility plant.
4.
<PAGE>
EXHIBIT 10(q)
Arizona
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
ARIZONA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
<PAGE>
Arizona
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . 10
2.1 Sale and Purchase of Assets. . . . . . . . . . . . . . . . 10
2.2 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . 10
2.3 Assumption of Certain Liabilities. . . . . . . . . . . . . 11
2.4 Consent of Third Parties . . . . . . . . . . . . . . . . . 14
2.5 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Purchase Price . . . . . . . . . . . . . . . . . . . . . . 15
2.6.1 Purchase Price . . . . . . . . . . . . . . . . . . 15
2.6.2 Payment of Initial Cash Payment. . . . . . . . . . 15
2.6.3 Estimated Closing Statement. . . . . . . . . . . . 15
2.6.4 Post-Closing Adjustment to Purchase Price. . . . . 16
2.6.5 Adjustment for Certain Liabilities . . . . . . . . 17
2.7 Deliveries and Proceedings at Closing. . . . . . . . . . . 18
2.7.1 Deliveries to Buyer. . . . . . . . . . . . . . . . 18
2.7.2 Deliveries By Buyer to the Seller Parties. . . . . 19
2.8 Allocation of Consideration. . . . . . . . . . . . . . . . 19
2.9 Prorations . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . 20
3.1 Qualification; No Interest in Other Entities . . . . . . . 20
3.2 Authorization and Enforceability . . . . . . . . . . . . . 20
3.3 No Violation of Laws or Agreements . . . . . . . . . . . . 21
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . 21
3.5 No Changes . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 22
3.7 Permits and Compliance With Laws Generally . . . . . . . . 23
3.8 Environmental Matters. . . . . . . . . . . . . . . . . . . 23
3.9 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.10 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.11 Real Estate. . . . . . . . . . . . . . . . . . . . . . . . 26
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.13 Patents and Intellectual Property Rights . . . . . . . . . 27
3.14 Accounts Receivable. . . . . . . . . . . . . . . . . . . . 27
3.15 Labor Relations. . . . . . . . . . . . . . . . . . . . . . 27
3.16 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 28
3.17 Absence of Undisclosed Liabilities . . . . . . . . . . . . 29
3.18 No Pending Litigation or Proceedings . . . . . . . . . . . 30
3.19 Supply of Utilities. . . . . . . . . . . . . . . . . . . . 30
3.20 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 30
3.21 Relationship with Customers. . . . . . . . . . . . . . . . 30
<PAGE>
Arizona
3.22 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.23 Condition of Assets. . . . . . . . . . . . . . . . . . . . 31
3.24 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . 31
3.25 All Assets . . . . . . . . . . . . . . . . . . . . . . . . 31
3.26 Year 2000 Matters. . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER . . . . 32
4.1 Organization and Good Standing . . . . . . . . . . . . . . 32
4.2 Authorization and Enforceability . . . . . . . . . . . . . 32
4.3 No Violation of Laws or Agreements . . . . . . . . . . . . 32
4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5 Financing. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.6 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 5 ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . 34
5.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . 34
5.2 Negotiations . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 Disclosure Schedules . . . . . . . . . . . . . . . . . . . 35
5.4 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . 36
5.5 Filings and Authorizations . . . . . . . . . . . . . . . . 36
5.6 Public Announcement. . . . . . . . . . . . . . . . . . . . 37
5.7 Further Assurances . . . . . . . . . . . . . . . . . . . . 37
5.8 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . 38
5.9 Employees; Employee Benefits . . . . . . . . . . . . . . . 39
5.10 Employee Pension Plan. . . . . . . . . . . . . . . . . . . 41
5.11 Employee Savings Plan. . . . . . . . . . . . . . . . . . . 41
5.12 Welfare Benefits . . . . . . . . . . . . . . . . . . . . . 42
5.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.14 Intentionally Omitted. . . . . . . . . . . . . . . . . . . 43
5.15 Citizens' Guarantees and Surety Instruments. . . . . . . . 44
5.16 Assumption of Seller Debt. . . . . . . . . . . . . . . . . 44
5.17 Schedule of Permits. . . . . . . . . . . . . . . . . . . . 47
5.18 Title Information. . . . . . . . . . . . . . . . . . . . . 47
5.19 Transaction with Related Parties . . . . . . . . . . . . . 47
5.20 Approval by Citizens . . . . . . . . . . . . . . . . . . . 47
5.21 Supplemental Information . . . . . . . . . . . . . . . . . 47
5.22 Non-Competition. . . . . . . . . . . . . . . . . . . . . . 48
5.23 Intentionally Omitted. . . . . . . . . . . . . . . . . . . 48
5.24 IDRB Obligations . . . . . . . . . . . . . . . . . . . . . 48
5.25 Cooperation with Respect to Like-Kind Exchange . . . . . . 49
5.26 Transition Plan. . . . . . . . . . . . . . . . . . . . . . 49
5.27 Procedures regarding Refunds of Advances . . . . . . . . . 50
5.28 Title Insurance. . . . . . . . . . . . . . . . . . . . . . 50
<PAGE>
Arizona
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION. . . . . . . . . . . . . 50
6.1 Conditions Precedent to Obligations of Buyer and Parent. . 50
6.1.1 Performance of Agreements; Representations and
Warranties . . . . . . . . . . . . . . . . . . . . 50
6.1.2 Opinion of Counsel . . . . . . . . . . . . . . . . 51
6.1.3 HSR Act. . . . . . . . . . . . . . . . . . . . . . 51
6.1.4 Required PUC and Other Consents. . . . . . . . . . 51
6.1.5 Injunction; Litigation . . . . . . . . . . . . . . 52
6.1.6 Documents. . . . . . . . . . . . . . . . . . . . . 52
6.1.7 Related Closings . . . . . . . . . . . . . . . . . 52
6.2 Conditions Precedent to Obligations of Seller Parties. . . 52
6.2.1 Performance of Agreements; Representations and
Warranties . . . . . . . . . . . . . . . . . . . . 52
6.2.2 Opinion of Counsel . . . . . . . . . . . . . . . . 53
6.2.3 HSR Act. . . . . . . . . . . . . . . . . . . . . . 53
6.2.4 Required PUC and Other Consents. . . . . . . . . . 53
6.2.5 Injunction; Litigation . . . . . . . . . . . . . . 53
6.2.6 Documents. . . . . . . . . . . . . . . . . . . . . 53
6.2.7 Related Closings . . . . . . . . . . . . . . . . . 54
6.3 Termination. . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS . . . . . . . . . . . . . . . 54
7.1 Certain Taxes and Expenses . . . . . . . . . . . . . . . . 54
7.2 Maintenance of Books and Records . . . . . . . . . . . . . 55
7.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4 Indemnification. . . . . . . . . . . . . . . . . . . . . . 58
7.4.1 General Indemnification Obligations. . . . . . . . 58
7.4.2 General Indemnification Procedures . . . . . . . . 59
7.4.3 Indemnification for Negligence . . . . . . . . . . 62
7.5 UCC Matters. . . . . . . . . . . . . . . . . . . . . . . . 62
7.6 Financial Statements . . . . . . . . . . . . . . . . . . . 62
7.7 Collection of Receivables. . . . . . . . . . . . . . . . . 63
ARTICLE 8 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Construction . . . . . . . . . . . . . . . . . . . . . . . 63
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.3 Successors and Assigns . . . . . . . . . . . . . . . . . . 65
8.4 Exhibits and Schedules . . . . . . . . . . . . . . . . . . 65
8.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 65
8.6 Dispute Resolution . . . . . . . . . . . . . . . . . . . . 66
8.7 Severability . . . . . . . . . . . . . . . . . . . . . . . 67
8.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . 67
8.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 67
8.10 Amendment and Waiver . . . . . . . . . . . . . . . . . . . 67
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 68
8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.13 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 68
8.14 No Implied Representation. . . . . . . . . . . . . . . . . 68
<PAGE>
Arizona
8.15 Construction of Certain Provisions . . . . . . . . . . . . 68
8.16 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . . 69
<PAGE>
Arizona
List of Schedules
Schedule 1.1.1(a). . . . . . . . . . . . . . . . . . . . . . . Real Estate
Schedule 1.1.10. . . . . . . . . . . . . . . . . . . .Assumed Indebtedness
Schedule 1.1.52. . . . . . . . . . . . . . . . . . . . . . .IDRB Documents
Schedule 2.2.12. . . . . . . . . . . . . . . . . . . . . . Excluded Assets
Schedule 3.3 . . . . . . . . . . . . . No Violation of Laws or Agreements
Schedule 3.4 . . . . . . . . . . . . . . . . . . . . .Financial Statements
Schedule 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . .No Changes
Schedule 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts
Schedule 3.7 . . . . . . . . . .Permits and Compliance with Laws Generally
Schedule 3.8 . . . . . . . . . . . . . .Environmental Matters -- Generally
Schedule 3.8.10. . . . . . . . . . . . . Compliance with Water Standards
Schedule 3.8.11. . . . . . . . . . . . . . . . . . . . . .Deed Restriction
Schedule 3.9 . . . . . . . . . . . . . . . . . . .Seller Parties' Consents
Schedule 3.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . Title
Schedule 3.11. . . . . . . . . . . . . . . . . . . Real Estate Proceedings
Schedule 3.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
Schedule 3.15. . . . . . . . . . . . . . . . . . . . . . . Labor Relations
Schedule 3.16.1. . . . . . . . . . . . . . . . . . .Employee Benefit Plans
Schedule 3.16.4. . . . . . . . . . . .Employee Benefit Plans -- Compliance
Schedule 3.16.9. . . . . .Employee Benefit Plans -- Extraordinary Benefits
Schedule 3.17. . . . . . . . . . . . . .Absence of Undisclosed Liabilities
Schedule 3.18. . . . . . . . . . . . .No Pending Litigation or Proceedings
Schedule 3.19. . . . . . . . . . . . . . . . . . . . . Supply of Utilities
Schedule 3.20. . . . . . . . . . . . . . . . . . . . . .Seller's Insurance
Schedule 3.22. . . . . . . . . . . . . . . . . . . . . . . . . . .WARN Act
Schedule 3.23. . . . . . . . . . . . . . . . . . . . . Condition of Assets
Schedule 3.25. . . . . . . . . . . . . . . . . . . . . . . . . .All Assets
Schedule 3.27. . . . . . . . . . . . . . . .. . . . . . Product Liability
Schedule 4.7 . . . . . . . . . . . . . . . . . . . . . . Buyer's Insurance
Schedule 5.1 . . . . . . . . . . . . . . . . .. . .. . Conduct of Business
Schedule 5.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . Employees
Schedule 5.9.2 . . . . . . . . . . . . . .Collective Bargaining Agreements
Schedule 5.12. . . . . . . . . . . . . . . . . . . . . . .Former Employees
Schedule 5.15. . . . . . . . . . . . . . . . . . . . .Citizens' Guarantees
Schedule 5.16. . . . . . . . . . . . . . . . . . . . . Schedule of Permits
Schedule 6.1.7 . . . . . . . . . . . . . . . . Related Purchase Agreements
<PAGE>
Arizona
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Form of Maricopa IDA Agreement
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
<PAGE>
Arizona
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Arizona-American Water Company, an Arizona corporation
("Buyer").
Background
A. Citizens, directly and indirectly through the other Seller Parties, is a
public utility engaged, among other things, in the business of storing,
supplying, distributing and selling water to the public, wholesale water
transmission, wastewater treatment, and related services and activities in the
State of Arizona (the "Business").
B. Parent is a holding company which desires to cause the Buyer to purchase
substantially all of the assets, properties and rights of the Seller Parties
relating to the Business, and Seller desires to sell, and to cause the sale of,
such assets, properties and rights, on the terms and subject to the conditions
set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each
Seller Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in the Business (including those owned or
held directly by Citizens and exclusively used in the Business as engaged in by
Citizens through the Agua Fria Water and Mohave Water divisions of Citizens) as
a going concern of every kind, nature and description existing on the Closing
Date, wherever such assets, properties and rights are located and whether such
assets, properties and rights are real, personal or mixed, tangible or
intangible, and whether or not any of such assets, properties and rights have
any value for accounting purposes or are carried or reflected on or specifically
referred to in Seller's books or financial statements, including all of the
assets, properties and rights exclusively relating to the Business enumerated
below:
<PAGE>
Arizona
(a) all real property described in Schedule 1.1.1(a), together
with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights of way, water
lines, rights of use, licenses, railroad crossing agreements,
hereditaments, tenements, privileges and other appurtenances thereto
or otherwise exclusively related to the Business (such as appurtenant
rights in and to public streets) (the "Real Estate");
(b) to the extent not included in clause (a) above, all water
tanks, reservoirs, water works, plant and systems, purification and
filtration systems, pumping stations, pumps, wells, mains, water
pipes, hydrants, equipment, machinery, vehicles, tools, dies, spare
parts, materials, water supplies, fixtures and improvements,
construction in progress, jigs, molds, patterns, gauges and production
fixtures and other tangible personal property, in transit or
otherwise, used exclusively in the Business (the "Equipment and Other
Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to
Section 2.4, all of Seller's water appropriation and flowage rights to
the extent not transferred to Buyer upon assignment of the Contracts
and Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued utility
revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to
the Business;
(e) all unamortized debt expense related to the Assumed
Indebtedness, deferred CAP water costs and capital costs, and other
deferred charges (excluding deferred taxes collectable) attributable
exclusively to the Business of which recovery in future rates is
probable;
(f) Intellectual Property and goodwill, licenses and sublicenses
granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments,
agreements and instruments relating to the sale of any assets,
services, properties, materials or products, including all customer
contracts, operating contracts and distribution contracts relating
exclusively to the conduct of the Business; (ii) orders, contracts,
supply agreements and other agreements relating exclusively to the
purchase of any assets, services, properties, materials, or products
for the Business; (iii) all leases of Real Estate exclusively related
to the Business; (iv) all other contracts, agreements and instruments
related exclusively to the Business (other than contracts, agreements
and instruments included in the definition of Real Estate or Permits);
and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date
hereof and the Closing Date which are consistent with the terms of
this Agreement and are entered into in the ordinary course of business
consistent with past practice, and including in the case of clauses
(i) - (iv) all such contracts, agreements and instruments more
specifically listed or described in Schedule 3.6 (but specifically
excluding any contract, agreement and instrument listed or described
on Schedule 2.2.12) (the "Contracts");
2
<PAGE>
Arizona
(h) subject to Section 2.4 hereof, franchises, approvals,
permits, authorizations, licenses, orders, registrations,
certificates, variances, and other similar permits or rights obtained
from any Authority relating exclusively to the conduct of the Business
and all pending applications therefor (the "Permits");
(i) books, records, ledgers, files, documents (including
originally executed copies of written Contracts, to the extent
available, and copies to the extent not available), correspondence,
Tax returns relating exclusively to the Business, memoranda, forms,
lists, plats, architectural plans, drawings, and specifications, new
product development materials, creative materials, advertising and
promotional materials, studies, reports, sales and purchase
correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited
by law), photographs, records of plant operations and materials used,
quality control records and procedures, equipment maintenance records,
manuals and warranty information, research and development files, data
and laboratory books, inspection processes, in each case, whether in
hard copy or magnetic format, in each instance, to the extent
exclusively relating to the Business, the Acquired Assets or the
Transferred Employees;
(j) all rights or choses in action arising out of occurrences
before or after the Closing Date and exclusively related to any of the
Acquired Assets, including third party warranties and guarantees and
all related claims, credits, rights of recovery and set-off and other
similar contractual rights, as to third parties held by or in favor of
Seller; provided, however, that (notwithstanding the foregoing
provisions of this Section 1.1.1(j)), to the extent that Seller pays
or discharges a liability related to the Business or any of the
Acquired Assets and related to such right or chose in action (whether
by reason of indemnification under this Agreement or otherwise), Buyer
will reassign or reconvey to Seller such right or chose in action to
the extent that such right or chose in action relates to a recovery of
amounts paid to Buyer; and
(k) all rights to insurance and condemnation proceeds (i) to the
extent relating to the damage, destruction, taking or other impairment
of the Acquired Assets which damage, destruction, taking or other
impairment occurs on or prior to the Closing but only to the extent
that the proceeds exceed the amount of the write-down of the net book
value of such Acquired Assets on the books and records of Seller as a
result of such damage, destruction, taking or other impairment, (ii)
to the extent they relate to amounts paid by Buyer for Damages to the
extent Buyer does not receive payment pursuant to Section 7.4.1(a),
but only to the extent Buyer is entitled to indemnification by Seller
pursuant to Sections 7.3 and 7.4, and (iii) as provided in Section 4
of the agreement attached as Exhibit D hereto.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section
5.11.1 hereof.
3
<PAGE>
Arizona
1.1.4 "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in Section
3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and obligations from
and after the Closing Date (except as set forth below) with respect to the IDRB
Financings and IDRB Documents set forth on Schedule 1.1.10. For purposes of
clarity, except as set forth in the next sentence below, "Assumed Indebtedness"
shall not include any liability or obligation to the extent accrued prior to the
Closing Date or to the extent arising out of or relating to an event,
circumstance or occurrence prior to the Closing Date. "Assumed Indebtedness"
shall include the outstanding principal amount and the accrued but unpaid
interest owed by Seller on the debt obligations set forth in the first sentence
of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section 2.3.2
hereof.
1.1.13 "Authority" means any federal, state, local or foreign governmental
or regulatory entity (or any department, agency, authority or political
subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
1.1.16 Benefit Plans" has the meaning set forth in Section 3.16.1 hereof.
4
<PAGE>
Arizona
1.1.17 "Bonds" means any of the bonds issued pursuant to the Indentures of
Trust, the proceeds from the issuance of which were advanced to Seller pursuant
to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
1.1.19 Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the Commonwealth of Pennsylvania are authorized
or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of Parent and Buyer
set forth in Section 5.24 (a) and in the instruments to be executed and
delivered by Parent and Buyer on or prior to the Closing Date in accordance with
Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP or any firm
of independent public accountants hereafter designated by Buyer for purposes of
this Agreement.
1.1.23 Intentionally omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
1.1.27 "Citizens" has the meaning set forth in the introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section 1.1.1(g) hereof.
5
<PAGE>
Arizona
1.1.35 "Control" with respect to any Person means the ownership, directly
or indirectly, of at least a majority of the voting power of each class of
capital stock of such Person entitled to vote in the election of directors of
such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1 hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced in Articles 3,
4 and 5 of this Agreement, as amended or supplemented pursuant to Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.40 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has the meaning set
forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included with any of the
Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section 2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.47 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
6
<PAGE>
Arizona
1.1.51 "HSR Act" has the meaning set forth in Section 3.9 hereof.
1.1.52 "IDRB Documents" shall mean the Loan Agreements, the Tax Regulatory
Agreements, the Project Tax Certificates, and the other Contracts related
thereto to which Citizens is a party and which are listed on Schedule 1.1.52.
1.1.53 "IDRB Financings" shall mean the indebtedness arising under the Loan
Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.56 "Intellectual Property" means the trademarks, patents, trade names
and copyrights and applications therefor, inventions, trade secrets, and
confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens Water Resources
Statement of Net Assets - Arizona, June 30, 1999, which is attached hereto as
Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30, 1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other encumbrance (including the filing of,
or agreement to give, any financing statement under the Uniform Commercial Code
or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated
7
<PAGE>
Arizona
by this Agreement, or (b) solely with respect to matters arising prior to
Closing, to the extent that either (i) Seller realizes the benefit of insurance
maintained by Citizens on or prior to the Closing Date and Buyer receives the
cash proceeds of such insurance to the extent required by Section 1.1.1(k), or
(ii) Seller arranges for Buyer to recover payments in respect of such occurrence
or condition from any other source (whether in a lump sum or stream of
payments), it being understood and agreed that a Material Adverse Effect may
have occurred irrespective of such insurance recovery if the occurrence or
condition giving rise to such recovery also causes a non-monetary material
adverse change in or effect upon the Business or the Acquired Assets, taken as a
whole and taken together with the businesses and assets being acquired by Buyer
or Affiliates of Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and Deed of Trust
between BNY Western Trust Company (successor in interest to Wells Fargo Bank,
N.A.) and First Interstate Bank of California (as successor trustee to Marine
Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.67 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from time to time
during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section 2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section 1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
8
<PAGE>
Arizona
1.1.74 "Related Purchase Agreements" as the meaning set forth in Section
6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section 3.8 hereof.
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of the Seller
owing to the issuers of the Bonds and arising under the Loan Agreements included
among the IDRB Documents but only to the extent not included in the Assumed
Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.79 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange Commission.
1.1.81 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.82 "Seller" and "Seller Parties" have the respective meaning set forth
in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign income, payroll,
withholding, excise, sales, use, personal property, use and occupancy, business
and occupation, mercantile, real estate, gross receipts, license, employment,
severance, stamp, premium, windfall profits, social security (or similar
unemployment), disability, transfer, registration, value added, alternative, or
add-on minimum, estimated, or capital stock and franchise and other tax of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
9
<PAGE>
Arizona
1.1.89 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.91 "Third Party Claim" has the meaning set forth in Section 7.4(b)(i)
hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in Section 5.11.2
hereof.
1.1.93 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.94 "Transferred Employees" has the meaning set forth in Section 5.9.2
hereof.
1.1.95 "Union Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. section 2102-2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing referred to in Section 2.5 below, Citizens shall,
and shall cause the other Seller Parties to, sell, assign, transfer, deliver and
convey to Buyer, and Parent shall cause Buyer to purchase, the Acquired Assets
for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be excluded from
the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens' gas,
electric or communications businesses, the material items of which are described
on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank accounts;
2.2.3 except as otherwise set forth herein, assets attributable or related
to any Benefit Plan;
10
<PAGE>
Arizona
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights to refunds of
Taxes payable with respect to the Business, assets, properties or operations of
any of the Seller Parties or any member of any affiliated group of which any of
them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and accounts
receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or Seller or any
of their Affiliates, except that Buyer shall assume the following specific
liabilities and obligations:
(a) the obligations and liabilities set forth in Sections 5.9,
5.10, 5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned
or transferred to Buyer pursuant to this Agreement in accordance with
the respective terms thereof, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(c) the Assumed Indebtedness and the Buyer's IDRB Obligations;
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common
law, now or hereafter in effect, known or unknown, contingent or
actual, relating to or arising from pollution, contamination or
protection of the environment, human health or safety or natural
resources or relating to or arising
11
<PAGE>
Arizona
from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any
building, structure, pipeline or other facility at the Real Estate, or
from violation of any law relating to the foregoing, including without
limitation, any CERCLA or similar liability under any federal or state
law or regulation, except to the extent Buyer has given written notice
of a claim for indemnification pursuant to Sections 7.3 and 7.4 hereof
prior to the expiration of the claims period set forth in Section
7.3.2(a) or (b) (and if Buyer has given written notice prior to the
expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the
foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to
unperformed service obligations, easement and right-of-way relocation
obligations, and construction work in progress, and all engineering
and construction required to complete scheduled construction and other
capital projects for the Business, in each case relating to the
Business and outstanding on or arising after the Closing Date except
that Buyer shall not assume any liabilities or obligations for any
breach or default by, or payment obligations of, Seller under such
Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(f) liability for accrued but unused vacation pay for the
Transferred Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to
customer deposits held by Seller on the Closing Date and relating to
the Business; and
(h) all liabilities and obligations imposed on Buyer by any PUC
in connection with the operation of the Business or the ownership of
the Acquired Assets, including with respect to any liability of the
types that appear as "Accrued Liabilities" and "Non-Current
Liabilities" on the financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by Buyer pursuant to
Section 2.3.1 above are hereinafter referred to as the "Assumed Liabilities." At
the Closing, Parent shall cause Buyer to execute and deliver to Seller an
assumption agreement, in substantially the form of the Assumption Agreement
attached hereto as Exhibit A (the "Assumption Agreement"), pursuant to which
Buyer shall assume the Assumed Liabilities. Each of Parent and Buyer hereby
irrevocably and unconditionally waives and releases the Seller Parties from all
Assumed Liabilities and all liabilities or obligations exclusively relating to
the Business or the Acquired Assets to the extent arising from events or
occurrences after the Closing or to the extent otherwise relating to the period
after the Closing, including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or obligations
(contingent or absolute and whether or not determinable as of the Closing) of
any of the Seller Parties or any of their Affiliates except for the Assumed
Liabilities as specifically and expressly
12
<PAGE>
Arizona
provided for above, whether such liabilities or obligations relate to payment,
performance or otherwise, and all liabilities, commitments or obligations not
expressly transferred to Buyer hereunder as Assumed Liabilities are being
retained by the Seller Parties, (the "Retained Liabilities"). Each of the Seller
Parties hereby irrevocably and unconditionally waives and releases Buyer from
all Retained Liabilities including any liabilities created or which arise by
statute or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury
to person or property, regardless of when made or asserted, to the
extent that it arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any of the
Seller Parties or any of their Affiliates prior to Closing, or alleged
to have been made by any of such Persons, or to the extent that it is
imposed or asserted to be imposed by operation of law, in connection
with any service performed or product distributed or sold by or on
behalf of any of the Seller Parties or any of their Affiliates prior
to Closing, including any claim referred to above in this Section
2.3.3(a) relating to water quality standards, any claim relating to
any product delivered in connection with the performance of services
provided by Seller and any claim seeking recovery for consequential
damages, lost revenue or income;
(b) all refund obligations relating to the advances existing on
the Closing Date for construction of facilities relating to the
Business;
(c) except to the extent set forth in Section 2.9, any federal,
state, foreign or local income or other Tax payable with respect to
the business, assets, properties or operations of any of the Seller
Parties or any member of any affiliated group of which any of them is
a member.
(d) any liability or obligation associated with or in connection
with any common plant assets of Seller (other than the liabilities and
obligations exclusively related to any common plant assets included
among the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any
nature owed to any employees, agents or independent contractors of any
of the Seller Parties or any of their Affiliates, whether or not
employed by Buyer after the Closing, that arises out of or relates to
events or conditions to the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any
liability, obligation or responsibility of any of the Seller Parties,
or any of their Affiliates or predecessors, whether based on statutory
or common law, but only as any such law is interpreted, amended and
13
<PAGE>
Arizona
in effect on the Closing Date, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of
the environment, human health or safety or natural resources or
relating to or arising from the presence or Release or threat of
Release of Hazardous Substances into the environment or into or from
any building, structure, pipeline or other facility or relating to or
arising from the generation, use, storage, treatment, disposal,
transport or other handling of Hazardous Substances or sale or product
containing Hazardous Substances from violation of any law relating to
the foregoing (but only as such law is interpreted, amended and in
effect on the Closing Date) including without limitation, any (A)
CERCLA or similar liability under any federal or state law or
regulation as interpreted, amended and in effect on the Closing Date
or (B) any such liability associated with businesses or assets of the
Seller Parties other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the
extent arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or
statutory doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any contract,
commitment, instrument or agreement (1) except for Buyer's IDRB
Obligations and subject to the penultimate sentence of Section 2.4,
that is not transferred to Buyer as part of the Acquired Assets, or
(2) that relates to any breach or default (or to the extent that it
relates to an event which would, with the passing of time or the
giving of notice, or both, constitute a default) under any Contract,
instrument or agreement or to any services to be provided by Seller
under any such Contract, instrument or agreement to the extent that
such services were performed or were required to have been performed
on or prior to the Closing Date;
(i) any liability or obligation in respect of the Excluded
Assets;
(j) any liability or obligation of any of the Seller Parties or
any of their Affiliates existing as a result of any act, failure to
act or other state of facts or occurrence which constitutes a breach
or violation of any of Seller's representations, warranties, covenants
or agreements contained in this Agreement, except to the extent set
forth in Section 7.4; or
(k) except for the Assumed Liabilities as specifically and
expressly set forth herein, any liability to the extent arising out of
or relating to the ownership or operation of the Acquired Assets or
the Business prior to the Closing Date (including any predecessor
operations), any claims, obligations or litigation to the extent
arising out of or relating to events or conditions occurring before
the Closing Date, and any liability associated with any business other
than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall cause
Seller to assign to Buyer, and Parent shall cause Buyer to assume, the Contracts
and the Permits which are to be transferred to Buyer as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party,
14
<PAGE>
Arizona
and such consent shall not be obtained prior to Closing, this Agreement shall
not constitute an agreement to assign any such Contract or Permit included in
the Acquired Assets. In order, however, to provide Buyer the full realization
and value of every Contract of the character described in the immediately
preceding sentence, Seller agrees that on and after the Closing, it will, at the
request and under the direction of Buyer, in the name of Seller or otherwise as
Buyer shall specify, take all reasonable actions (including without limitation
the appointment of Buyer as attorney-in-fact for Seller to proceed at Buyer's
sole cost and expense) and do or cause to be done all such things as shall in
the reasonable opinion of Buyer be necessary (a) to assure that the rights of
Seller or its Affiliates under such Contracts shall be preserved for the benefit
of Buyer and (b) to facilitate receipt of the consideration to be received by
Seller or its Affiliates in and under every such Contract. To the extent that
Buyer does receive the benefits of any such Contract pursuant to the preceding
sentence, such Contract shall be a Contract "assigned or transferred to Buyer
pursuant to this Agreement" within the meaning of Section 2.3.1(b) hereof.
Nothing in this Section 2.4 shall in any way diminish the obligations of Seller
to obtain consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase of the Acquired Assets (the "Closing") shall
take place at 10 a.m., East Coast time, on a date mutually satisfactory to Buyer
and Seller which is no later than the fifth Business Day after satisfaction (or
waiver) of the conditions to Closing set forth in Sections 6.1 and 6.2 hereof
(other than those conditions which require the delivery of any documents or the
taking of other action, at the Closing) at the offices of Fleischman and Walsh,
LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036, or on such other date
and at such other time or place as may be mutually agreed upon by the parties
hereto (the "Closing Date"). Upon payment of the Initial Cash Payment by Buyer
and confirmed receipt thereof by Seller or the Escrow Agent pursuant to Section
2.6.2 below, Seller shall operate the Business at the direction of and under the
control of Buyer. Notwithstanding the foregoing, the Closing shall be deemed to
be effective as of 11:59 p.m. on the Closing Date for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price be paid by Buyer for the purchase of the
Acquired Assets (the "Purchase Price") shall be: (i) $231,310,000 in cash (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3 and Section 2.6.5 is referred to as the "Initial
Cash Payment"), subject to adjustment pursuant to the provisions of this
Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5 and Section 2.9
of this Agreement) and (ii) the assumption by Buyer of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and conditions
of this Agreement, the Initial Cash Payment shall be paid by Buyer on the
Closing Date by federal other wire transfer of immediately available funds to
the account designated by Seller in writing at least two (2) Business Days prior
to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Buyer shall deliver the Initial
15
<PAGE>
Arizona
Cash Payment to Buyer's lead bank (the "Escrow Agent") in immediately available
funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Initial
Cash Payment in an interest-bearing account mutually agreed upon by Seller and
Buyer. At Closing, Parent shall sign and deliver to Citizens a statement which
confirms that the Closing has occurred and which instructs the Escrow Agent to
transfer to Citizens the funds representing the Initial Cash Payment, plus an
amount representing the interest earned after the Closing Date until the date
the funds are transferred, to an account that Citizens shall designate at least
two (2) business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business days prior to
the Closing Date, Citizens shall deliver to Parent and Buyer a statement of net
assets (the "Estimated Statement of Net Assets") reflecting its good faith
calculation of the Acquired Assets of the Business as of the last day of the
latest calendar month for which financial statements of Seller are available
(the "Estimated Adjusted Net Assets"). The Estimated Statement of Net Assets
shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than
$160,180,848 (such increase or decrease, as the case may be, is referred to
herein as the "Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and
deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets as of
11:59 p.m. on the Closing Date, based on actual financial performance
and calculated in the same manner, utilizing the same accounting
principles, policies and methods utilized in preparing the Interim
Statement of Net Assets (excluding for this purpose any change
required by GAAP or any Authority since June 30, 1999), together with
(A) an audit report of Seller's Accountants stating that the Closing
Statement of Net Assets has been prepared utilizing the same
accounting principles, policies and methods used in the preparation of
the Interim Statement of Net Assets and (B) a calculation of Citizens'
determination of the amount of increase or decrease in the amount of
the Acquired Assets of the Business from the Interim Statement of Net
Assets Date to the Closing Date which is derived from the Closing
Statement of Net Assets ("Seller's Adjustment Amount"). The Closing
Statement of Net Assets shall not give effect to any purchase
accounting treatment arising from Buyer's purchase of the Acquired
Assets. Buyer shall pay the fees and expenses of Seller's Accountants
incurred in connection with this Section 2.6.4. Buyer agrees to
cooperate, and agrees to cause Buyer's Accountants to cooperate, with
Citizens and Seller's Accountants in connection with the preparation
of the Closing Statement of Net Assets, and related information, and
shall provide to Citizens and Seller's Accountants such books, records
and information as may be reasonably requested from time to time,
including the work papers of Buyer's Accountants. Citizens will give
Buyer and its representatives access during the normal business hours
of Citizens to the personnel, books and records of Citizens and the
work papers of Seller's
16
<PAGE>
Arizona
Accountants to assist Buyer in the review of the Closing Statement of
Net Assets and related matters. Buyer agrees that, following the
Closing through the date on which the Closing Statement of Net Assets
is delivered, it will not take any actions with respect to any
accounting books, records, policies or procedures on which the Closing
Statement of Net Assets is to be based that would make it impossible
or impracticable to calculate the Acquired Assets in the manner and
utilizing the methods required hereby. Without limiting the generality
of the foregoing, no changes shall be made in any reserve or other
account existing as of the date of the Interim Statement of Net Assets
except in the ordinary course or as a result of events occurring after
the date of the Interim Statement of Net Assets and, in such event,
only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on the
Closing Statement of Net Assets, in the Seller's Adjustment Amount or
in the Statement of Certain Assumed Liabilities, provided, however,
that Buyer shall notify Citizens in writing of each disputed amount,
and specify the amount thereof in dispute and the basis of such
dispute, within 30 days of the Buyer's receipt of the Closing
Statement of Net Assets and the Seller's Adjustment Amount (such 30
day period hereinafter referred to as the "Review Period"). In the
event of a dispute with respect to the Closing Statement of Net
Assets, the Seller's Adjustment Amount or the Statement of Certain
Assumed Liabilities, Buyer and Seller shall attempt to reconcile their
differences and any resolution by them as to any disputed amounts
shall be final, binding and conclusive on the parties. If Buyer and
Seller are unable to reach a resolution of such differences within 30
days of receipt of Buyer's written notice of dispute to Seller, Buyer
and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of
each of the Related Purchase Agreements) for resolution to an
independent accountant firm of national reputation mutually appointed
by Seller and Buyer (such independent accounting firm being herein
referred to as the "Third Accounting Firm"), which shall be requested
to determine and report to the parties, within 30 days after such
submission, upon such remaining disputed amounts, and such report
shall be final, binding and conclusive on the parties hereto with
respect to the amounts disputed. The fees and disbursements of the
Third Accounting Firm shall be allocated between Buyer and the Seller
Parties so that the Seller Parties' share of such fees and
disbursements shall be in the same proportion that the aggregate
amount of such remaining disputed amounts so submitted by Buyer to the
Third Accounting Firm that is unsuccessfully disputed by Buyer (as
finally determined by the Third Accounting Firm) bears to the total
amount of such remaining disputed amounts so submitted by Buyer to the
Third Accounting Firm. Buyer shall pay the fees and expenses of
Buyer's Accountants incurred in connection with this Section 2.6.4(b).
Seller's Adjustment Amount, if there are no disputes with respect
thereto, or Seller's Adjustment Amount as adjusted after the
resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative)
the Final Net Asset Adjustment exceeds the Initial Cash Payment, then
within five (5) business days after final determination thereof Buyer
shall pay Seller the amount of such excess together with interest
thereon for the period commencing on the Closing Date through the date
of payment calculated at the Prime Rate in cash by federal or other
wire transfer of immediately available funds, or certified or bank
cashier's check. If the Initial Cash Payment exceeds the sum of the
Base Cash
17
<PAGE>
Arizona
Purchase Price plus (or minus, if negative) the Final Net Asset
Adjustment, then within five (5) business days after final
determination thereof Seller shall pay Buyer the amount of such excess
together with interest thereon for the period commencing on the
Closing Date through the date of payment calculated at the Prime Rate
in cash by federal or other wire transfer of immediately available
funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery of
the Estimated Statement of Net Assets, Citizens also shall deliver to Parent and
Buyer a statement reflecting (i) the customer and other deposits held by Seller
on the Closing Date and relating to the Business, (ii) the total amount of the
Assumed Indebtedness that will be outstanding immediately after the Closing
Date, (iii) the items specified in Section 2.9 to the extent set forth therein,
and (iv) without duplications of any amount included in clause (i) above and
except as provided in Section 5.15, any payments received by Seller under the
Contracts and Permits for obligations not performed as of the Closing Date (the
"Statement of Certain Assumed Liabilities"). The Statement of Certain Assumed
Liabilities shall reflect Citizens' good faith calculation of such liabilities
as of the Closing Date. The Base Cash Purchase Price shall be decreased by the
net amount set forth in the Statement of Certain Assumed Liabilities. Concurrent
with the delivery of the Closing Statement of Net Assets, Citizens also shall
deliver to Parent a statement showing any adjustments to the Statement of
Certain Assumed Liabilities and the Base Cash Purchase Price shall be further
adjusted to give effect to any such adjustments to the Statement of Certain
Assumed Liabilities.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause Seller to
deliver to Buyer:
(a) bills of sale and instruments of assignment to the Acquired
Assets, duly executed by Seller, substantially in the form of Exhibit
B hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the
Acquired Assets, duly executed by Seller (together with any other
transfer forms necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to the
parcels of Real Estate owned in fee simple by Seller (or, with respect
to any such parcel which was acquired by Seller (or its predecessor in
interest, in cases involving mergers) by deed without covenant or
warranty of title, a quit claim deed without covenant or warranty of
title) to Buyer, duly executed and acknowledged by Seller and in
recordable form;
18
<PAGE>
Arizona
(e) the Foreign Investment in Real Property Tax Act Certification
and Affidavit for each parcel of Real Estate, duly executed by the
Seller Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and
certified resolutions evidencing the authority of the Seller Parties
as set forth in Section 3.2 hereof;
(g) all agreements and other documents required by this
Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly
executed by Citizens;
(i) all such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to transfer
to Buyer the Acquired Assets in accordance with this Agreement and
where necessary or desirable, in recordable form; and
(j) if requested by Buyer at least sixty (60) days before
Closing, a lease of that portion of Citizens' Bullhead City, Arizona
office building used exclusively by Seller in connection with the
Business, on commercially reasonable terms reasonably acceptable to
Buyer and Seller.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall, and shall
cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount
equal to the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent
and Buyer to assume the Assumed Liabilities in accordance with this
Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the "Allocation") of the Purchase
Price, the Assumed Liabilities and other relevant items (including, for example,
adjustments to the Purchase Price) to the individual assets or classes of assets
within the meaning of Section 1060 of the Code. If Buyer and Seller agree
19
<PAGE>
Arizona
to such Allocation on or before ninety (90) days after the Closing Date, Buyer
and Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Authority or in
any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses shall
be calculated and pro rated as of the Closing Date, with Seller responsible for
such expenses and to receive the benefit for the same for the period through and
including the Closing Date, and Buyer to be responsible for and to receive the
benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which the same were
assessed and paid) and sales, occupation and use taxes, in each case, to the
extent relating to the Business and except as otherwise provided in Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in each
case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Buyer
pursuant to Section 2.3 (except to the extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other Contracts
(except to the extent provided in Section 2.3.3(h)), and fees under Permits to
be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and installments on
special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
20
<PAGE>
Arizona
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to own, lease and operate the
Acquired Assets and the Business as presently being conducted. Each of the
Seller Parties is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions wherein the nature of the business conducted by
it or such Seller Party's ownership or use of assets and properties make such
qualification necessary, except such failures to be qualified or to be in good
standing, if any, which when taken together with all such other failures of the
Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has full
corporate power and authority to execute, deliver and perform this Agreement and
all other agreements and instruments to be executed by them in connection
herewith (such other agreements and instruments being hereinafter referred to
collectively as the "Transaction Documents"). The execution, delivery and
performance by each of the Seller Parties of this Agreement and the Transaction
Documents to which such Seller Party is a party have been duly authorized by all
necessary corporate action on the part of each of them. This Agreement has been
duly executed and delivered by each of the Seller Parties, and as of the Closing
Date the other Transaction Documents will be duly executed and delivered by the
Seller Parties. This Agreement is a legal, valid and binding obligation of each
Seller Party, enforceable against them in accordance with its terms except as
such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which each of the Seller Parties is a party will be
duly executed and delivered by each of the Seller Parties and will constitute
the legal, valid and binding obligations of each of the Seller Parties,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture,
21
<PAGE>
Arizona
mortgage, loan or credit agreement, license, instrument, lease, contract, plan,
permit or other agreement or commitment, oral or written, to which any of the
Seller Parties is a party, or by which the Business or any of the Acquired
Assets may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, Liens,
interests or rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior to the
Closing Date, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of the
Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer the
statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the date
hereof, except as disclosed in Schedule 3.5, the Seller Parties have conducted
the Business as presently operated only in the ordinary course of business
consistent with past practice. Since the Interim Statement of Net Assets Date,
except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries or
other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by any collective bargaining agreement, if any;
22
<PAGE>
Arizona
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to or
for the use of any Permit of the Business which individually or in the aggregate
would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and is set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business, except
in the ordinary course of business consistent with past practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than (i) with respect to which the Business' total
annual liability or expense is less than (a) $250,000 per such Contract and (b)
$6,123,000 per all such Contracts (when taken together with similar contracts
omitted from Schedule 3.6 of the Related Purchase Agreements), and (ii)
Contracts that may be terminated by Seller, without penalty, on notice of 90
days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or
23
<PAGE>
Arizona
in the aggregate, have a Material Adverse Effect. Except as disclosed in
Schedule 3.7, the Business is conducted by Seller in compliance with all
applicable laws (including the Occupational Safety and Health Act and the rules
and regulations thereunder ("OSHA"), zoning, building and similar laws and
Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice, citation,
summons or order has been issued, no outstanding complaint has been filed, no
outstanding penalty has been assessed and no investigation or review is pending
or, to the knowledge of the Seller Parties, threatened, by any Authority or
other Person with respect to any alleged (i) violation by Seller or any
Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto, and
with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate, or, in connection with the Business or Acquired
Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request for information
with respect to, and to the best of the Seller Parties' knowledge, Seller has
not been designated a potentially liable party for Remedial Action, in
connection with any Real Estate, or, as of the date hereof, with respect to the
Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use or
storage of Hazardous Substances as is incidental to the conduct of the Business,
which use and storage is or has been in compliance with Environmental Laws, and
which use and storage has not caused any condition that requires Remedial
Action, no Real Estate has been used for the storage, treatment, generation,
processing, production or disposal of any Hazardous Substances or as a landfill
or other waste disposal site in violation of any Environmental Law.
24
<PAGE>
Arizona
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real Estate or, as of the date hereof, with
respect to the Business or the Acquired Assets or at any other facility,
location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous Substance
managed or generated by or on behalf of Seller at the Real Estate or in
connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real Estate, that are reasonably likely to result in any
material reduction in the quality or quantity of water available for supply to
the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the date hereof
provide Buyer with copies of all written environmental audits or investigations
of which they are aware (after due inquiry) prepared for the Real Estate or
operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual Report on
Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section
3.8.10(a) and (b), Affiliates and predecessors of the Seller Parties)
are and have been for the past three years in full compliance with all
federal and state primary drinking water standards;
(b) The Seller Parties are and have been for the past three years
in full compliance with all federal and state secondary drinking water
standards; and
(c) As to all outstanding violations of state or federal drinking
water standards, as of the date hereof, the Seller Parties have
completed or are in the process of completion in accordance with all
applicable deadlines, all actions required by Environmental Law or
Authorities to correct or otherwise respond to such violations.
25
<PAGE>
Arizona
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller Parties
will be required to place any notice or restriction relating to the presence of
Hazardous Substances in the deed to any Real Estate, or in any written
instrument accompanying this Agreement, and no Real Estate has such a notice or
restriction in its deed or any other written instrument relating to the
purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment of the Contracts and Permits
contemplated hereby, except (i) as required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) as specified on Schedule 3.9,
(iii) as required by the IDRB Documents, and (iv) for such other consents,
approvals, authorizations, registrations or filings the failure of which to
obtain or make would not individually or in the aggregate have a Material
Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired Assets
constituting personal property, good and marketable title in fee simple to all
of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the
26
<PAGE>
Arizona
aggregate, do not have a Material Adverse Effect (it being understood that to
the extent a Permitted Exception relates to or arises from a Retained Liability,
Seller shall still be liable for such Retained Liability to the extent set forth
herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or oral
notice for assessments for public improvements against the Real Estate which
remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof, Seller
is not a lessee under any Contract relating to the use or occupancy of the Real
Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have a Material Adverse Effect. To Seller's
knowledge, no fact or condition exists which would result in the termination of
(a) the current access from each parcel of the Real Estate, and (b) continued
use, operation, maintenance, repair and replacement of all existing and
currently committed water lines used by Seller in connection with the Business,
except where such termination would not have a Material Adverse Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material returns
and reports for Taxes, including information returns, that are required to have
been filed in connection with, relating to, or arising out of, the Business, (b)
paid all Taxes that are shown to have come due pursuant to such returns or
reports and (c) paid all other material Taxes not required to be reported on
returns in connection with, relating to, or arising out of, or imposed on the
property of the Business for which a notice of assessment or demand for payment
has been received or which have otherwise become due. To the best of the Seller
Parties' knowledge, all such returns or reports have been prepared in accordance
with all applicable laws and requirements in all material respects. Except to
the extent disclosed on Schedule 3.12, none of the assets of the Business or
constituting any of the Acquired Assets (a) is property that is required to be
treated as owned by another Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code or (c) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the Seller
Parties? knowledge, the operations of Seller do not make any unauthorized use of
any Intellectual Property except for any such unauthorized uses which do not
have a Material Adverse Effect. Assuming the
27
<PAGE>
Arizona
consents listed as item XII on Schedule 3.9 are obtained, Buyer will not lose
any of Seller's rights to, or be required to pay increased royalties for, any
Intellectual Property included in the Acquired Assets as a result of the Closing
and the consummation of the transactions contemplated by this Agreement, except
for any such rights or such increased royalties the loss or payment of which
would, individually or in the aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising from
the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each "employee
benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer
plan" as defined in Section 3(37) of ERISA), bonus, incentive, deferred
compensation, excess benefit, employment contract, stock purchase, stock
ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the "Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's current
summary plan
28
<PAGE>
Arizona
description and in the case of an unwritten Benefit Plan, a written description
thereof, has been furnished to Buyer. In addition, to the extent applicable,
Buyer has been provided a copy of the most recent Internal Revenue Service
("IRS") determination letter issued to each Benefit Plan and a copy of the most
recent IRS Form 5500 together with all schedules and accountants' statement
filed, and actuarial reports prepared, on behalf of each Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code (as designated on Schedule 3.16.1) is so qualified, and will
remain so qualified upon the timely making of certain amendments required by law
during the applicable remedial amendment period, and any trust forming a part of
such a Benefit Plan is tax exempt under Section 501(a) of the Code. Each such
Benefit Plan has been amended, as and when necessary, to comply with the Tax
Reform Act of 1986 and upon timely filing of an Application for Determination
with the Internal Revenue Service, will be eligible to make further such
amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under the
Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge of
the Seller Parties, no other Person, has taken any action or failed to take any
action with respect to any Benefit Plan that may subject Buyer or any Benefit
Plan under which liabilities may be assumed by Buyer under Sections 5.10, 5.11
or 5.12 ("Assumed Benefit Liabilities") to any material liability or Tax under
the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects to
incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably be
expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or
29
<PAGE>
Arizona
retirement other than (i) coverage mandated by law, or (ii) death or retirement
benefits under a Benefit Plan qualified under Section 401(a) of the Code.
Seller's Retiree Medical Plan contains provisions permitting Seller to modify or
terminate retiree medical benefits at any time, without prior notice to any
covered individual. Except with respect to retirees, "grandfathered" employees
and collectively bargained employees, Seller knows of no reason why its ability
to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
3.17, Seller has no liabilities with respect to the Business which would
constitute Assumed Liabilities, either direct or indirect, matured or unmatured
or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities which would
decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to the extent
assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business practice,
in or as a result of the normal and ordinary course of business and reflected in
the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the aggregate,
would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in Schedule
3.18, there are no actions, suits, investigations or proceedings pending against
or, to the best of the Seller Parties' knowledge, threatened, against or
affecting, Seller, the Business or any of the Acquired Assets before any court
or arbitrator or Authority which individually or in the aggregate, would have a
Material Adverse Effect. Except as disclosed in Schedule 3.18, there are
currently no outstanding judgments, decrees or orders of any court or Authority
against any of the Seller Parties, which relate to or arise out of the conduct
of the Business or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs and similar
30
<PAGE>
Arizona
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the Real
Estate has adequate arrangements for supplies of electricity, gas, oil, coal
and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does not
have any current customer which accounted for more than 5% of the net sales of
the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set forth
in Schedule 3.22 hereto, within six months prior to the date hereof, (i) Seller
has not effectuated (a) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or (b) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the
Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act).
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
31
<PAGE>
Arizona
3.25 All Assets. Except as set forth on Schedule 3.25 and for the Excluded
Assets, the Acquired Assets include all assets, rights, properties and contracts
the use of which is necessary to the continued conduct of the Business by Buyer
substantially in the manner as it was conducted prior to the Closing Date,
including the service of all utility customers in substantially the same manner
and at substantially the same service levels as provided by Seller on the date
hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and assessment
of all mission critical areas within the Business and related operations
(including those affected by suppliers and vendors) that it reasonably believes
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any Seller Party (or suppliers and vendors) may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem all as set forth in
Citizens' Annual report on Form 10-K for the fiscal year ended December 31, 1998
and Citizens' Quarterly reports on Form 10-Q for the periods ending March 31,
1999 and June 30, 1999, and (iii) to date, implemented that plan substantially
in accordance with that timetable. Seller has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millennium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to Seller after making reasonable inquiries of such suppliers and
vendors. Seller makes no representation or warranty with respect to the receipt
or accuracy of any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except for
those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
32
<PAGE>
Arizona
4.1.2 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate the Acquired Assets and
the Business. Buyer is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it Buyer's
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of Buyer do not have a material
adverse effect on its ability to perform its obligations under this Agreement
and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by Buyer and Parent of this Agreement and
the Transaction Documents to which Buyer and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by Buyer and Parent, and as of
the Closing Date the other Transaction Documents will be duly executed and
delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
33
<PAGE>
Arizona
regulation to which Buyer or Parent is subject other than those violations and
conflicts which individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Buyer and Parent of this Agreement,
the other Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by Buyer or Parent except (i) as required by the
HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such consents,
approvals, authorizations, registrations or filings, the failure to obtain or
make would not individually or in the aggregate have a material adverse effect
on their respective ability to perform their obligations under this Agreement
and the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will have
sufficient resources to pay the Purchase Price, and Parent, Buyer or the other
Affiliates of Parent that are buyers of the assets and businesses being acquired
pursuant to the Related Purchase Agreements have, and at the Closing Date, will
have sufficient resources to pay the purchase prices set forth in the Related
Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect as
of the date hereof for casualty and property insurance covering Buyer's assets
and properties and the operation of Buyer's business, together with the risks
insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted by
this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the prior
written consent of Buyer, from and after the date of this Agreement and up to
and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only in
the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any specific event or
circumstance of which they are aware, or of which they receive notice, that has
or is likely to have,
34
<PAGE>
Arizona
individually or in the aggregate, taken together with the other events or
circumstances, a Material Adverse Effect on the Acquired Assets or the Assumed
Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or
enter into any other transaction (except in the ordinary course of
business) which would have a Material Adverse Effect;
(c) except in the event of service interruption, emergency or
casualty loss, commit to acquire subsequent to the Closing Date on
behalf of the Business any capital asset or group of capital assets
costing in excess of $1,000,000 that is not included in the capital
budget of Seller for fiscal year 2000 and which, if so acquired, would
be included in the Acquired Assets; commencing December 1, 1999,
accept or receive customer advances for construction in excess of
$9,000,000 (when combined with customer advances relating to the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to
the Related Purchase Agreements) per each of the next four consecutive
three-month periods unless pursuant to an existing tariff, Contract or
Permit of Seller; or sell or lease or agree to sell or lease or
otherwise dispose of any assets included in the Acquired Assets except
in the ordinary course of the conduct of the Business, consistent with
past practice;
(d) except in the ordinary course of business, consistent with
past practice or as required under any of Seller's debt instruments or
indentures, mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred
Employee except (i) as required by law, and (ii) in the ordinary
course, consistent with past practice; provided, however, no
individual Employee shall in any event receive a compensation increase
in excess of seven percent (7%);
(f) other than in the ordinary course of business consistent with
past practice, sell or otherwise transfer any assets necessary, or
otherwise material to the conduct of, the Business which would
constitute Acquired Assets;
(g) change the Seller's method of accounting or keeping its books
of account or accounting practices with respect to the Business,
except as required by GAAP or any Authority;
35
<PAGE>
Arizona
(h) intentionally and wilfully take or omit to take any action
which if taken or omitted prior to the date hereof would constitute or
result in a breach of any representations or warranties set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25
hereof (it being understood that the failure to cure a breach shall
not, by itself, be an intentional and wilful omission to take action);
or
(i) prepay, redeem, retire, refund or otherwise extinguish any of
the Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by Citizens or
under common control with Citizens (each such person being a "Section 5.2
Affiliate"), nor any officer, director, employee, representative or agent of
Citizens or any of their Section 5.2 Affiliates, shall, directly or indirectly,
solicit or initiate or participate in any way in discussions or negotiations
with, or provide any information or assistance to, or enter into an agreement
with any Person or group of Persons (other than Parent, Buyer or any Person
controlled by Parent or Buyer or under common control with Parent, Buyer or any
Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller Parties
will provide Buyer with a supplement or amendment to the Disclosure Schedules
with respect to any matter, condition or occurrence which is required to be set
forth or described in the Disclosure Schedules. For the avoidance of doubt, a
matter, condition or occurrence shall only be "required" to be set forth or
described in the Disclosure Schedules if the failure to be so disclosed would
result in a breach of the applicable representation or warranty (qualified by
Material Adverse Effect where applicable) on the date hereof or on the Closing
Date. In addition, Seller shall have the right at any time and from time to time
prior to the Closing to supplement or amend the Disclosure Schedules. Seller may
provide Disclosure Schedules with respect to any representation or warranty of
this Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
36
<PAGE>
Arizona
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this Agreement,
including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied in a
timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or
37
<PAGE>
Arizona
threatened litigation) to which any Authority (including the PUC, the Antitrust
Division and the FTC) is a party; (ii) to agree or otherwise become subject to
any material limitations on (A) the right of Buyer or its Affiliates effectively
to control or operate the Business or the right of Seller or its Affiliates
effectively to control or operate Citizens' other businesses, (B) the right of
Buyer or its Affiliates to acquire or hold the Business or the right of Seller
or its Affiliates to hold the Excluded Assets or Citizens' other businesses, or
(C) the right of Buyer to exercise full rights of ownership of the Business or
all or any material portion of the Acquired Assets or the right of Citizens to
exercise full rights of ownership of Citizens' other businesses or all or any
material portion of the Excluded Assets; or (iii) to agree or otherwise be
required to sell or otherwise dispose of, hold separate (through the
establishment of a trust or otherwise), or divest itself of all or any portion
of the business, assets or operations of Citizens, Seller, Parent, Buyer, any
Affiliate of Buyer or the Business. The parties agree that no representation,
warranty or covenant of Buyer, Parent, or Citizens contained in this Agreement
shall be breached or deemed breached as a result of the failure by Parent and
Buyer on the one hand or the Seller Parties, on the other, to take any of the
actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause to
be made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller, from
time to time after the Closing, at Buyer's or Seller's request, will execute,
acknowledge and deliver to the applicable person such other instruments of
conveyance and transfer and will take such other actions and execute such other
documents, certifications, and further assurances as Buyer or Seller, as the
case may be, may reasonably require in order to transfer, in accordance with the
terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and shall cause
their respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly transition of the Business from Seller to Buyer
and to minimize the disruption to the Business resulting from the transactions
contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and Buyer, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state
38
<PAGE>
Arizona
securities laws ("Securities Filings") or make any consent solicitations to
holders of Assumed Indebtedness which include any information about Seller,
Buyer (or their respective Affiliates) or the transactions contemplated hereby
without consulting with the other party and providing the other party a
reasonable opportunity to review and comment on such information, it being
understood and agreed that any party may so disclose such information in its
reasonable judgment to the extent such party's counsel advises it that such
disclosure is advisable under applicable law. Each of Parent, Buyer, Citizens
and Seller shall, and shall cause their respective Affiliates to, comply with
all applicable federal and state securities laws in connection with this
Agreement and the transactions contemplated hereby (including any solicitation
of consents of holders of Assumed Indebtedness), and all information supplied by
any party for inclusion in any Securities Filing or consent solicitation,
including, without limitation, any proxy or information statement, or any
registration statement on Form S-4 shall be true and correct in all material
respect and shall not contain any untrue statement of a material fact or omit to
state any material fact which is required to be stated therein or which is
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Buyer shall have the right to use all of the logos,
trademarks and trade identification of Seller as are located at the Real Estate
or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use of the
Trademarks shall be in accordance with such reasonable quality control standards
as may be promulgated by Seller and provided to Buyer. If Seller shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Seller shall have the right to terminate Buyer's right under this Section 5.8.3
to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives (including Buyer's
Accountants, consultants, counsel and employees), upon reasonable notice and
during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Buyer all documents, records and
information (and copies thereof), to the extent relating to the Business and the
Acquired Assets, as Buyer may reasonably request. Except to the extent disclosed
in the Disclosure Schedules in accordance with Sections 5.3 and 8.4, no
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller Parties under this Agreement
or the conditions to the obligations of Parent or Buyer under this Agreement.
All information provided to Buyer under this Agreement shall be held subject to
the terms and conditions of the Confidentiality Agreement dated August 2, 1999
between Citizens and Parent.
39
<PAGE>
Arizona
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. Schedule 5.9.1 lists job classifications and number of
employees in each job classifications of those employees whose terms and
conditions of employment are subject to a collective bargaining agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the "Employees." No later than March 1, 2000, Buyer and Seller
shall determine the number of Employees to whom Buyer will offer employment,
which number shall be at least equal to 250 (when combined with offers made by
Buyer or Affiliates of Buyer to employees of Affiliates of Seller in connection
with the Related Purchase Agreements) (the "Base Number"), and such additional
number of Employees, if any, whom Buyer also wishes to employ. Upon
determination of such Employees, Seller will supplement Schedule 5.9.1 with the
name, job title, unused vacation, current base salary or hourly wage, date of
hire and assigned location of each Transferred Employee (as that term is defined
below). At the Closing, Seller shall provide an updated Schedule 5.9.1 which
shall disclose all the information required under the preceding sentence as of
the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer employment to at least
the Base Number of those employees included on Schedule 5.9.1. All Employees to
whom Buyer offers employment and who accept such employment are herein referred
to as the "Transferred Employees." In the event any Employees do not accept
Buyer's offer of employment, Buyer shall offer employment to such additional
employees (the identity of whom shall be determined by Buyer and Seller) as are
necessary to bring the total number of Transferred Employees to the Base Number.
Subject to the provisions of this Section 5.9 and Section 5.12, Buyer shall
provide each Transferred Employee with base compensation at least equal to that
provided by Seller on the Closing Date, and employee benefits which are
substantially comparable to those provided by Buyer to its other similarly
situated employees. Buyer agrees (i) to credit the service of each Transferred
Employee with Seller and its Affiliates before the Closing, for all purposes
under all employee benefit plans and arrangements maintained by Buyer (and/or
any of its Affiliates) for the benefit of any Transferred Employee (including
without limitation for purposes of attainment of retirement dates and payment of
optional forms of benefits), other than for purposes of benefit accrual under
any "defined benefit plan", within the meaning of Section 3(35) of ERISA, (ii)
to provide accrued vacation to Transferred Employees in the year in which the
Closing occurs, equal to the excess, if any, of the accrued vacation to which
the Transferred Employee would otherwise be entitled under Seller's vacation
plan during that year over the amount of accrued vacation the Transferred
Employee had taken during that year, and, thereafter, to provide vacation to
Transferred Employees on the same basis as provided to similarly situated
employees of Buyer, with service credit as provided in (i) hereof, (iii) to
provide severance benefits to Transferred Employees terminated by Buyer that are
substantially comparable to those benefits provided by Buyer to similarly
situated employees, and (iv) to comply with all applicable legal requirements
with respect to Union Employees (including without limitation any applicable
duty to bargain with those employees' bargaining representative).
40
<PAGE>
Arizona
Buyer shall be responsible for providing to each Transferred Employee vacation
in an amount equal to the Transferred Employee's vacation entitlement for the
year of Closing reduced by the number of vacation days such Transferred Employee
has taken on or before Closing. Nothing in this Section 5.9 shall limit Buyer's
authority to terminate the employment of any Transferred Employee at any time
and for whatever reason. Until the second anniversary of the Closing Date,
neither Seller nor any of its Affiliates shall directly or indirectly solicit or
offer employment to any Transferred Employee then employed by Buyer or its
Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by Buyer as the result of any claims against Buyer or its Affiliates
that are made by any Employees or Former Employees (or the Beneficiary of any
Employee or Former Employee) who are not made offers to become employees of
Buyer or its Affiliates including, without limitation, claims asserted against
Buyer as a result of their termination by Seller or its Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, Buyer shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of Buyer incurred after Closing) owed to
any Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between Buyer or any of its
Affiliates and any Transferred Employee or (ii) any benefit claim or expense
(including medical expense) incurred after Closing under any employee benefit
plan sponsored or contributed to by Buyer or an ERISA Affiliate after Closing.
Notwithstanding the foregoing, Buyer shall not be responsible for the payment of
any employee benefits that become due to any Transferred Employees under any
Benefit Plan (other than the Assumed Benefit Liabilities).
41
<PAGE>
Arizona
5.9.6 Buyer agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) Buyer does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. Buyer will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The Buyer's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall retain
liability and related assets for benefits accrued through the Closing Date by
Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be covered under
the American Pension Plan, and shall be given credit for service with Seller and
its Affiliates for eligibility, vesting, attainment of retirement dates,
subsidized benefits, and entitlement to optional forms of payment, but not for
accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section 5.11.2,
subject to the terms and conditions of this Agreement, Parent shall cause the
Savings Plan for Employees of American Water Works Company, Inc. (the "American
Savings Plan") to assume the liability of the Seller's 401(k) Plan for the
account balances of those Transferred Employees participating in the Seller's
401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for
42
<PAGE>
Arizona
eligibility, vesting, attainment of retirement dates, contribution levels and
optional forms of benefit payment, to the same extent that credit for such
service has been given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Buyer's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Buyer that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to Affected Participants to the trustee of the American
Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to transfer
to trusts established by Buyer under Section 501(c)(9) of the Code ("Buyer's
VEBAs") the amount held under any trust established by Seller under Section
501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health care and
life insurance benefits attributable to the Business, including Former Employees
identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the
43
<PAGE>
Arizona
Seller Parties shall cease to have any liability, contingent or otherwise, for
such benefits. In consideration of such transfer, Buyer agrees not to terminate
or materially modify those post-retirement health and life benefit provisions
applicable to such grandfathered Transferred Employees and Water Sector Retirees
as such provisions are in effect immediately prior to the Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Buyer under its corresponding welfare benefit plans (the "Buyer's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Buyer Welfare Plans shall be waived in Buyer's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective Beneficiaries shall receive credit under the Buyer
Welfare Plans for co-payments, payments under a deductible limit made by them,
and for out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in which the Closing Date occurs. As soon as practicable
after the Closing Date, Seller shall deliver to Buyer a list of the Transferred
Employees and retirees of the Water Sector and their respective Beneficiaries
who had credited service under a Seller Welfare Plan, together with each such
individual's service, copayment, deductible and out-of-pocket payment amounts
under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan any balances
standing to the credit of Transferred Employees under Seller's flexible benefits
plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing
Date a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller, together with their
elections made prior to the Closing Date with respect to such Account, and
balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and Buyer, on
the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have
44
<PAGE>
Arizona
expired, copies of all Tax returns, supporting workpapers, and other books and
records or information which may be relevant to such returns for all Tax periods
or portions thereof ending before or including the Closing Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and Buyer
shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. In addition, until such time as Citizens'
guarantee to the City of Tolleson, Arizona (as listed as item 1 on Schedule
5.15) is released, Buyer shall deposit into a BancOne, Arizona trust account, on
the first business day of each calendar month commencing after the Closing Date,
cash in the amount of $43,430.00. Citizens will open such account at its expense
prior to Closing and, on the Closing Date, Sun City Sewer Company will deposit
into such account cash equal to the total accrued amount recorded on the books
of Sun City Sewer Company as of the Closing Date that is associated with the
City of Tolleson Municipal Finance Corporation Refunding Series 1998 Bonds.
Buyer shall maintain such account after Closing and be responsible for all fees
and expenses of BancOne, Arizona, relating to such account arising after
Closing. For purposes of this Section 5.15 and Section 5.16, reasonable efforts:
(a) shall include Parent's or Buyer's assumption of the Assumed Indebtedness,
the Contracts and the Permits on the terms set forth in this Agreement; (b)
shall include an obligation on the part of Parent or Buyer to provide a
guarantee, letter of credit, bond or other required surety instrument at Closing
to the extent required by any Contract or Permit and in general to provide an
equivalent surety instrument to be substituted for any surety instrument
provided by Citizens to any beneficiary in connection with the Business; and (c)
shall include the obligation of Buyer and/or Parent to provide a debt obligation
(including obtaining a minimum credit rating necessary to prevent any change to
the tax-exempt status of any of the Assumed Indebtedness and providing credit
enhancements such as bond insurance) to the issuer of any Bonds relating to the
Assumed Indebtedness satisfactory to such issuer in replacement of and in
substitution for Citizens' obligations to such issuer under the Assumed
Indebtedness, all to enable Parent or Buyer to assume the Assumed Indebtedness.
5.16 Assumption of Seller Debt.
5.16.1 Each of Buyer and Parent shall use its reasonable efforts (as
defined in Section 5.15) to assist Seller in obtaining all consents and opinions
and taking such other actions as may be required to enable Buyer or Parent, as
the case may be, to assume at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and Buyer
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed
45
<PAGE>
Arizona
Indebtedness to the extent provided in Section 2.3, including complying with the
provisions of Section 5.24 to the extent applicable to such assignment of the
Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds which
make up the Assumed Indebtedness is a bond issue which was used to
finance sewage facilities within the meaning of Section 103(b)(4)(E)
of the Internal Revenue Code of 1954 as amended ("1954 Code") or
Section 142(a)(5) of the Code, as the case may be, or facilities for
the furnishing of water within the meaning of Section 103(b)(4)(G) of
the 1954 Code or Section 142(a)(4) and Section 142(e) of the Code, as
the case may be, and that the interest of such Bonds was as of their
date of issue, excludable from the gross income of the holders of such
Bonds for federal or state (other than Illinois) income tax purposes
pursuant to such sections of the IRC or the Code. In the case of the
facilities for the furnishing of water (a) the water is or will be
made available to members of the general public (including electric
utility, industrial, agricultural, or commercial users) and (b) either
the facility is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or approved by a
State or political subdivision thereof, by an agency or
instrumentality of the United States, or by a public service or public
utility commission or other similar body of any State or political
subdivision thereof.
(b) The Seller Parties represent that they have complied with all
of their duties and obligations under the IDRB Documents, including
their obligations relating to the use of the proceeds of the bonds and
the ownership, operation, use and maintenance of the Assets financed
with the proceeds of the Bonds. Citizens and the other Seller Parties
represent that the representations and warranties of "Company" in the
IDRB Documents remain true and correct, and that they have not taken
nor permitted to be taken any action which would have the effect of
subjecting the interest on any of such Bonds to federal or state
(other than Illinois) income taxation, except as otherwise
contemplated or permitted by the IDRB Documents.
(c) The Seller Parties represent that as of Closing all the
proceeds of the Bonds will have been spent in accordance with the IDRB
Documents, the construction of the projects to be financed with the
Bonds will have been completed, that there are no reserve funds
associated with the Trust Indentures for such Bonds, and that all of
the proceeds of such Bonds were invested in tax-exempt obligations of
state and local governments (except to the extent used to acquire or
construct the facilities financed by such Bonds) and, that therefore,
the Seller Parties do not have any arbitrage profits subject to the
rebate requirements of Section 148 of the Code.
(d) The Seller Parties represent that there is and has been no
audit or other examination by any taxing authority relating to the
Bonds.
46
<PAGE>
Arizona
(e) The Seller Parties further represent the following with
respect to the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a) the water is
or will be made available to members of the general public (including
electric utility, industrial, agricultural, or commercial users) and (b)
either the facility is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or approved by a
State or political subdivision thereof, by an agency or instrumentality of
the United States, or by a public service or public utility commission or
other similar body of any State or political subdivision thereof;
(2) They have not caused or permitted to be caused any reissuance of
the Bonds under Section 1001 of the Code, without first obtaining a "no
adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such Bonds
without first obtaining a "no adverse effect" opinion of bond counsel;
(4) They have not taken or caused to be taken any action that would
cause the Bonds to be arbitrage bonds under Section 148 of the Code,
including, but not limited to, the failure to rebate arbitrage profits, if
any, as required by Section 148(f) of the Code;
(5) They have not taken any action that would cause the Bonds not to
be registered in accordance with Section 149(a) of the Code; and
(6) They have not permitted the Bonds to become directly or indirectly
"federally guaranteed" under Section 149 of the Code.
5.16.3 Covenants of Parent and Buyer. Parent and Buyer covenant and agree,
so long as any Assumed IDRB Indebtedness is outstanding, to cause the Assets
that were acquired, constructed, improved or equipped with the proceeds of such
Assumed IDRB Indebtedness to be used as sewage facilities within the meaning of
Section 103(b)(4)(E) of the 1954 Code or Section 142(a)(5) of the Code, as the
case may be, and facilities for the furnishing of water within the meaning of
Section 103(b)(4)(G) of the 1954 Code or 142(a)(4) and Section 142(e) of the
Code, as the case may be, which means in the case of the facilities for the
furnishing of water that (a) the water is or will be made available to members
of the general public (including electric utility, industrial, agricultural, or
commercial users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been established or
approved by a State or political subdivision
47
<PAGE>
Arizona
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof. Each of Parent and Buyer further covenants and
agrees, so long as any Assumed IDRB Indebtedness is outstanding, the following:
(a) It will not cause or permit to be caused any reissuance under
Section 1001 of the Code without first obtaining a "no adverse effect"
opinion of bond counsel;
(b) It will not cause an extension of the maturity of the Bonds
without first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action that would
cause the Bonds to be arbitrage bonds under Section 148 of the Code,
including, but not limited to, the failure to rebate arbitrage
profits, if any, as required by Section 148(f) of the Code;
(d) It will not take any action that would cause the Bonds not to
be registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or indirectly
"federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty, covenant
or other agreement or obligation set out by the IDRB Documents as in
effect on the date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens shall
deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets forth
all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use its
reasonable efforts to deliver to Buyer true, correct and complete copies of all
existing title policies, surveys, leases, deeds, instruments and agreements
relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing Date,
except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24, 5.26,
5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and canceled
all contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any
48
<PAGE>
Arizona
Affiliate of the foregoing. Seller shall be solely liable for any contractual or
other claims, express or implied arising out of the termination and cancellation
of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of violation,
Citizens shall notify Buyer of any violations of state or federal drinking water
standards which, if such violations existed on the date hereof, would be
required to be disclosed pursuant to Section 3.8.10 hereof, and shall promptly
notify Buyer of the actions proposed to be taken by Seller to correct or
otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of fifteen
(15) years after the Closing Date no Seller Party nor any Affiliate of a Seller
Party shall directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of or be otherwise connected
in any substantial manner with any entity (other than Buyer and its successors
and assigns) engaged in the business of storing, supplying and distributing
water in the States in which Buyer acquires any Acquired Assets, whether or not
such business is subject to regulation by a PUC (it being understood that the
individual directors of Seller and Citizens are not Affiliates of a Seller
Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall
remain the primary obligor with respect to the Retained IDRB
Indebtedness outstanding immediately after the Closing Date to the
same
49
<PAGE>
Arizona
extent as though no sale of the Acquired Assets had been made and that Parent
and Buyer shall have no payment obligations with respect to such Retained IDRB
Indebtedness, (y) the IDRB Documents require Citizens not to take or permit to
be taken any action which would have the effect, directly or indirectly, of
subjecting the interest on any of the Bonds to federal or state (other than
Illinois) income taxation, and (z) the IDRB Documents governing certain of the
Bonds issued by The Industrial Development Authority of the County of Maricopa,
Arizona (the "Maricopa IDA"), require Buyer to agree in writing with the
Maricopa IDA with respect to certain matters relating to the operation,
ownership, maintenance and use of the Assets that were acquired, constructed,
improved or equipped with the proceeds of such Bonds. Accordingly, Parent and
Buyer covenant and agree (i) to deliver to the Maricopa IDA on or prior to the
Closing Date an agreement substantially in the form attached hereto as Exhibit
C, duly executed by Buyer, (ii) at Closing to execute and deliver to Citizens an
agreement substantially in the form attached hereto as Exhibit D, with respect
to each issuer of Bonds relating to Retained IDRB Documents that will be
outstanding after the Closing Date, (iii) so long as any such Bonds are
outstanding, to cause the Acquired Assets that were acquired, constructed,
improved or equipped with the proceeds of such Bonds to be used as facilities
for the furnishing of water (that is, (a) the water is or will be made available
to members of the general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility is operated by a
governmental unit or the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public service or public
utility commission or other similar body of any State or political subdivision
thereof) or sewage facilities within the meaning of Section 103(b)(4)(E) of the
1954 Code, or Section 142(a)(5) of the Code as the case may be.
(b) IDRB Construction Funds. Citizens hereby represents that
there will be no construction funds or unspent bond proceeds available
after the Closing Date that are held by the trustees of the Bonds
relating to the Retained IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their respective
best commercially reasonable efforts to obtain all consents and legal
opinions as may be required under the Retained IDRB Documents to
enable Seller to retain all Retained IDRB Indebtedness and to sell the
Acquired Assets to Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller may, at Seller's written election delivered to Buyer no later than five
(5) days prior to the Closing Date, direct that all or a portion of the Initial
Cash Payment be delivered to a "qualified intermediary" as defined in Treasury
Regulation 1.1031(k) - (g)(4) as to enable Seller's relinquishment of the
Acquired Assets to qualify as part of a like-kind exchange of property covered
by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees
50
<PAGE>
Arizona
that Seller may assign all or part of its rights (but no obligations) under this
Agreement to a person or entity acting as a qualified intermediary to qualify
the transfer of the Assets as part of a like-kind exchange of property covered
by Section 1031 of the Code. Buyer and Seller agree in good faith to use
reasonable efforts to coordinate the transactions contemplated by this Agreement
with any other transactions engaged in by either Buyer or Seller; provided that
such efforts shall, in no event, result in any delay in the consummation of the
transactions contemplated by this Agreement. Seller shall indemnify and hold
Buyer harmless from any cost, expense or liability arising from its cooperating
under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer
and use commercially reasonable efforts to assist Buyer if Buyer desires to
obtain ALTA title insurance commitments (collectively, the "Title Commitments,"
and each a "Title Commitment"), in final form, from one or more title insurance
companies (collectively, the "Title Company"), committing the Title Company
(subject only to the satisfaction of any industry standard requirements
contained in the Title Commitment) to issuing ALTA (or its local equivalent)
form of title insurance policies insuring good, valid, indefeasible fee simple
title to the Real Estate in Buyer, in all cases, at Buyer's sole expense and in
the respective amounts that Buyer requests prior to Closing, subject to no Liens
or other exceptions to title other than Permitted Exceptions (collectively the
"Title Policies"). On
51
<PAGE>
Arizona
or prior to the Closing Date, Seller shall execute and deliver, or cause to be
executed and delivered, to the Title Company, at no cost to Seller, any
customary affidavits, standard gap indemnities and similar documents reasonably
requested by the Title Company in connection with the issuance of the Title
Commitments or the Title Policies; provided that such efforts and Buyers'
request for Title Policies or Title Commitments shall, in no event, result in
any delay in the consummation of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing Date if any Material Adverse Effect that may have arisen or occurred
between the execution date of this Agreement and the Closing Date shall have
been cured or remedied such that such Material Adverse Effect is not continuing
as of the Closing Date. Buyer shall have been furnished with a certificate of
the Chief Financial Officer or other Vice President of Citizens dated the
Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L. Russell Mitten
II, Vice President and General Counsel of Seller, an opinion dated the Closing
Date, in form and substance satisfactory to Buyer, to the effect set forth in
Exhibit E hereto.
52
<PAGE>
Arizona
6.1.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby, and such order shall not contain
any restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory treatment with respect to the Business in
existence as of the date of this Agreement applicable to Seller be continued
following the transactions contemplated hereby) which would have a Material
Adverse Effect or a material adverse effect on any other regulated business of
Buyer in the state in which the PUC has jurisdiction, and such order shall be
final and unappealable; Seller shall have obtained all statutory, regulatory and
other consents and approvals which are required in order to consummate the
transactions contemplated hereby and to permit Buyer to conduct the Business in
the manner contemplated by Section 3.25 hereof other than those the failure of
which to obtain would not have a Material Adverse Effect. Seller shall have also
obtained (i) all consents and legal opinions required to enable Parent or Buyer
to assume (or for Citizens to assign to Parent or Buyer) the Assumed
Indebtedness (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)) and all other consents and legal
opinions required to enable Seller to sell the Acquired Assets to Buyer at the
Closing (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture) and (ii) all consents
required under Contracts and Permits relating to Seller's water appropriation
and flowage rights to the extent reasonably sufficient to enable Buyer to
service the customers of the Business and to service future commitments under
such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Buyer's ownership of all or any material portion of the
Acquired Assets, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied that the
consummation of each of the asset purchase and sale transactions contemplated by
those certain purchase agreements described on Schedule 6.1.7 (the "Related
Purchase Agreements") will occur concurrently with the Closing.
53
<PAGE>
Arizona
6.2 Conditions Precedent to Obligations of Seller Parties. The obligations
of the Seller Parties to cause the sale of the Acquired Assets and to consummate
the other transactions contemplated hereby are subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions (any one or
more of which may be waived in writing in whole or in part by the Seller Parties
in their sole discretion):
6.2.1 Performance of Agreements; Representations and Warranties. Parent and
Buyer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by Buyer and Parent shall be true and correct
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 4.2), such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a material adverse effect on the respective ability of Buyer and Parent
to perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and Buyer, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price &
Rhoads, counsel to Parent and Buyer, an opinion dated the Closing Date, in form
and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby and such order shall not contain
any restrictions or conditions which would have a material adverse effect on
Seller's business activities in the State in which the PUC has jurisdiction or
any significant adverse effect on Citizens' acquisition and divestiture
activities in that State (including divestiture of the Acquired Assets), and
such order shall be final and unappealable; Seller shall have obtained all
statutory and regulatory consents and approvals which are required in order to
consummate the transactions contemplated hereby, other than those the failure of
which to obtain would not have a material adverse effect on the Seller after the
Closing. Seller shall have obtained (i) all consents and legal opinions required
to enable Parent or Buyer to assume (or Citizens to assign to Parent or Buyer)
the Assumed Indebtedness without any change in the tax-exempt status thereof and
without any event of taxability
54
<PAGE>
Arizona
relating to the matters set forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F), (ii)
all consents and legal opinions required under the Retained IDRB Documents to
enable Seller to retain the Retained IDRB Indebtedness until maturity and to
sell the Acquired Assets to Buyer at the Closing (in each case without any
change in the tax-exempt status of the Assumed Indebtedness or the Retained IDRB
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture), and (iii) all other
consents required or advisable in order for Seller to transfer Acquired Assets
without incurring material liability under any Contract, Permit or Real Estate
instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to the
Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
55
<PAGE>
Arizona
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating to brokerage
and Section 7.1 relating to expenses. Nothing in this Section 6.3 shall be
deemed to release either party from any liability for any willful breach by such
party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible for
all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one hand,
and Buyer and Parent, on the other hand, shall cooperate fully with each other
after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section 7.4.2(j),
all representations, warranties, covenants and agreements contained in this
Agreement or the
56
<PAGE>
Arizona
Transaction Documents shall survive (and not be affected in any respect by) the
Closing, any investigation conducted by any party hereto and any information
which any party may receive. Notwithstanding the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained
in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing
Date;
(b) the covenants contained in Section 5.2 and the related
indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the
Closing Date;
(c) the representations and warranties contained in Sections 3.12
and 3.16 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto
may be brought following the expiration of the applicable statute of
limitations (or extensions or waivers thereof);
(d) the representations and warranties contained in Section 3.2
and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(e) the representations and warranties contained in Section 3.10
and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in Section 3.7
and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3,
3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim
with respect thereto may be brought after, the third anniversary of
the Closing Date;
(h) the representations and warranties contained in Section 3.11
and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2
and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
57
<PAGE>
Arizona
(j) the representations and warranties contained in Sections 4.3
and 4.4 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in Section 4.5
and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be
brought after, the Closing Date; and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section
7.4 shall terminate on and no further action or claim with respect
thereto may be brought after, the second anniversary of the Closing
Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in
Section 5.1, 5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the
liability of any party with respect thereto, shall not terminate with
respect to any claim, whether or not fixed as to liability or
liquidated as to amount, with respect to which such party has been
given written notice setting forth the facts upon which the claim for
indemnification is based and, if possible, a reasonable estimate of
the amount of the claims prior to the relevant anniversary of the
Closing Date or the 30th day after the expiration of the applicable
statute of limitations (or extensions or waivers thereof), as the case
may be. If any claim for indemnification is asserted or could be
asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the Buyer or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach
of any other representation or warranty in this Agreement for which
there is a shorter survival period, such shorter period will apply to
such claim except to the extent that such claim is a product
liability, toxic tort or similar claim (as described in Section
2.3.3(a)) brought by a private party litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made by
Buyer or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing
Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any
locations other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any
action or claim with respect to any other Retained Liability;
58
<PAGE>
Arizona
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" (other than liabilities
arising after the Closing Date and relating to the Contracts listed as items
I.G.3(a), (b) and (c) on Schedule 3.6 (relating to the Tolleson contractual
arrangements) and the Contract listed as item I.G.4 (the Glendale contract) on
the financial statements of Seller; (w) not exclusively related to the Acquired
Assets or not exclusively related to the Business; and (x) with respect to any
of the matters discussed in Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors, officers and
other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of
or resulting from (A) any breach of any representation, warranty,
covenant or agreement made by the Seller Parties in this Agreement or
in any document or certificate required to be furnished to Buyer by
any of the Seller Parties pursuant to this Agreement (including the
Transaction Documents); (B) subject to Section 7.3.2, any Excluded
Assets or Retained Liabilities; (C) subject to Section 7.3.2, the
ownership, operation or use of any of the businesses or assets of the
Seller Parties or their Affiliates (other than the Business and the
Acquired Assets) whether before, on or after the Closing Date; and (D)
an event of taxability, as such term is customarily used in municipal
securities transactions, relating to the Retained IDRB Indebtedness
and arising from the sale of the Acquired Assets pursuant to this
Agreement.
(b) Buyer and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and
such other parties harmless
59
<PAGE>
Arizona
from and against any and all Damages arising out of or resulting from (A) any
breach of any representation, warranty, covenant or agreement made by Parent or
Buyer in this Agreement or in any document or certificate required to be
furnished to Seller by Parent or Buyer pursuant to this Agreement (including the
Transaction Documents), including the Buyer's IDRB Obligations; (B) any Assumed
Liabilities after the Closing Date, including the Assumed Indebtedness; (C) the
ownership, operation or use of the Business or the Acquired Assets after the
Closing Date (except to the extent resulting from Retained Liabilities or to the
extent resulting from breaches by the Seller Parties of representations,
warranties, covenants or agreements hereunder or in the other Transaction
Documents); (D) any claim by a Transferred Employee or a Former Employee
referred to on Schedule 5.12 or the Beneficiary of any such employee or former
employee for post-retirement health care or life insurance benefits "incurred"
(within the meaning of Section 5.9.4) after the Closing; (E) any violation by
Parent or Buyer, or any assignee, lessee or successor of Parent or Buyer, of the
covenants and agreements as provided by Section 5.16.3 hereof and Section 5 of
Exhibit D hereto; and (F) an event of taxability, as such term is customarily
used in municipal securities transactions, relating to the Assumed Indebtedness
and arising from the sale of the Acquired Assets pursuant to this Agreement
and/or the assignment or assumption of the Assumed Indebtedness.
(c) For purposes of this Agreement, "Damages" shall mean any and
all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against
the party seeking indemnification and including costs of
investigation, clean-up and remediation), deficiencies, interest,
costs and expenses and any claims, actions, demands, causes of action,
judgments, costs and reasonable expenses (including reasonable
attorneys' fees and all other reasonable expenses incurred in
investigating, preparing or defending any litigation or proceeding,
commenced or threatened, incident to the successful enforcement of
this Agreement). For purposes of this Section 7.4, the determination
of whether any breach of any representation, covenant or agreement has
occurred, and the calculation of the amount of Damages incurred by the
Indemnified Party arising out of or resulting from any breach of a
representation, covenant or agreement by any party hereto, the
references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach
shall be found to have occurred due to facts or circumstances arising
from an occurrence or condition described in Section 1.1.61(a).
Notwithstanding the foregoing, Damages shall not include the loss of
profits of the party seeking indemnification, or punitive damages
unless the party seeking indemnification has had punitive damages
assessed or asserted against it.
(d) Notwithstanding any language contained in any Transaction
Document (including deeds to Real Estate and instruments delivered by
Seller to the Title Company), representations and warranties as to
Real Estate set forth in Section 3.10 and 3.11 will not be merged into
any Transaction Document and the indemnification obligations of
Seller, and the limitations on such obligations, set forth in this
Agreement, shall control. No provision set forth in any Transaction
Document shall be deemed to enlarge, alter or amend the terms or
provisions of this Agreement.
60
<PAGE>
Arizona
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4
(an "Indemnified Party") shall give prompt written notice to the party
from whom such indemnification is sought (the "Indemnifying Party") of
the assertion of any claim, the incurrence of any Damages, or the
commencement of any action, suit or proceeding, of which it has
knowledge and in respect of which indemnity may be sought hereunder,
and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but failure
to give such required notice shall relieve the Indemnifying Party of
any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall
have the right, exercisable by written notice to the Indemnified Party
after receipt of notice from the Indemnified Party of the commencement
of or assertion of any claim or action, suit or proceeding by a third
party in respect of which indemnity may be sought hereunder (a "Third
Party Claim"), to assume the defense of such Third Party Claim which
involves (and continues to involve) solely monetary damages; provided,
that (A) the Indemnifying Party expressly agrees in such notice that,
as between the Indemnifying Party and the Indemnified Party, solely
the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a
request or demand for injunctive or other equitable relief by an
Authority and (C) the Indemnifying Party makes reasonably adequate
provision to assure the Indemnified Party of the ability of the
Indemnifying Party to satisfy the full amount of any adverse monetary
judgment that is reasonably likely to result. The Indemnifying Party
shall be deemed to have satisfied the condition set forth in clause
(C) of the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party
shall settle any Third Party Claim without the prior written consent
of the other, which consent shall not be unreasonably withheld or
delayed.
(c) The Indemnifying Party or the Indemnified Party, as the case
may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other
party is defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither
Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages
incurred unless the aggregate amount of Damages incurred by Parent or
Buyer (or the other Persons for which they can claim indemnification),
together with all other claims for Damages under Section 7.4.2(e) of
each of the Related Purchase Agreements, exceeds $6,123,000 in the
aggregate (the "Threshold Amount"), in which case Seller shall then be
liable for Damages in excess of the Threshold Amount. Subject to
Section 7.4.2(f) and Section 7.4.2(i), the cumulative aggregate
indemnity obligation of Citizens and its Affiliates under Section
61
<PAGE>
Arizona
7.4 of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that
Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages
in respect of intentional and wilful breaches of covenants or
agreements in this Agreement or any of the Retained Liabilities other
than the Specified Liabilities irrespective of the Threshold Amount or
the Ceiling (it being understood that the failure to cure a breach
shall not, by itself, be an intentional and wilful breach). As used
herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i)
do not relate to matters within the scope of clauses (u), (v), (w) and
(x) of Section 7.3.2; (ii) were not known to the Seller Parties on or
prior to Closing; and (iii) relate exclusively to the Acquired Assets
or the Business prior to the Closing Date. Notwithstanding anything to
the contrary in this Section 7.4, Parent or Buyer (or the other
Persons for which they can claim indemnification) shall be entitled to
indemnification for Damages in respect of a breach of Section 3.2,
3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer under
this Section 7.4 are exclusive and in lieu of any and all other rights
and remedies which Seller, Parent and Buyer may have under this
Agreement or otherwise for monetary relief with respect to (x) the
inaccuracy of any representation, warranty, certification or other
statement made (or deemed made) by Seller, Parent or Buyer in or
pursuant to this Agreement or any of the Transaction Documents or (y)
any breach or failure to perform any covenant or agreements set forth
in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j) below, no
right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the
Closing of any party hereto including, without limitation, the
knowledge of such party of any breach of any representation, warranty,
agreement or covenant by the other party at any time, or the decision
by such party to complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages
incurred by such party for purposes of Section 7.4.2(e)) to the extent
that:
(A) the Indemnified Party recovers insurance proceeds
covering the Damages or otherwise recovers payments in respect of
such Damages from any other source (whether in a lump sum or
stream of payments); or
(B) the Indemnified Party's Tax liability is actually
reduced as a result of a tax benefit to which the Indemnified
Party becomes entitled in respect of the Damages.
62
<PAGE>
Arizona
(j) Seller shall have no liability or obligation under this
Section 7.4 for any Damages resulting from the inaccuracy or breach of
any representation or warranty if such inaccuracy or breach is
disclosed by Seller pursuant to and in accordance with Sections 5.3
and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable efforts to
give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment
of Buyer consistent with its customary risk management practices,
appear likely to give rise to a claim against Buyer that is likely to
involve one or more insurance policies of Buyer. Any such notice shall
be given in good faith by Buyer without regard to the possibility of
indemnification payments by Seller under this Section 7.4, and shall
be processed by Buyer in good faith and in a manner consistent with
its risk management practices involving claims for which no third
party contractual indemnification is available. Buyer agrees that (i)
if it is entitled to receive payment from Seller for Damages arising
under or pursuant to a breach of the representation and warranty set
forth in Section 3.10, and (ii) if Buyer has obtained title insurance
which may cover the claim or matter giving rise to such Damages, then
(iii) such title insurance shall be primary coverage and Buyer will
make a claim under the title insurance if such claim can be made in
good faith before enforcing its right to receive payment from Seller.
Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an Indemnified
Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other
similar payment with respect to the Damages for which it received such
indemnity payment (including insurance proceeds and other payments
pursuant to Section 7.4.2(i)(A) and a tax benefit pursuant to Section
7.4.2(i)(B)) (the "Recovery"), such Indemnified Party shall promptly
pay to the Indemnifying Party an amount equal to the amount of such
Recovery, less any expense incurred by such Indemnified Party (or its
Affiliates) in connection with such Recovery, but in no event shall
any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this Section
7.4 involving the claim of any third party, the Indemnified Party
shall cooperate fully (and shall cause its Affiliates to cooperate
fully) with the Indemnifying Party in the defense of any such claim
under this Section 7.4. Without limiting the generality of the
foregoing, the Indemnified Party shall furnish the Indemnifying Party
with such documentary or other evidence as is then in its or any of
its Affiliates' possession as may reasonably be requested by the
Indemnifying Party for the purpose of defending against any such
claim. Whether or not the Indemnifying Party chooses to defend or
prosecute any claim involving a third party, all the parties hereto
shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as
may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN
63
<PAGE>
Arizona
THIS AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION
HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR
CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets or the
Business to Buyer. In addition, Seller will execute such documents and financing
statements as Buyer may reasonably request from time to time to evidence
transfer of the Acquired Assets to Buyer in accordance with this Agreement,
including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing of
any registration statement or periodic report of Buyer or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall provide
Buyer (a) by April 30, 2000 or within 120 days after Buyer's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly (and in
any event no later than five (5) Business Days following receipt) deliver all
such payments with respect to accounts receivable from customers of the Business
received on and after the Closing Date (including but not limited to negotiable
instruments tendered in payment of accounts receivable assigned to Buyer
hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
64
<PAGE>
Arizona
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have participated
jointly in the negotiation and drafting of this Agreement and the Transaction
Documents. In the event any ambiguity or question of intent or interpretation
arises, this Agreement and the Transaction Documents shall be construed as if
drafted jointly by Parent, Buyer and the Seller Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
65
<PAGE>
Arizona
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Arizona-American Water Company
7500 East McDonald Drive
Suite 200-A
Scottsdale, AZ 85250
Fax: (480) 483-8314
Attention: Corporation Counsel
With a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
66
<PAGE>
Arizona
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto; provided that Seller
may assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the transactions contemplated hereby
as a like-kind exchange of property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Disclosure of any fact or item in any
Schedule referenced by a particular paragraph or Section in this Agreement
shall, should the existence of the fact or item or its contents be clearly
related to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any dispute,
controversy or claim between the parties relating to, arising out of or in
connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
67
<PAGE>
Arizona
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to
the discretion of the representatives. Upon agreement, the
representatives may utilize other alternative dispute resolution
procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for
purposes of these negotiations shall be treated as confidential
information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties
shall not be admissible in the arbitration described below, or in any
lawsuit. Documents identified in or provided with such communications,
which are not prepared for purposes of the negotiations, are not so
exempted and may, if otherwise admissible, be admitted in the
arbitration.
(b) If negotiations between the representatives of the parties do
not resolve the Dispute within 60 days of the initial written request,
the Dispute shall be submitted to binding arbitration by a single
arbitrator pursuant to the Commercial Arbitration Rules, as then
amended and in effect, of the American Arbitration Association (the
"Rules"); provided, however, that at the election of either party, the
arbitration shall take place before three (3) arbitrators, one
arbitrator being selected by Parent, one arbitrator being selected by
Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by
the other two arbitrators. Either party may demand such arbitration in
accordance with the procedures set out in the Rules. The parties
hereto shall use reasonable efforts to coordinate any arbitration
commenced under this Agreement with any arbitration on the same or
similar issues commenced under any of the Related Purchase Agreements
so that the resolution of the arbitration under this Agreement and the
similar issues under the Related Purchase Agreements can be resolved
as expeditiously and efficiently as reasonably practicable. Reasonable
efforts shall include use of a common arbitrator or panel of
arbitrators where practicable. The arbitration shall take place in
Newark, New Jersey. The arbitration hearing shall be commenced within
60 days of such party's demand for arbitration. The arbitrator(s)
shall have the power to and will instruct each party to produce
evidence through discovery (i) that is reasonably requested by the
other party to the arbitration in order to prepare and substantiate
its case and (ii) the production of which will not materially delay
the expeditious resolution of the dispute being arbitrated; each party
hereto agrees to be bound by any such discovery order. The
arbitrator(s) shall control the scheduling (so as to process the
matter expeditiously) and any discovery. The parties may submit
written briefs. At the arbitration hearing, each party may make
written and oral presentations to the arbitrator(s), present testimony
and written evidence and examine witnesses. No party shall be eligible
to receive, and the arbitrator(s) shall not have the authority to
award, exemplary or punitive damages. The arbitrator(s) shall rule on
the Dispute by issuing a written opinion within 30 days after the
close of hearings. The arbitrators' majority decision shall be binding
and final. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in submitting
and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines
that the position taken in the Dispute by the non-prevailing party
taken as a whole is unreasonable, the arbitrator(s) may order the
non-prevailing party to bear such fees and
68
<PAGE>
Arizona
expenses, and reimburse the prevailing party for all or such portion of its
reasonable costs and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 8.6 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended or should be construed to confer upon or give to any Person other than
the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the other Transaction Documents, and the Confidentiality Agreement dated August
2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (i) extend the
time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in representations and warranties by the other party;
(iii) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
69
<PAGE>
Arizona
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF THE
SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR
REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR PREDICTIONS
OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS THAT HAVE
BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings under any
tax bulk sales provisions with respect to the transactions contemplated by this
Agreement.
70
<PAGE>
Arizona
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
--------------------------------------------------
Robert J. DeSantis, Chief
Financial Officer, Vice President
and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS CONSUMER SERVICES, INC.
CITIZENS RESOURCES COMPANY
CITIZENS WATER RESOURCES COMPANY OF ARIZONA
CITIZENS WATER SERVICES COMPANY OF ARIZONA
HAVASU WATER COMPANY, INC.
SUN CITY SEWER COMPANY
SUN CITY WATER COMPANY
SUN CITY WEST UTILITIES COMPANY
TUBAC VALLEY WATER COMPANY, INC.
CITIZENS PUBLIC WORKS SERVICE COMPANY OF ARIZONA
By: Robert J. DeSantis
--------------------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett, Jr.
--------------------------------------------------
Joseph F. Hartnett, Jr., Treasurer
ARIZONA-AMERICAN WATER COMPANY
By: Theodore Jones, Jr.
--------------------------------------------------
Theodore Jones, Jr., President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by Arizona-American Water Compamy, an Arizona corporation ("Transferee"), in
favor of Citizens Utilities Company, a Delaware corporation ("citizens"), and
each of the wholly-owned subsidiaries of Citizens named on the signature page
hereof (collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS CONSUMER SERVICES, INC.
CITIZENS RESOURCES COMPANY
CITIZENS WATER RESOURCES COMPANY OF ARIZONA
CITIZENS WATER SERVICES COMPANY OF ARIZONA
HAVASU WATER COMPANY, INC.
SUN CITY SEWER COMPANY
SUN CITY WATER COMPANY
SUN CITY WEST UTILITIES COMPANY
TUBAC VALLEY WATER COMPANY, INC.
CITIZENS PUBLIC WORKS SERVICE COMPANY OF ARIZONA
By:________________________________________________
Name:
Title:
TRANSFEREE:
ARIZONA-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
__________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
Arizona-American Water Company, an Arizona corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS CONSUMER SERVICES, INC.
CITIZENS RESOURCES COMPANY
CITIZENS WATER RESOURCES COMPANY OF ARIZONA
CITIZENS WATER SERVICES COMPANY OF ARIZONA
HAVASU WATER COMPANY, INC.
SUN CITY SEWER COMPANY
SUN CITY WATER COMPANY
SUN CITY WEST UTILITIES COMPANY
TUBAC VALLEY WATER COMPANY, INC.
CITIZENS PUBLIC WORKS SERVICE COMPANY OF ARIZONA
By:________________________________________________
Name:
Title:
TRANSFEREE:
ARIZONA-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT C
______________, 2000
The Industrial Development Authority
of the County of Maricopa
Attention: President
c/o Kutak Rock
3300 North Central, 16th Floor
Phoenix, AZ 85012-2516
Ladies and Gentlemen:
Please be advised that the undersigned and Citizens Utilities Company have
entered into an Asset Purchase Agreement dated as of ___, 1999, pursuant to
which Citizens Utilities Company has sold and the undersigned has purchased the
water utility system assets of Citizens Utilities Company and its subsidiaries,
including Sun City Water Company. Certain of such Sun City Water Company assets
(collectively, the "Facilities") were financed with the proceeds of tax-exempt
industrial development revenue bonds (as identified on Schedule I attached
hereto, collectively, the "Bonds") issued by The Industrial Development
Authority of the County of Maricopa (the "Authority"). The Authority and
Citizens Utilities Company entered into a Loan Agreement with respect to each
issue of Bonds. Section 6.1(c) of each such Loan Agreement provides, as a
condition to the sale by Citizens Utilities Company of its Bond-financed
Facilities, that:
Any purchaser or lessee shall agree in writing with [the Authority] to
operate the Facilities purchased or leased as a "project" as defined
in [Title 35, Chapter 5, Arizona Revised Statutes, as amended (the
"Act")] while any of the Bonds are outstanding.
Section 6.1(c) of the Loan Agreement (the "Series 1995 Loan Agreement") for the
Series 1995 bond issue (the "Series 1995 Bonds") identified on Schedule I hereto
provides, in addition, that:
Further, any purchaser or lessee shall agree to be bound by all
covenants and agreements in [the Series 1995] Agreement related to the
ownership, maintenance and use of the Facilities so long as any of the
Bonds remain outstanding.
<PAGE>
______________, 2000
Page 2
The undersigned, as purchaser of the Facilities identified in the
respective Loan Agreements and for good and sufficient consideration, the
receipt of which it hereby acknowledges, hereby agrees with the Authority (i)
that the undersigned will operate the Facilities as a "project" as defined by
the Act while any of the Bonds are outstanding, and (ii) the undersigned agrees
to be bound by all covenants and agreements in the Series 1995 Loan Agreement
related to the ownership, maintenance and use of the Facilities so long as any
of the Series 1995 Bonds remain outstanding.
Very truly yours,
[PURCHASER]
By _________________________________
Name________________________________
Title_______________________________
Accepted as of this ____ day of
_______________, 2000.
THE INDUSTRIAL DEVELOPMENT
AUTHORITY OF THE COUNTY
OF MARICOPA
By _________________________________
Chairman
ljk
cc: Citizens Utilities Company
Kutak Rock
2
<PAGE>
SCHEDULE I
THE INDUSTRIAL DEVELOPMENT AUTHORITY OF
THE COUNTY OF MARICOPA
$3,150,000
The Industrial Development Authority of the County of Maricopa
Industrial Development Revenue Bonds
1985 Series
(Citizens Utilities Company Project)
$10,635,000
The Industrial Development Authority of the County of Maricopa
Industrial Development Revenue Bonds
1988 Series
(Citizens Utilities Company Project)
$7,000,000
The Industrial Development Authority of the County of Maricopa
Industrial Development Revenue Bonds
1991 Series
(Citizens Utilities Company Project)
$13,550,000
The Industrial Development Authority of the County of Maricopa
Industrial Development Revenue Bonds
Series 1995
(Citizens Utilities Company Project)
<PAGE>
EXHIBIT D
================================================================================
RETAINED IDRB OBLIGATIONS AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES,
as Seller
and
AMERICAN WATER WORKS COMPANY, INC.
AND
CERTAIN OF ITS AFFILIATES,
as Buyer
Dated as of ___________________, 2000
<PAGE>
RETAINED IDRB OBLIGATIONS AGREEMENT
THIS RETAINED IDRB OBLIGATIONS AGREEMENT (this "Agreement") is made as of
the ____ day of ____________________, 2000, by and between CITIZENS UTILITIES
COMPANY, a Delaware corporation, and each of the wholly-owned subsidiaries of
Citizens Utilities Company named on the signature page hereof (collectively,
"Seller"), and AMERICAN WATER WORKS COMPANY, INC., a Delaware corporation
("Parent"), and each of the subsidiaries of Parent named on the signature page
hereof (collectively with Parent, "Buyer"). Capitalized terms used herein shall
have the meanings ascribed to them in Article I, unless otherwise provided.
W I T N E S S E T H :
WHEREAS, Seller and Buyer have entered into that certain Asset Purchase
Agreement dated as of October , 1999 (the "Purchase Agreement"), pursuant to
which as of the date hereof Seller has sold and Buyer has purchased the Assets
(as hereinafter defined); and
WHEREAS, such Assets include assets financed through the issuance by
[ISSUER] (the "Issuer") of certain Retained IDRB Indebtedness (as hereinafter
defined and as identified by Schedule I attached hereto); and
WHEREAS, notwithstanding such sale of the Assets, Seller remains primarily
liable for the payment and other obligations arising under the respective
financing agreements identified by Schedule I attached hereto relating to the
Retained IDRB Indebtedness (collectively, the "Loan Agreements"); and
WHEREAS, Buyer henceforth will have legal title to and entire operational
control of the Assets and Seller will have no further rights to enter, possess
or otherwise operate, control or maintain the Assets; and
WHEREAS, Seller's primary liability will terminate upon the respective
termination of the Loan Agreements; and
WHEREAS, pursuant to Section 5.24(a)(ii) of the Purchase Agreement, Buyer
has agreed "at Closing to execute and deliver to Seller an agreement . . . with
respect to each issuer of Bonds relating to Retained IDRB Documents that will be
outstanding after the Closing Date;" and
WHEREAS, Seller and Buyer intend that this Agreement is and shall be that
agreement required to be delivered pursuant to Section 5.24(a)(ii) of the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1. Certain Defined Terms. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Assets" means, collectively, all of the assets, property and interests of
every type and description, real, personal or mixed, tangible and intangible,
owned by Seller (as defined in the Purchase Agreement) and relating to the
Business (as defined in the Purchase Agreement), other than the "Excluded
Assets" (as defined in the Purchase Agreement).
"IDRB Documents" means, collectively, the Loan Agreements, the Tax
Regulatory Agreements, Tax Representations and Project Certificates to which
Seller is a party or by which any of the Assets is bound, and relating to the
Retained IDRB Indebtedness.
"IRS" means the Internal Revenue Service or any successor agency.
"Retained IDRB Indebtedness" means, collectively, the indebtedness of
Seller owing to the Issuer of the Bonds (as defined by each Loan Agreement and
as described further on Schedule I attached hereto) and arising under the Loan
Agreements included among the IDRB Documents.
Section 2. Receipt and Review of IDRB Documents. Buyer hereby
acknowledges that it has received the IDRB Documents and has had the opportunity
to review the agreements, obligations and covenants of Seller set forth in such
IDRB Documents and related Indentures of Trust and certain No Arbitrage
Certificates, including, in particular, those agreements, obligations,
representations, warranties and covenants relating to the ownership, operation,
use and maintenance of the Assets, to the preservation of the tax-exempt status
of the Retained IDRB Indebtedness and to the indemnification by Seller of the
Issuer.
Section 3. Representations Regarding Assets. Seller hereby represents
that it has performed all duties and obligations of "Company" under the IDRB
Documents relating to the ownership, operation, use and maintenance of the
Assets financed with the proceeds of the Retained IDRB Indebtedness and that the
representations and warranties of "Company" relating to the ownership,
operation, use and maintenance of such Assets under the IDRB Documents remain
true and correct.
Section 4. Covenant Regarding Tax Exemption. Buyer represents, warrants,
covenants and agrees that it is in the business of providing water utility and
sewage services, and that, so long as any Retained IDRB Indebtedness is
outstanding, it will cause the Assets that were acquired, constructed, improved
or equipped with the proceeds of such Retained IDRB Indebtedness to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for
2
<PAGE>
the furnishing or sale of water have been established or approved by a State or
political subdivision thereof, by an agency or instrumentality of the United
States or by a public service or public utility commission or other similar body
of any State or political subdivision thereof) or sewage facilities within the
meaning of Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as
amended, or Section 142(a)(5) of the Internal Revenue Code of 1986, as amended,
as the case may be. Buyer further represents, warrants, covenants and agrees
that it will not violate or otherwise contravene any representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on October __, 1999, which are applicable to Buyer's ownership of the
Assets, other than (x) the sale pursuant to the Asset Purchase Agreement of the
Assets to Buyer, (y) subject to the two next succeeding sentences, any such
covenants relating to the application of the proceeds of any eminent domain
proceeding or casualty loss and (z) insofar as they are not integral to Buyer's
use and operation of the Assets, the representations, warranties, covenants or
other agreements or obligations relating to the tax-exempt status of the
interest on such Retained IDRB Indebtedness. Buyer shall notify Seller in
writing promptly upon Buyer receiving notice of any threatened or impending
eminent domain proceeding against the Assets or of any material casualty loss of
Assets financed with Retained IDRB Indebtedness, shall cooperate in good faith
with Seller in Seller's efforts to ascertain the consequences of any such
eminent domain proceeding or casualty loss for the tax exemption of the Retained
IDRB Indebtedness, and shall not take any action with respect to the proceeds of
an eminent domain proceeding or insurance claim without express written consent
of Seller, which consent will not be withheld if Buyer is in receipt of a "no
adverse effect" opinion of nationally recognized bond counsel. Notwithstanding
the next preceding sentence, as between Seller and Buyer, Seller, without
recourse to Buyer, shall be responsible for any payments with respect to the
Retained IDRB Indebtedness arising as a result of an eminent domain proceeding
or casualty loss occurring on or after the date of this Agreement, and Buyer
shall be entitled to retain any eminent domain or insurance proceeds. Buyer
acknowledges and agrees that Seller's bond counsel may rely on Buyer's
representations, warranties and covenants as hereinabove provided for the
purpose of rendering legal opinions, as required by the IDRB Documents as a
precondition to the sale by Seller of such Assets, to the effect that the sale
of such Assets will not have a material adverse effect on the exclusion from
gross income of the interest on the Retained IDRB Indebtedness. Nothing in this
Agreement is intended to nor shall it be interpreted as (i) an assignment to,
and assumption by, Buyer of any of the IDRB Documents, or (ii) as an undertaking
or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other
payment obligations pursuant to the IDRB Documents.
Seller represents, warrants, covenants and agrees that it will not refund
or otherwise refinance with the proceeds of any obligation the interest on which
is excluded from gross income for federal income tax purposes any of the
Retained IDRB Indebtedness without Buyer's express written consent, which
consent Buyer shall provide unless Buyer reasonably concludes that such
refunding or refinancing would affect Buyer's use and operation of the related
Assets.
Section 5. Indemnification of Seller by Buyer. Buyer shall and hereby
agrees to indemnify and save harmless Seller against and from all claims by or
on behalf of one or more of the Issuer, the trustee or trustees (collectively,
the "Trustees") identified in the IDRB Documents, any actual or beneficial owner
of Retained IDRB Indebtedness or any other person, firm, corporation or other
legal entity arising from the conduct or management of, or from any work or
3
<PAGE>
thing done on, the Assets for the period commencing on the date hereof and
thereafter during the remaining terms of the IDRB Documents, including, without
limitation, (i) any condition of the Assets financed with the proceeds of the
Retained IDRB Indebtedness, (ii) any breach or default on the part of Buyer in
the performance of any of its obligations under this Agreement, including the
obligation to preserve the exclusion from gross income of the interest on the
Bonds for federal or state (as applicable) income tax purposes, (iii) any act or
negligence of Buyer or of any of its agents, contractors, servants, employees or
licensees or (iv) any act or negligence of any assignee, lessee or successor of
Buyer, or of any agents, contractors, servants, employees or licensees of any
assignee, lessee or successor of Buyer. Buyer shall indemnify and save harmless
Seller from any such claim arising as aforesaid, or in connection with any
action or proceeding brought thereon, and, upon notice from Seller, Buyer shall
defend it in any such action or proceeding. Any claim for indemnity under this
Agreement shall follow the procedures outlined in Sections 7.4.2(a) through (c),
inclusive, of the Asset Purchase Agreement.
Section 6. Term of Agreement. This Agreement shall be coterminous with
the term of the IDRB Documents, provided that the obligations of Buyer under
Section 5 hereof shall survive the termination of this Agreement.
Section 7. Successor Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 8. Governing Law. The validity, performance, and enforcement of
this Agreement, unless expressly provided to the contrary, shall be governed by
the laws of the State of Delaware without giving effect to the principles of
conflicts of law of such state.
Section 9. Dispute Resolution. Except as otherwise provided in this
Section 9, any dispute, controversy or claim between the parties relating to,
arising out of or in connection with this Agreement (or any subsequent
agreements or amendments thereto), including as to its existence,
enforceability, validity, interpretation, performance or breach or as to
indemnification or damages, including claims in tort and audit, regulatory or
other actions initiated by or on behalf of the IRS with respect to the Retained
IDRB Indebtedness, whether arising before or after the termination of this
Agreement (any such dispute, controversy or claim being herein referred to as a
"Dispute"), shall be settled without litigation and only by use of the following
alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint
a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to
the discretion of the representatives. Upon agreement, the
representatives may utilize other alternative dispute resolution
procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for
purposes of these negotiations shall be treated as confidential
information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties
shall not be admissible in the arbitration described below, or in any
lawsuit. Documents identified in or provided with such
communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
4
<PAGE>
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration Rules, as
then amended and in effect, of the American Arbitration Association
(the "Rules"); provided, however, that at the election of either
party, the arbitration shall take place before three (3) arbitrators,
one arbitrator being selected by the Parent, one arbitrator being
selected by Citizens Utilities Company and the third arbitrator,
knowledgeable with respect to the general subject matter of the
dispute, controversy or claim, including, if applicable, the federal
income tax laws applicable to obligations the interest on which is
excluded from gross income for federal income tax purposes, being
selected by the other two arbitrators. Either party may demand such
arbitration in accordance with the procedures set out in the Rules.
The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and
will instruct each party to produce the discovery of documents (i)
that are reasonably requested by the other party to the arbitration in
order to prepare and substantiate its case and (ii) the production of
which will not materially delay the expeditious resolution of the
dispute being arbitrated; each party hereto agrees to be bound by any
such discovery order. The arbitrator(s) shall control the scheduling
(so as to process the matter expeditiously) and any discovery. The
parties may submit written briefs. At the arbitration hearing, each
party may make written and oral presentations to the arbitrator(s),
present testimony and written evidence and examine witnesses. No
party shall be eligible to receive, and the arbitrator(s) shall not
have the authority to award, exemplary or punitive damages. The
arbitrator(s) shall rule on the Dispute by issuing a written opinion
within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to
the arbitrator(s); provided, however, that if the arbitrator(s)
determines that the position taken in the Dispute by the nonprevailing
party taken as a whole is unreasonable, the arbitrator(s) may order
the nonprevailing party to bear such fees and expenses, and reimburse
the prevailing party for all or such portion of its reasonable costs
and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the
circumstances. Each party to the arbitration shall pay one-half of
the fees and expenses of the arbitrator(s) and the American
Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 9 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceeding under this Section 9.
Section 10. Cooperation. Each of the parties hereto agrees to use its
reasonable best efforts to take or cause to be taken all action, and to do or
cause to be done all things necessary,
5
<PAGE>
proper or advisable under applicable laws, regulations or otherwise, to
consummate and to make effective the transactions contemplated by this
Agreement, including, without limitation, the timely performance of all actions
and things contemplated by this Agreement to be taken or done by each of the
parties hereto.
Section 11. Construction of Agreement. The terms and provisions of this
Agreement represent the results of negotiations between Buyer and Seller, each
of which has been represented by counsel of its own choosing, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary meanings,
and Buyer and Seller hereby waive the application in connection with the
interpretation and construction of this Agreement of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
Section 12. Publicity. No party hereto shall issue, make or cause the
publication of any press release or other announcement with respect to this
Agreement or the transactions contemplated hereby, or otherwise make any
disclosures relating thereto, without the consent of the other party, such
consent not to be unreasonably withheld or delayed; provided, however, that such
consent shall not be required in the case of any notices or other information
provided to the Trustees and the Issuer or otherwise where such release or
announcement is required by applicable law or the rules or regulations of a
securities exchange, in which event the party so required to issue such release
or announcement shall endeavor, wherever possible, to furnish an advance copy of
the proposed release to the other party.
Section 13. Waiver. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of waiver of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
Section 14. Parties in Interest. This Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their successors and permitted assigns, any
rights or remedies hereunder.
Section 15 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 16. Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 17 Entire Agreement. This Agreement and schedules hereto and the
documents specifically referred to herein (including the Purchase Agreement)
constitute the entire agreement, understanding, representations and warranties
of the parties hereto, and supersede all prior agreements, both written and
oral, between Buyer and Seller.
6
<PAGE>
Section 18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 19. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CITIZENS UTILITIES COMPANY
By ___________________________________
Name _________________________________
Title ________________________________
AMERICAN WATER WORKS COMPANY, INC.
By ___________________________________
Name _________________________________
Title ________________________________
[AWW SUBSIDIARY]
By____________________________________
Name__________________________________
Title_________________________________
7
<PAGE>
[Signature page to Retained IDRB Obligations Agreement between
Citizens Utilities Company and American Water Works Company, Inc., dated as of
____________________, 2000.]
8
<PAGE>
SCHEDULE I
Retained IDRB Indebtedness Loan Agreements
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
<PAGE>
EXHIBIT 10(r)
California
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
CALIFORNIA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
<PAGE>
California
TABLE OF CONTENTS Page
ARTICLE 1 DEFINITIONS ....................................................... 1
1.1 Certain Definitions................................................ 1
ARTICLE 2 THE TRANSACTION....................................................10
2.1 Sale and Purchase of Assets........................................10
2.2 Excluded Assets....................................................10
2.3 Assumption of Certain Liabilities..................................11
2.4 Consent of Third Parties...........................................14
2.5 Closing............................................................14
2.6 Purchase Price.....................................................15
2.6.1 Purchase Price..............................................15
2.6.2 Payment of Initial Cash Payment.............................15
2.6.3 Estimated Closing Statement.................................15
2.6.4 Post-Closing Adjustment to Purchase Price...................16
2.6.5 Adjustment for Certain Liabilities..........................17
2.6.6 Additional Adjustment to the Purchase Price.................18
2.7 Deliveries and Proceedings at Closing..............................18
2.7.1 Deliveries to Buyer.........................................18
2.7.2 Deliveries By Buyer to the Seller Parties...................19
2.8 Allocation of Consideration........................................19
2.9 Prorations ........................................................19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER..........................20
3.1 Qualification; No Interest in Other Entities.......................20
3.2 Authorization and Enforceability...................................20
3.3 No Violation of Laws or Agreements.................................21
3.4 Financial Statements...............................................21
3.5 No Changes.........................................................22
3.6 Contracts..........................................................23
3.7 Permits and Compliance With Laws Generally.........................23
3.8 Environmental Matters..............................................24
3.9 Consents...........................................................26
3.10 Title..............................................................26
3.11 Real Estate........................................................26
3.12 Taxes..............................................................27
3.13 Patents and Intellectual Property Rights...........................27
3.14 Accounts Receivable................................................27
3.15 Labor Relations....................................................27
3.16 Employee Benefit Plans.............................................28
3.17 Absence of Undisclosed Liabilities.................................29
3.18 No Pending Litigation or Proceedings...............................30
i
<PAGE>
California
3.19 Supply of Utilities................................................30
3.20 Insurance..........................................................30
3.21 Relationship with Customers........................................30
3.22 WARN Act...........................................................31
3.23 Condition of Assets................................................31
3.24 Brokerage..........................................................31
3.25 All Assets.........................................................31
3.26 Year 2000 Matters..................................................31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.................32
4.1 Organization and Good Standing.....................................32
4.2 Authorization and Enforceability...................................32
4.3 No Violation of Laws or Agreements.................................33
4.4 Consents...........................................................33
4.5 Financing..........................................................33
4.6 Brokerage..........................................................34
4.7 Insurance..........................................................34
ARTICLE 5 ADDITIONAL COVENANTS...............................................34
5.1 Conduct of Business................................................34
5.2 Negotiations.......................................................35
5.3 Disclosure Schedules...............................................36
5.4 Mutual Covenants...................................................36
5.5 Filings and Authorizations.........................................37
5.6 Public Announcement................................................37
5.7 Further Assurances.................................................38
5.8 Cooperation........................................................38
5.9 Employees; Employee Benefits.......................................39
5.10 Employee Pension Plan..............................................42
5.11 Employee Savings Plan..............................................42
5.12 Welfare Benefits...................................................43
5.13 Taxes..............................................................44
5.14 Intentionally Omitted..............................................45
5.15 Citizens' Guarantees and Surety Instruments........................45
5.16 Assumption of Seller Debt..........................................45
5.17 Schedule of Permits................................................45
5.18 Title Information..................................................45
5.19 Transaction with Related Parties...................................45
5.20 Approval by Citizens...............................................46
5.21 Supplemental Information...........................................46
5.22 Non-Competition....................................................46
5.23 Intentionally Omitted..............................................46
5.24 Intentionally Omitted..............................................46
ii
<PAGE>
California
5.25 Cooperation with Respect to Like-Kind Exchange.....................46
5.26 Transition Plan....................................................47
5.27 Procedures regarding Refunds of Advances...........................47
5.28 Title Insurance....................................................47
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION..................................48
6.1 Conditions Precedent to Obligations of Buyer and Parent............48
6.1.1 Performance of Agreements; Representations and
Warranties..................................................48
6.1.2 Opinion of Counsel..........................................49
6.1.3 HSR Act. ...................................................49
6.1.4 Required PUC and Other Consents.............................49
6.1.5 Injunction; Litigation......................................49
6.1.6 Documents...................................................49
6.1.7 Related Closings............................................49
6.2 Conditions Precedent to Obligations of Seller Parties..............50
6.2.1 Performance of Agreements; Representations and
Warranties..................................................50
6.2.2 Opinion of Counsel..........................................50
6.2.3 HSR Act.....................................................50
6.2.4 Required PUC and Other Consents.............................50
6.2.5 Injunction; Litigation......................................51
6.2.6 Documents...................................................51
6.2.7 Related Closings............................................51
6.3 Termination........................................................51
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS.......................................52
7.1 Certain Taxes and Expenses.........................................52
7.2 Maintenance of Books and Records...................................52
7.3 Survival...........................................................52
7.4 Indemnification....................................................55
7.4.1 General Indemnification Obligations.........................55
7.4.2 General Indemnification Procedures..........................56
7.4.3 Indemnification for Negligence..............................59
7.5 UCC Matters........................................................59
7.6 Financial Statements...............................................59
7.7 Collection of Receivables..........................................60
ARTICLE 8 MISCELLANEOUS......................................................60
8.1 Construction.......................................................60
8.2 Notices............................................................61
8.3 Successors and Assigns.............................................62
8.4 Exhibits and Schedules.............................................62
8.5 Governing Law......................................................63
8.6 Dispute Resolution.................................................63
iii
<PAGE>
California
8.7 Severability.......................................................64
8.8 No Third Party Beneficiaries.......................................64
8.9 Entire Agreement...................................................64
8.10 Amendment and Waiver...............................................65
8.11 Counterparts.......................................................65
8.12 Headings...........................................................65
8.13 Definitions........................................................65
8.14 No Implied Representation..........................................65
8.15 Construction of Certain Provisions.................................66
8.16 Bulk Sales.........................................................66
iv
<PAGE>
California
List of Schedules
Schedule 1.1.1(a) . . . . . . . . . . . . . . . . . . . . . . . . .Real Estate
Schedule 1.1.10 . . . . . . . . . . . . . . . . . . . . . Assumed Indebtedness
Schedule 2.2.12 . . . . . . . . . . . . . . . . . . . . . . . Excluded Assets
Schedule 2.6 . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Price
Schedule 3.3 . . . . . . . . . . . . . . . .No Violation of Laws or Agreements
Schedule 3.4 . . . . . . . . . . . . . . . . . . . . . .Financial Statements
Schedule 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . No Changes
Schedule 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts
Schedule 3.7 . . . . . . . . . . . Permits and Compliance with Laws Generally
Schedule 3.8 . . . . . . . . . . . . . . . Environmental Matters - Generally
Schedule 3.8.10 . . . . . . . . . . . . . . . Compliance with Water Standards
Schedule 3.8.11 . . . . . . . . . . . . . . . . . . . . . . . Deed Restriction
Schedule 3.9 . . . . . . . . . . . . . . . . . . . . Seller Parties' Consents
Schedule 3.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title
Schedule 3.11 . . . . . . . . . . . . . . . . . . . . Real Estate Proceedings
Schedule 3.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
Schedule 3.15 . . . . . . . . . . . . . . . . . . . . . . . . Labor Relations
Schedule 3.16.1 . . . . . . . . . . . . . . . . . . . Employee Benefit Plans
Schedule 3.16.4 . . . . . . . . . . . . . Employee Benefit Plans - Compliance
Schedule 3.16.9 . . . . . . . Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 . . . . . . . . . . . . . . Absence of Undisclosed Liabilities
Schedule 3.18 . . . . . . . . . . . . . No Pending Litigation or Proceedings
Schedule 3.19 . . . . . . . . . . . . . . . . . . . . . . .Supply of Utilities
Schedule 3.20 . . . . . . . . . . . . . . . . . . .. . . . .Seller's Insurance
Schedule 3.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . WARN Act
Schedule 3.23 . . . . . . . . . . .. . . . . . . . . . . . Condition of Assets
Schedule 3.25 . . . . . . . . . . . . . . . .. . . . . . . . . . . All Assets
Schedule 3.27 . . . . . . . . . . . . . . . .. . . . . . . . Product Liability
Schedule 4.7 . . . . . . . . . . . . . . . . . . .. . . . . Buyer's Insurance
Schedule 5.1 . . . . . . . . . . . . . . . . . . . . . . . Conduct of Business
Schedule 5.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .Employees
Schedule 5.9.2 . . . . . . . . . . . . . . . . Collective Bargaining Agreements
Schedule 5.12 . . . . . . . . . . . . . . . . . . . . . . . Former Employees
Schedule 5.15 . . . . . . . . . . . . . . . . . . . . . . Citizens' Guarantees
Schedule 5.16 . . . . . . . . . . . . . . . . . . . . . . Schedule of Permits
Schedule 6.1.7 . . . . . . . . . . . . . . . . . . Related Purchase Agreements
v
<PAGE>
California
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Intentionally Omitted
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
vi
<PAGE>
California
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October 15,
1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and California-American Water Company, a California corporation
("Buyer").
Background
A. Citizens Utilities Company of California is a public utility engaged,
among other things, in the business of storing, supplying, distributing and
selling water to the public, wholesale water transmission, and related services
and activities in the State of California (the "Business").
B. Parent is a holding company which desires to cause the Buyer to purchase
substantially all of the assets, properties and rights of the Seller Parties
relating to the Business, and Seller desires to sell, and to cause the sale of,
such assets, properties and rights, on the terms and subject to the conditions
set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each Seller
Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in the Business as a going concern of
every kind, nature and description existing on the Closing Date, wherever such
assets, properties and rights are located and whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, and whether or
not any of such assets, properties and rights have any value for accounting
purposes or are carried or reflected on or specifically referred to in Seller's
books or financial statements, including all of the assets, properties and
rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a), together with
all fixtures, fittings, buildings, structures and other improvements
erected thereon, and easements,
<PAGE>
California
rights of way, water lines, rights of use, licenses, railroad crossing
agreements, hereditaments, tenements, privileges and other appurtenances
thereto or otherwise exclusively related to the Business (such as
appurtenant rights in and to public streets) (the "Real Estate");
(b) to the extent not included in clause (a) above, all water tanks,
reservoirs, water works, plant and systems, purification and filtration
systems, pumping stations, pumps, wells, mains, water pipes, hydrants,
equipment, machinery, vehicles, tools, dies, spare parts, materials, water
supplies, fixtures and improvements, construction in progress, jigs, molds,
patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to
Section 2.4, all of Seller's water appropriation and flowage rights to the
extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued utility
revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all unamortized debt expense related to the Assumed Indebtedness,
deferred capital costs, and other deferred charges (excluding deferred
taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and sublicenses
granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments,
agreements and instruments relating to the sale of any assets, services,
properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and
other agreements relating exclusively to the purchase of any assets,
services, properties, materials, or products for the Business; (iii) all
leases of Real Estate exclusively related to the Business; (iv) all other
contracts, agreements and instruments related exclusively to the Business
(other than contracts, agreements and instruments included in the
definition of Real Estate or Permits); and (v) any such contracts,
agreements and other instruments referred to in clauses (i) - (iv)
inclusive, entered into between the date hereof and the Closing Date which
are consistent with the terms of this Agreement and are entered into in the
ordinary course of business consistent with past practice, and including in
the case of clauses (i) - (iv) all such contracts, agreements and
instruments more specifically listed or described in Schedule 3.6 (and
specifically including one Collective Bargaining Agreement to the extent
provided in Section 5.9.2, but specifically excluding any contract,
agreement and instrument listed or described on Schedule 2.2.12) (the
"Contracts");
2
<PAGE>
California
(h) subject to Section 2.4 hereof, franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances,
and other similar permits or rights obtained from any Authority relating
exclusively to the conduct of the Business and all pending applications
therefor (the "Permits");
(i) books, records, ledgers, files, documents (including originally
executed copies of written Contracts, to the extent available, and copies
to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials,
creative materials, advertising and promotional materials, studies,
reports, sales and purchase correspondence, books of account and records
relating to the Transferred Employees (to the extent such transfer is not
prohibited by law), photographs, records of plant operations and materials
used, quality control records and procedures, equipment maintenance
records, manuals and warranty information, research and development files,
data and laboratory books, inspection processes, in each case, whether in
hard copy or magnetic format, in each instance, to the extent exclusively
relating to the Business, the Acquired Assets or the Transferred Employees;
(j) all rights or choses in action arising out of occurrences before
or after the Closing Date and exclusively related to any of the Acquired
Assets, including third party warranties and guarantees and all related
claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller;
provided, however, that (notwithstanding the foregoing provisions of this
Section 1.1.1(j)), to the extent that Seller pays or discharges a liability
related to the Business or any of the Acquired Assets and related to such
right or chose in action (whether by reason of indemnification under this
Agreement or otherwise), Buyer will reassign or reconvey to Seller such
right or chose in action to the extent that such right or chose in action
relates to a recovery of amounts paid to Buyer; and
(k) all rights to insurance and condemnation proceeds (i) to the
extent relating to the damage, destruction, taking or other impairment of
the Acquired Assets which damage, destruction, taking or other impairment
occurs on or prior to the Closing but only to the extent that the proceeds
exceed the amount of the write-down of the net book value of such Acquired
Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment and (ii) to the extent they relate
to amounts paid by Buyer for Damages to the extent Buyer does not receive
payment pursuant to Section 7.4.1(a), but only to the extent Buyer is
entitled to indemnification by Seller pursuant to Sections 7.3 and 7.4.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section 2.6.4(a)
hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section 5.11.1
hereof.
3
<PAGE>
California
1.1.4 "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in Section
3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and obligations from
and after the Closing Date (except as set forth below) with respect to the loan
document listed as item I.L.1 of Schedule 3.6 with respect to the indebtedness
of Citizens Utilities Company of California owed to the State of California
Department of Water Resources (the "California Water Debt"), to the extent
assumed by Buyer. For purposes of clarity, except as set forth in the next
sentence below, "Assumed Indebtedness" shall not include any liability or
obligation to the extent accrued prior to the Closing Date or to the extent
arising out of or relating to an event, circumstance or occurrence prior to the
Closing Date. "Assumed Indebtedness" shall include the outstanding principal
amount and the accrued but unpaid interest owed by Seller on the debt
obligations set forth in the first sentence of this definition, if such debt
obligations are assumed by Buyer..
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section 2.3.2
hereof.
1.1.13 "Authority" means any federal, state, local or foreign governmental
or regulatory entity (or any department, agency, authority or political
subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
4
<PAGE>
California
1.1.16 "Benefit Plans" has the meaning set forth in Section 3.16.1 hereof.
1.1.17 Intentionally Omitted.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
1.1.19 "Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the Commonwealth of Pennsylvania are authorized
or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction hereof.
1.1.21 Intentionally Omitted.
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP or any firm
of independent public accountants hereafter designated by Buyer for purposes of
this Agreement.
1.1.23 Intentionally Omitted
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
1.1.27 "Citizens" has the meaning set forth in the introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.32 "Collective Bargaining Agreement" means the agreement identified as
such on Schedule 3.6 hereto.
1.1.33 "Competing Transaction" has the meaning set forth in Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section 1.1.1(g) hereof.
5
<PAGE>
California
1.1.35 "Control" with respect to any Person means the ownership, directly
or indirectly, of at least a majority of the voting power of each class of
capital stock of such Person entitled to vote in the election of directors of
such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1 hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced in Articles 3,
4 and 5 of this Agreement, as amended or supplemented pursuant to Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.40 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has the meaning set
forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included with any of the
Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section 2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.47 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
6
<PAGE>
California
1.1.51 "HSR Act" has the meaning set forth in Section 3.9 hereof.
1.1.52 Intentionally Omitted.
1.1.53 Intentionally Omitted.
1.1.54 "Indemnified Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.56 "Intellectual Property" means the trademarks, patents, trade names
and copyrights and applications therefor, inventions, trade secrets,
and confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens Water Resources
Statement of Net Assets - California, June 30, 1999, which is attached hereto as
Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Data" means June 30, 1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other encumbrance (including the filing of,
or agreement to give, any financing statement under the Uniform Commercial Code
or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) to the extent that it consists of strikes, work
stoppages, walk-outs, slow-downs or other business interruption at the
facilities in California that are part of the Acquired
7
<PAGE>
California
Assets, or (c) solely with respect to matters arising prior to Closing, to the
extent that either (i) Seller realizes the benefit of insurance maintained by
Citizens on or prior to the Closing Date and Buyer receives the cash proceeds of
such insurance to the extent required by Section 1.1.1(k), or (ii) Seller
arranges for Buyer to recover payments in respect of such occurrence or
condition from any other source (whether in a lump sum or stream of payments),
it being understood and agreed that a Material Adverse Effect may have occurred
California irrespective of such insurance recovery if the occurrence or
condition giving rise to such recovery also causes a non-monetary material
adverse change in or effect upon the Business or the Acquired Assets, taken as a
whole and taken together with the businesses and assets being acquired by Buyer
or Affiliates of Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and Deed of Trust
between BNY Western Trust Company (successor in interest to Wells Fargo Bank,
N.A.) and First Interstate Bank of California (as successor trustee to Marine
Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.67 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from time to time
during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section 2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section 1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
8
<PAGE>
California
1.1.74 "Related Purchase Agreements" as the meaning set forth in Section
6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section 3.8 hereof.
1.1.77 Intentionally Omitted.
1.1.78 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.79 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange Commission.
1.1.81 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.82 "Seller" and "Seller Parties" have the respective meaning set forth
in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign income, payroll,
withholding, excise, sales, use, personal property, use and occupancy, business
and occupation, mercantile, real estate, gross receipts, license, employment,
severance, stamp, premium, windfall profits, social security (or similar
unemployment), disability, transfer, registration, value added, alternative, or
add-on minimum, estimated, or capital stock and franchise and other tax of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
9
<PAGE>
California
1.1.89 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.91 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.92 "Third Party Claim" has the meaning set forth in Section 7.4(b)(i)
hereof.
1.1.93 "Transferred Accounts" has the meaning set forth in Section 5.11.2
hereof.
1.1.94 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.95 "Transferred Employees" has the meaning set forth in Section 5.9.2
hereof.
1.1.96 "Union Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.97 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.98 "WARN Act" means the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. section 2102-2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing referred to in Section 2.5 below, Citizens shall,
and shall cause the other Seller Parties to, sell, assign, transfer, deliver and
convey to Buyer, and Parent shall cause Buyer to purchase, the Acquired Assets
for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be excluded from
the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens' gas,
electric or communications businesses, the material items of which are described
on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank accounts.
10
<PAGE>
California
2.2.3 except as otherwise set forth herein, assets attributable or related
to any Benefit Plan;
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights to refunds of
Taxes payable with respect to the Business, assets, properties or operations of
any of the Seller Parties or any member of any affiliated group of which any of
them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and accounts
receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or Seller or any
of their Affiliates, except that Buyer shall assume the following specific
liabilities and obligations:
(a) the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned or
transferred to Buyer pursuant to this Agreement in accordance with the
respective terms thereof, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(c) the Assumed Indebtedness;
11
<PAGE>
California
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common law,
now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real Estate or into or from any
building, structure, pipeline or other facility at the Real Estate, or from
violation of any law relating to the foregoing, including without
limitation, any CERCLA or similar liability under any federal or state law
or regulation, except to the extent Buyer has given written notice of a
claim for indemnification pursuant to Sections 7.3 and 7.4 hereof prior to
the expiration of the claims period set forth in Section 7.3.2(a) or (b)
(and if Buyer has given written notice prior to the expiration of such
claims period, to the extent that such claim is not entitled to
indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to unperformed
service obligations, easement and right-of-way relocation obligations, and
construction work in progress, and all engineering and construction
required to complete scheduled construction and other capital projects for
the Business, in each case relating to the Business and outstanding on or
arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for the Transferred
Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to customer
deposits held by Seller on the Closing Date and relating to the Business;
and
(h) all liabilities and obligations imposed on Buyer by any PUC in
connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the
financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by Buyer pursuant to
Section 2.3.1 above are hereinafter referred to as the "Assumed Liabilities." At
the Closing, Parent shall cause Buyer to execute and deliver to Seller an
assumption agreement, in substantially the form of the Assumption Agreement
attached hereto as Exhibit A (the "Assumption Agreement"), pursuant to which
Buyer shall assume the Assumed Liabilities. Each of Parent and Buyer hereby
irrevocably and unconditionally waives and releases the Seller Parties from all
Assumed Liabilities and all liabilities or obligations exclusively relating to
the Business or the Acquired Assets to the extent arising from events or
occurrences after the Closing or to the extent otherwise relating to the period
after the Closing, including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any
12
<PAGE>
California
claims arising out of the contractual relationships and indemnification
arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or obligations
(contingent or absolute and whether or not determinable as of the Closing) of
any of the Seller Parties or any of their Affiliates except for the Assumed
Liabilities as specifically and expressly provided for above, whether such
liabilities or obligations relate to payment, performance or otherwise, and all
liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or common law,
including CERCLA (it being understood that this shall not constitute a waiver
and release of any claims arising out of the contractual relationships and
indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury to
person or property, regardless of when made or asserted, to the extent that
it arises out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by any of the Seller Parties or any
of their Affiliates prior to Closing, or alleged to have been made by any
of such Persons, or to the extent that it is imposed or asserted to be
imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or
any of their Affiliates prior to Closing, including any claim referred to
above in this Section 2.3.3(a) relating to water quality standards, any
claim relating to any product delivered in connection with the performance
of services provided by Seller and any claim seeking recovery for
consequential damages, lost revenue or income;
(b) all refund obligations relating to the advances existing on the
Closing Date for construction of facilities relating to the Business;
(c) except to the extent set forth in Section 2.9, any federal, state,
foreign or local income or other Tax payable with respect to the business,
assets, properties or operations of any of the Seller Parties or any member
of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in connection with
any common plant assets of Seller (other than the liabilities and
obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any nature
owed to any employees,
13
<PAGE>
California
agents or independent contractors of any of the Seller Parties or any of
their Affiliates, whether or not employed by Buyer after the Closing, that
arises out of or relates to events or conditions to the extent occurring
before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any liability,
obligation or responsibility of any of the Seller Parties, or any of their
Affiliates or predecessors, whether based on statutory or common law, but
only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment
or into or from any building, structure, pipeline or other facility or
relating to or arising from the generation, use, storage, treatment,
disposal, transport or other handling of Hazardous Substances or sale or
product containing Hazardous Substances from violation of any law relating
to the foregoing (but only as such law is interpreted, amended and in
effect on the Closing Date) including without limitation, any (A) CERCLA or
similar liability under any federal or state law or regulation as
interpreted, amended and in effect on the Closing Date or (B) any such
liability associated with businesses or assets of the Seller Parties other
than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the extent
arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any contract,
commitment, instrument or agreement (1) subject to the penultimate sentence
of Section 2.4, that is not transferred to Buyer as part of the Acquired
Assets, or (2) that relates to any breach or default (or to the extent that
it relates to an event which would, with the passing of time or the giving
of notice, or both, constitute a default) under any Contract, instrument or
agreement or to any services to be provided by Seller under any such
Contract, instrument or agreement to the extent that such services were
performed or were required to have been performed on or prior to the
Closing Date;
(i) any liability or obligation in respect of the Excluded Assets;
(j) any liability or obligation of any of the Seller Parties or any of
their Affiliates existing as a result of any act, failure to act or other
state of facts or occurrence which constitutes a breach or violation of any
of Seller's representations, warranties, covenants or agreements contained
in this Agreement, except to the extent set forth in Section 7.4; or
(k) except for the Assumed Liabilities as specifically and expressly
set forth herein, any liability to the extent arising out of or relating to
the ownership or operation of the Acquired Assets or the Business prior to
the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to
events or
14
<PAGE>
California
conditions occurring before the Closing Date, and any liability
associated with any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall cause
Seller to assign to Buyer, and Parent shall cause Buyer to assume, the Contracts
and the Permits which are to be transferred to Buyer as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide Buyer the full realization and value of every Contract of the character
described in the immediately preceding sentence, Seller agrees that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Seller or otherwise as Buyer shall specify, take all reasonable actions
(including without limitation the appointment of Buyer as attorney-in-fact for
Seller to proceed at Buyer's sole cost and expense) and do or cause to be done
all such things as shall in the reasonable opinion of Buyer be necessary
(a) to assure that the rights of Seller or its Affiliates under such Contracts
shall be preserved for the benefit of Buyer and (b) to facilitate receipt of the
consideration to be received by Seller or its Affiliates in and under every such
Contract. To the extent that Buyer does receive the benefits of any such
Contract pursuant to the preceding sentence, such Contract shall be a Contract
"assigned or transferred to Buyer pursuant to this Agreement" within the meaning
of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall in any way
diminish the obligations of Seller to obtain consents and approvals under this
Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase of the Acquired Assets (the "Closing") shall
take place at 10 a.m., East Coast time, on a date mutually satisfactory to Buyer
and Seller which is no later than the fifth Business Day after satisfaction (or
waiver) of the conditions to Closing set forth in Sections 6.1 and 6.2 hereof
(other than those conditions which require the delivery of any documents or the
taking of other action, at the Closing) at the offices of Fleischman and Walsh,
LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036, or on such other date
and at such other time or place as may be mutually agreed upon by the parties
hereto (the "Closing Date"). Upon payment of the Initial Cash Payment by Buyer
and confirmed receipt thereof by Seller or the Escrow Agent pursuant to Section
2.6.2 below, Seller shall operate the Business at the direction of and under the
control of Buyer. Notwithstanding the foregoing, the Closing shall be deemed to
be effective as of 11:59 p.m. on the Closing Date for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price be paid by Buyer for the purchase of the
Acquired Assets (the "Purchase Price") shall be: (i) $161,330,000 in cash (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this
15
<PAGE>
California
Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by Buyer of the
Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and conditions
of this Agreement, the Initial Cash Payment shall be paid by Buyer on the
Closing Date by federal other wire transfer of immediately available funds to
the account designated by Seller in writing at least two (2) Business Days prior
to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's lead bank
(the "Escrow Agent") in immediately available funds in U.S. dollars. Upon
receipt, the Escrow Agent shall invest the Initial Cash Payment in an interest-
bearing account mutually agreed upon by Seller and Buyer. At Closing, Parent
shall sign and deliver to Citizens a statement which confirms that the Closing
has occurred and which instructs the Escrow Agent to transfer to Citizens the
funds representing the Initial Cash Payment, plus an amount representing the
interest earned after the Closing Date until the date the funds are transferred,
to an account that Citizens shall designate at least two (2) business days prior
to the date the funds are required to be transferred hereunder. The Escrow Agent
shall refund the balance to Buyer. The fees and expenses of Escrow Agent shall
be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business days prior to
the Closing Date, Citizens shall deliver to Parent and Buyer a statement of net
assets (the "Estimated Statement of Net Assets") reflecting its good faith
calculation of the Acquired Assets of the Business as of the last day of the
latest calendar month for which financial statements of Seller are available
(the "Estimated Adjusted Net Assets"). The Estimated Statement of Net Assets
shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $93,819,658
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and deliver to
Parent and Buyer a Statement of Net Assets (the "Closing Statement of Net
Assets") which reflects the Acquired Assets, as of 11:59 p.m. on the Closing
Date, based on actual financial performance and calculated in the same manner,
utilizing the same accounting principles, policies and methods utilized in
preparing the Interim Statement of Net Assets (excluding for this purpose any
change required by GAAP or any Authority since June 30, 1999), together with (A)
an audit report of Seller's Accountants stating that the Closing Statement of
Net Assets has been prepared utilizing the same accounting principles, policies
and methods used in the preparation of the Interim Statement of Net Assets and
(B) a calculation of Citizens' determination of the amount of increase or
decrease in the amount of the Acquired Assets of the Business from the
Interim Statement of Net
16
<PAGE>
California
Assets Date to the Closing Date which is derived from the Closing Statement of
Net Assets ("Seller's Adjustment Amount"). The Closing Statement of Net Assets
shall not give effect to any purchase accounting treatment arising from Buyer's
purchase of the Acquired Assets. Buyer shall pay the fees and expenses of
Seller's Accountants incurred in connection with this Section 2.6.4. Buyer
agrees to cooperate, and agrees to cause Buyer's Accountants to cooperate, with
Citizens and Seller's Accountants in connection with the preparation of the
Closing Statement of Net Assets, and related information, and shall provide to
Citizens and Seller's Accountants such books, records and information as may be
reasonably requested from time to time, including the work papers of Buyer's
Accountants. Citizens will give Buyer and its representatives access during the
normal business hours of Citizens to the personnel, books and records of
Citizens and the work papers of Seller's Accountants to assist Buyer in the
review of the Closing Statement of Net Assets and related matters. Buyer agrees
that, following the Closing through the date on which the Closing Statement of
Net Assets is delivered, it will not take any actions with respect to any
accounting books, records, policies or procedures on which the Closing Statement
of Net Assets is to be based that would make it impossible or impracticable to
calculate the Acquired Assets in the manner and utilizing the methods required
hereby. Without limiting the generality of the foregoing, no changes shall be
made in any reserve or other account existing as of the date of the Interim
Statement of Net Assets except in the ordinary course or as a result of events
occurring after the date of the Interim Statement of Net Assets and, in such
event, only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the Statement
of Certain Assumed Liabilities, provided, however, that Buyer shall notify
Citizens in writing of each disputed amount, and specify the amount thereof in
dispute and the basis of such dispute, within 30 days of the Buyer's receipt of
the Closing Statement of Net Assets and the Seller's Adjustment Amount (such 30
day period hereinafter referred to as the "Review Period"). In the event of a
dispute with respect to the Closing Statement of Net Assets, the Seller's
Adjustment Amount or the Statement of Certain Assumed Liabilities, Buyer and
Seller shall attempt to reconcile their differences and any resolution by them
as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and
17
<PAGE>
California
expenses of Buyer's Accountants incurred in connection with this Section
2.6.4(b). Seller's Adjustment Amount, if there are no disputes with respect
thereto, or Seller's Adjustment Amount as adjusted after the resolution of all
disputes with respect thereto in accordance herewith, shall be referred to as
the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the Final
Net Asset Adjustment exceeds the Initial Cash Payment, then within five (5)
business days after final determination thereof Buyer shall pay Seller the
amount of such excess together with interest thereon for the period commencing
on the Closing Date through the date of payment calculated at the Prime Rate in
cash by federal or other wire transfer of immediately available funds, or
certified or bank cashier's check. If the Initial Cash Payment exceeds the sum
of the Base Cash Purchase Price plus (or minus, if negative) the Final Net Asset
Adjustment, then within five (5) business days after final determination thereof
Seller shall pay Buyer the amount of such excess together with interest thereon
for the period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery of
the Estimated Statement of Net Assets, Citizens also shall deliver to Parent and
Buyer a statement reflecting (i) the customer and other deposits held by Seller
on the Closing Date and relating to the Business, (ii) the total amount of the
Assumed Indebtedness that will be outstanding immediately after the Closing
Date, (iii) the items specified in Section 2.9 to the extent set forth therein,
and (iv) without duplications of any amount included in clause (i) above any
payments received by Seller under the Contracts and Permits for obligations not
performed as of the Closing Date (the "Statement of Certain Assumed
Liabilities"). The Statement of Certain Assumed Liabilities shall reflect
Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base Cash Purchase
Price shall be decreased by an amount equal to the proceeds of Seller's sale of
the property described in Item 2 of Schedule 5.1 (net of expenses) less the sum
of (i) the federal and state income taxes payable by Seller in respect of those
proceeds and (ii) the book value of such property, as of June 30, 1999, on
Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause Seller to
deliver to Buyer:
18
<PAGE>
California
(a) bills of sale and instruments of assignment to the Acquired
Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the Acquired
Assets, duly executed by Seller (together with any other transfer forms
necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to the parcels
of Real Estate owned in fee simple by Seller (or, with respect to any such
parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a
quit claim deed without covenant or warranty of title) to Buyer, duly
executed and acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act Certification and
Affidavit for each parcel of Real Estate, duly executed by the Seller
Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and
certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly
executed by Citizens; and
(i) all such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where
necessary or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall, and shall
cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount equal to
the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
19
<PAGE>
California
(c) the certificates, opinions and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the "Allocation") of the Purchase
Price, the Assumed Liabilities and other relevant items (including, for example,
adjustments to the Purchase Price) to the individual assets or classes of assets
within the meaning of Section 1060 of the Code. If Buyer and Seller agree to
such Allocation on or before ninety (90) days after the Closing Date, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Authority or in
any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses shall
be calculated and pro rated as of the Closing Date, with Seller responsible for
such expenses and to receive the benefit for the same for the period through and
including the Closing Date, and Buyer to be responsible for and to receive the
benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which the same were
assessed and paid) and sales, occupation and use taxes, in each case, to the
extent relating to the Business and except as otherwise provided in Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in each
case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Buyer
pursuant to Section 2.3 (except to the extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other Contracts
(except to the extent provided in Section 2.3.3(h)), and fees under Permits to
be transferred to Buyer as part of the Acquired Assets;
20
<PAGE>
California
2.9.5 water, sewer and other similar types of taxes, and installments on
special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to own, lease and operate the
Acquired Assets and the Business as presently being conducted. Each of the
Seller Parties is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions wherein the nature of the business conducted by
it or such Seller Party's ownership or use of assets and properties make such
qualification necessary, except such failures to be qualified or to be in good
standing, if any, which when taken together with all such other failures of the
Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has full
corporate power and authority to execute, deliver and perform this Agreement and
all other agreements and instruments to be executed by them in connection
herewith (such other agreements and instruments being hereinafter referred to
collectively as the "Transaction Documents"). The execution, delivery and
performance by each of the Seller Parties of this Agreement and the Transaction
Documents to which such Seller Party is a party have been duly authorized by all
necessary corporate action on the part of each of them. This Agreement has been
duly executed and delivered by each of the Seller Parties, and as of the Closing
Date the other Transaction Documents will be duly executed and delivered by the
Seller Parties. This Agreement is a legal, valid and binding obligation of each
Seller Party, enforceable against them in accordance with its terms except as
such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which each of the Seller Parties is a party will be
duly executed and delivered by each of the Seller Parties and will constitute
the legal, valid and binding obligations of each of the Seller Parties,
21
<PAGE>
California
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or
Bylaws of Citizens or the Articles of Incorporation or Bylaws of the other
Seller Parties; or (b) except as set forth on Schedule 3.3, violate, conflict
with, result in a breach of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which any of the Seller Parties is a party,
or by which the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations, modifications,
accelerations, cancellations, Liens, interests or rights which, individually and
in the aggregate, do not have a Material Adverse Effect or will be cured, waived
or terminated prior to the Closing Date, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation, to
which any of the Seller Parties is subject, other than those violations or
conflicts which individually and in the aggregate would not have a Material
Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer the
statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the date
hereof, except as disclosed in Schedule 3.5, the Seller Parties have conducted
the Business as
22
<PAGE>
California
presently operated only in the ordinary course of business consistent with past
practice. Since the Interim Statement of Net Assets Date, except as disclosed in
Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries or
other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by the Collective Bargaining Agreement;
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to or
for the use of any Permit of the Business which individually or in the aggregate
would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and is set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business, except
in the ordinary course of business consistent with past practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than (i) with respect to which the Business' total
annual liability or expense is less than (a) $250,000 per such Contract and (b)
$6,123,000 per all such Contracts (when taken together with similar contracts
omitted from Schedule 3.6 of the Related Purchase Agreements), and (ii)
Contracts that may be terminated by Seller, without penalty, on notice of 90
days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties'
23
<PAGE>
California
knowledge, no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the Contract, except in each case where such breaches,
terminations, modifications, accelerations or defaults, individually or in the
aggregate, do not have a Material Adverse Effect. Except as set forth in
Schedule 3.6, there are no disputes pending or to the best of the Seller
Parties' knowledge, threatened, under or in respect of any of the Contracts,
other than those that individually and in the aggregate do not have a Material
Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice, citation,
summons or order has been issued, no outstanding complaint has been filed, no
outstanding penalty has been assessed and no investigation or review is pending
or, to the knowledge of the Seller Parties, threatened, by any Authority or
other Person with respect to any alleged (i) violation by Seller or any
Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto, and
with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
24
<PAGE>
California
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate, or, in connection with the Business or Acquired
Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request for information
with respect to, and to the best of the Seller Parties' knowledge, Seller has
not been designated a potentially liable party for Remedial Action, in
connection with any Real Estate, or, as of the date hereof, with respect to the
Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use or
storage of Hazardous Substances as is incidental to the conduct of the Business,
which use and storage is or has been in compliance with Environmental Laws, and
which use and storage has not caused any condition that requires Remedial
Action, no Real Estate has been used for the storage, treatment, generation,
processing, production or disposal of any Hazardous Substances or as a landfill
or other waste disposal site in violation of any Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real Estate or, as of the date hereof, with
respect to the Business or the Acquired Assets or at any other facility,
location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous Substance
managed or generated by or on behalf of Seller at the Real Estate or in
connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real Estate, that are reasonably likely to result in any
material reduction in the quality or quantity of water available for supply to
the Seller Parties' customers.
25
<PAGE>
California
3.8.9 The Seller Parties will within thirty (30) days of the date hereof
provide Buyer with copies of all written environmental audits or investigations
of which they are aware (after due inquiry) prepared for the Real Estate or
operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual Report on
Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section 3.8.10(a)
and (b), Affiliates and predecessors of the Seller Parties) are and have
been for the past three years in full compliance with all federal and state
primary drinking water standards;
(b) The Seller Parties are and have been for the past three years in
full compliance with all federal and state secondary drinking water
standards; and
(c) As to all outstanding violations of state or federal drinking
water standards, as of the date hereof, the Seller Parties have completed
or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to
correct or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller Parties
will be required to place any notice or restriction relating to the presence of
Hazardous Substances in the deed to any Real Estate, or in any written
instrument accompanying this Agreement, and no Real Estate has such a notice or
restriction in its deed or any other written instrument relating to the
purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means
all actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or
26
<PAGE>
California
contaminant under or pursuant to any Environmental Law, including petroleum
products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment of the Contracts and Permits
contemplated hereby, except (i) as required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) as specified on Schedule 3.9,
(iii) as required to assume the California Water Debt, and (iv) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired Assets
constituting personal property, good and marketable title in fee simple to all
of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or oral
notice for assessments for public improvements against the Real Estate which
remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof, Seller
is not a lessee under any Contract relating to the use or occupancy of the Real
Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have
27
<PAGE>
California
a Material Adverse Effect. To Seller's knowledge, no fact or condition exists
which would result in the termination of (a) the current access from each parcel
of the Real Estate, and (b) continued use, operation, maintenance, repair and
replacement of all existing and currently committed water lines used by Seller
in connection with the Business, except where such termination would not have a
Material Adverse Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material returns
and reports for Taxes, including information returns, that are required to have
been filed in connection with, relating to, or arising out of, the Business, (b)
paid all Taxes that are shown to have come due pursuant to such returns or
reports and (c) paid all other material Taxes not required to be reported on
returns in connection with, relating to, or arising out of, or imposed on the
property of the Business for which a notice of assessment or demand for payment
has been received or which have otherwise become due. To the best of the Seller
Parties' knowledge, all such returns or reports have been prepared in accordance
with all applicable laws and requirements in all material respects. Except to
the extent disclosed on Schedule 3.12, none of the assets of the Business or
constituting any of the Acquired Assets (a) is property that is required to be
treated as owned by another Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code or (c) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the Seller
Parties' knowledge, the operations of Seller do not make any unauthorized use of
any Intellectual Property except for any such unauthorized uses which do not
have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising from
the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or
28
<PAGE>
California
affecting the Business which had or could reasonably be expected to have a
Material Adverse Effect. As of the date hereof, except as set forth in Schedule
3.15, (i) no Employee is represented by any union or other labor organization
and (ii) there is no unfair labor practice charge pending or, to the best
knowledge of the Seller Parties, threatened against Seller relating to any of
the Employees as related to the Business which could reasonably be expected to
have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each "employee
benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer
plan" as defined in Section 3(37) of ERISA), bonus, incentive, deferred
compensation, excess benefit, employment contract, stock purchase, stock
ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's current
summary plan description and in the case of an unwritten Benefit Plan, a written
description thereof, has been furnished to Buyer. In addition, to the extent
applicable, Buyer has been provided a copy of the most recent Internal Revenue
Service ("IRS") determination letter issued to each Benefit Plan and a copy of
the most recent IRS Form 5500 together with all schedules and accountants'
statement filed, and actuarial reports prepared, on behalf of each Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code (as designated on Schedule 3.16.1) is so qualified, and will
remain so qualified upon the timely making of certain amendments required by law
during the applicable remedial amendment period, and any trust forming a part of
such a Benefit Plan is tax exempt under Section 501(a) of the Code. Each such
Benefit Plan has been amended, as and when necessary, to comply with the Tax
Reform Act of 1986 and upon timely filing of an Application for Determination
with the Internal Revenue Service, will be eligible to make further such
amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and all applicable laws, including ERISA and the Code.
29
<PAGE>
California
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under the
Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge of
the Seller Parties, no other Person, has taken any action or failed to take any
action with respect to any Benefit Plan that may subject Buyer or any Benefit
Plan under which liabilities may be assumed by Buyer under Sections 5.10, 5.11
or 5.12 ("Assumed Benefit Liabilities") to any material liability or Tax under
the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects to
incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably be
expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law, or
(ii) death or retirement benefits under a Benefit Plan qualified under Section
401(a) of the Code. Seller's Retiree Medical Plan contains provisions permitting
Seller to modify or terminate retiree medical benefits at any time, without
prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
3.17, Seller has no liabilities with respect to the Business which would
constitute Assumed Liabilities, either direct or indirect, matured or unmatured
or absolute, contingent or otherwise, except:
30
<PAGE>
California
3.17.1 the Assumed Indebtedness and those other liabilities which would
decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to the extent
assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business practice,
in or as a result of the normal and ordinary course of business and reflected in
the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the aggregate,
would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in Schedule
3.18, there are no actions, suits, investigations or proceedings pending against
or, to the best of the Seller Parties' knowledge, threatened, against or
affecting, Seller, the Business or any of the Acquired Assets before any court
or arbitrator or Authority which individually or in the aggregate, would have a
Material Adverse Effect. Except as disclosed in Schedule 3.18, there are
currently no outstanding judgments, decrees or orders of any court or Authority
against any of the Seller Parties, which relate to or arise out of the conduct
of the Business or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs and similar
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the Real
Estate has adequate arrangements for supplies of electricity, gas, oil, coal
and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
31
<PAGE>
California
3.21 Relationship with Customers. As of the date hereof, Seller does not
have any current customer which accounted for more than 5% of the net sales of
the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set forth
in Schedule 3.22 hereto, within six months prior to the date hereof, (i) Seller
has not effectuated (a) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or (b) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the
Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the Excluded
Assets, the Acquired Assets include all assets, rights, properties and contracts
the use of which is necessary to the continued conduct of the Business by Buyer
substantially in the manner as it was conducted prior to the Closing Date,
including the service of all utility customers in substantially the same manner
and at substantially the same service levels as provided by Seller on the date
hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and assessment
of all mission critical areas within the Business and related operations
(including those affected by suppliers and vendors) that it reasonably believes
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any Seller Party (or suppliers and vendors) may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem all as set forth in
Citizens' Annual report on Form 10-K for the fiscal year ended December 31, 1998
and Citizens' Quarterly reports on Form 10-Q for the periods ending March 31,
1999 and June 30, 1999, and (iii) to date, implemented that plan substantially
in
32
<PAGE>
California
accordance with that timetable. Seller has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millennium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to Seller after making reasonable inquiries of such suppliers and
vendors. Seller makes no representation or warranty with respect to the receipt
or accuracy of any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except for
those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate the Acquired Assets and
the Business. Buyer is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it or Buyer's
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of Buyer do not have a material
adverse effect on its ability to perform its obligations under this Agreement
and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by Buyer and Parent of this Agreement and
the Transaction Documents to which Buyer and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
33
<PAGE>
California
Agreement has been duly executed and delivered by Buyer and Parent, and as of
the Closing Date the other Transaction Documents will be duly executed and
delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Buyer and Parent of this Agreement,
the other Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by Buyer or Parent except (i) as required by the
HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such consents,
approvals, authorizations, registrations or filings, the failure to obtain or
make would not individually or in the aggregate have a material adverse effect
on their respective ability to perform their obligations under this Agreement
and the Transaction Documents.
34
<PAGE>
California
4.5 Financing. Buyer and Parent have, and at the Closing Date, will have
sufficient resources to pay the Purchase Price, and Parent, Buyer or the other
Affiliates of Parent that are buyers of the assets and businesses being acquired
pursuant to the Related Purchase Agreements have, and at the Closing Date, will
have sufficient resources to pay the purchase prices set forth in the Related
Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect as
of the date hereof for casualty and property insurance covering Buyer's assets
and properties and the operation of Buyer's business, together with the risks
insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted by
this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the prior
written consent of Buyer, from and after the date of this Agreement and up to
and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only in
the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any specific event or
circumstance of which they are aware, or of which they receive notice, that has
or is likely to have, individually or in the aggregate, taken together with the
other events or circumstances, a Material Adverse Effect on the Acquired Assets
or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or enter
into any other transaction (except in the ordinary course of business)
which would have a Material Adverse Effect;
35
<PAGE>
California
(c) except in the event of service interruption, emergency or casualty
loss, commit to acquire subsequent to the Closing Date on behalf of the
Business any capital asset or group of capital assets costing in excess of
$1,000,000 that is not included in the capital budget of Seller for fiscal
year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances
for construction in excess of $9,000,000 (when combined with customer
advances relating to the businesses being acquired by Buyer or Affiliates
of Buyer pursuant to the Related Purchase Agreements) per each of the next
four consecutive three-month periods unless pursuant to an existing tariff,
Contract or Permit of Seller; or sell or lease or agree to sell or lease or
otherwise dispose of any assets included in the Acquired Assets except in
the ordinary course of the conduct of the Business, consistent with past
practice;
(d) except in the ordinary course of business, consistent with past
practice or as required under any of Seller's debt instruments or
indentures, mortgage, pledge or subject to any Lien (other than Permitted
Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred
Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective
Bargaining Agreement in existence on the date hereof; provided, however, no
individual Employee shall in any event receive a compensation increase in
excess of seven percent (7%) except as required by the Collective
Bargaining Agreement in existence on the date hereof;
(f) other than in the ordinary course of business consistent with past
practice, sell or otherwise transfer any assets necessary, or otherwise
material to the conduct of, the Business which would constitute Acquired
Assets;
(g) change the Seller's method of accounting or keeping its books of
account or accounting practices with respect to the Business, except as
required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any action which
if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties set forth in Sections 3.1,
3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise extinguish any of the
Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by Citizens or
under common control with Citizens (each such person being a "Section 5.2
Affiliate"), nor any
36
<PAGE>
California
officer, director, employee, representative or agent of Citizens or any of their
Section 5.2 Affiliates, shall, directly or indirectly, solicit or initiate or
participate in any way in discussions or negotiations with, or provide any
information or assistance to, or enter into an agreement with any Person or
group of Persons (other than Parent, Buyer or any Person controlled by Parent or
Buyer or under common control with Parent, Buyer or any Persons providing
financing to the parties hereto in connection with facilitating the consummation
of the transactions contemplated by this Agreement) concerning any acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) that would result in the transfer
to any such Person or group of Persons of ten percent (10%) of the Acquired
Assets (as measured by net book value of such assets on the date of each such
transaction) or the acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
involving the Seller Parties, if such acquisition, merger, consolidation,
liquidation, dissolution, disposition or other transaction (or series of such
transactions) would be inconsistent, in any respect, with the obligations of the
Seller Parties hereunder (any of the foregoing transactions, a "Competing
Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller Parties
will provide Buyer with a supplement or amendment to the Disclosure Schedules
with respect to any matter, condition or occurrence which is required to be set
forth or described in the Disclosure Schedules. For the avoidance of doubt, a
matter, condition or occurrence shall only be "required" to be set forth or
described in the Disclosure Schedules if the failure to be so disclosed would
result in a breach of the applicable representation or warranty (qualified by
Material Adverse Effect where applicable) on the date hereof or on the Closing
Date. In addition, Seller shall have the right at any time and from time to time
prior to the Closing to supplement or amend the Disclosure Schedules. Seller may
provide Disclosure Schedules with respect to any representation or warranty of
this Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
37
<PAGE>
California
5.4 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this Agreement,
including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied in a
timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all
notifications and information to be filed or supplied pursuant to the HSR Act
and with the applicable public utility commission (each, a "PUC"). Any such
filings and supplemental information will be in substantial compliance with the
requirements of the applicable law, rule or regulation. Each of Parent and
Buyer, on the one hand, and the Seller Parties, on the other, shall furnish to
the other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission to the
PUC or which is necessary under the HSR Act. The Seller Parties, on the one hand
and Buyer and Parent, on the other, shall keep each other apprised of the status
of any communications with, and inquiries or requests for additional information
from, any Authority, including the PUC, the United States Federal Trade
Commission ("FTC") and the Antitrust Division of the United States Department of
Justice (the "Antitrust Division"), and shall comply promptly with any such
inquiry or request. Each of Citizens, Seller, Parent and Buyer will use its
reasonable efforts to obtain any clearance required under the HSR Act and from
the PUC for the purchase and sale of the Acquired Assets in accordance with the
terms and conditions hereof. Notwithstanding the foregoing, nothing contained in
this Agreement will require or obligate any party or their respective
Affiliates: (i) to initiate, pursue or defend any litigation (or threatened
litigation) to which any Authority (including the PUC, the Antitrust Division
and the FTC) is a party; (ii) to agree or otherwise become subject to any
material limitations on (A) the right of Buyer or its Affiliates effectively to
control or operate the Business or the right of Seller or its Affiliates
effectively to control or operate Citizens' other businesses, (B) the right of
Buyer or its Affiliates to acquire or hold the Business or the right of Seller
or its Affiliates to hold the Excluded Assets or Citizens' other businesses, or
(C) the right of Buyer to exercise full rights of ownership of the Business or
all or any material portion of the Acquired Assets or the right of Citizens to
exercise
38
<PAGE>
California
full rights of ownership of Citizens' other businesses or all or any
material portion of the Excluded Assets; or (iii) to agree or otherwise be
required to sell or otherwise dispose of, hold separate (through the
establishment of a trust or otherwise), or divest itself of all or any portion
of the business, assets or operations of Citizens, Seller, Parent, Buyer, any
Affiliate of Buyer or the Business. The parties agree that no representation,
warranty or covenant of Buyer, Parent, or Citizens contained in this Agreement
shall be breached or deemed breached as a result of the failure by Parent and
Buyer on the one hand or the Seller Parties, on the other, to take any of the
actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause to
be made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller, from
time to time after the Closing, at Buyer's or Seller's request, will execute,
acknowledge and deliver to the applicable person such other instruments of
conveyance and transfer and will take such other actions and execute such other
documents, certifications, and further assurances as Buyer or Seller, as the
case may be, may reasonably require in order to transfer, in accordance with the
terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and shall cause
their respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly transition of the Business from Seller to Buyer
and to minimize the disruption to the Business resulting from the transactions
contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and Buyer, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state securities laws ("Securities Filings") or
make any consent solicitations to holders of Assumed Indebtedness which include
any information about Seller, Buyer (or their respective Affiliates) or the
transactions contemplated hereby without consulting with the other party and
providing the other party a reasonable opportunity to review and comment on such
information, it being understood and agreed that any party may so disclose such
information in its reasonable judgment to the extent such party's counsel
advises it that such disclosure is advisable under applicable law. Each of
Parent,
39
<PAGE>
California
Buyer, Citizens and Seller shall, and shall cause their respective Affiliates
to, comply with all applicable federal and state securities laws in connection
with this Agreement and the transactions contemplated hereby (including any
solicitation of consents of holders of Assumed Indebtedness), and all
information supplied by any party for inclusion in any Securities Filing or
consent solicitation, including, without limitation, any proxy or information
statement, or any registration statement on Form S-4 shall be true and correct
in all material respect and shall not contain any untrue statement of a material
fact or omit to state any material fact which is required to be stated therein
or which is necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Buyer shall have the right to use all of the logos,
trademarks and trade identification of Seller as are located at the Real Estate
or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use of the
Trademarks shall be in accordance with such reasonable quality control standards
as may be promulgated by Seller and provided to Buyer. If Seller shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Seller shall have the right to terminate Buyer's right under this Section 5.8.3
to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives (including Buyer's
Accountants, consultants, counsel and employees), upon reasonable notice and
during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Buyer all documents, records and
information (and copies thereof), to the extent relating to the Business and the
Acquired Assets, as Buyer may reasonably request. Except to the extent disclosed
in the Disclosure Schedules in accordance with Sections 5.3 and 8.4, no
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller Parties under this Agreement
or the conditions to the obligations of Parent or Buyer under this Agreement.
All information provided to Buyer under this Agreement shall be held subject to
the terms and conditions of the Confidentiality Agreement dated August 2, 1999
between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. Schedule 5.9.1 lists job classifications and number of
employees in each job classification of those employees whose terms and
conditions of employment are subject to the Collective Bargaining Agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the
40
<PAGE>
California
"Employees." No later than March 1, 2000, Buyer and Seller shall determine the
number of Employees to whom Buyer will offer employment, which number shall be
at least equal to 250 (when combined with offers made by Buyer or Affiliates of
Buyer to employees of Affiliates of Seller in connection with the Related
Purchase Agreements) (the "Base Number"), and such additional number of
Employees, if any, whom Buyer also wishes to employ. Upon determination of such
Employees, Seller will supplement Schedule 5.9.1 with the name, job title,
unused vacation, current base salary or hourly wage, date of hire and assigned
location of each Transferred Employee (as that term is defined below). At the
Closing, Seller shall provide an updated Schedule 5.9.1 which shall disclose all
the information required under the preceding sentence as of the most recent
practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer employment to at least
the Base Number of those employees included on Schedule 5.9.1. All Employees to
whom Buyer offers employment and who accept such employment are herein referred
to as the "Transferred Employees." In the event any Employees do not accept
Buyer's offer of employment, Buyer shall offer employment to such additional
employees (the identity of whom shall be determined by Buyer and Seller) as are
necessary to bring the total number of Transferred Employees to the Base Number.
Subject to the provisions of this Section 5.9 and Section 5.12, Buyer shall
provide each Transferred Employee with base compensation at least equal to that
provided by Seller on the Closing Date, and employee benefits which are
substantially comparable to those provided by Buyer to its other similarly
situated employees. Except as otherwise provided under the terms of any assumed
collective bargaining agreement and under terms of Section 5.12, Buyer shall
provide each Union Transferred Employee with compensation at least equal to that
provided by Seller immediately prior to the Closing Date and with the benefits
provided to Buyer's similarly situated collectively bargained employees. On and
after the Closing Date, Buyer shall assume Seller's obligations under, and be
bound by the provisions of, the collective bargaining agreement between Citizens
Utilities Company of California, Sacramento District, and International Union of
Operating Engineers Stationary Local No. 39, AFL-CIO (the "California Union"),
dated March 4, 1997 (the "California Agreement"), to the extent of provisions
covering Transferred Employees, as in effect on the date of this Agreement. With
respect to any amendment, extension, or renegotiation of the California
Agreement, the contract as so amended, extended or renegotiated will be assumed
if, but only if, (i) in connection with such amendment, extension or
renegotiation, the California Union agrees to substitute for Seller's employee
pension plan (to the extent required to be provided under the California
Agreement) Parents' employee pension plan, and (ii) the other terms and
conditions of the collective bargaining agreement pertaining to the Transferred
Employees on the Closing Date are substantially identical to the terms and
conditions of the Collective Bargaining Agreement as in effect on the date of
this Agreement. Each collective bargaining agreement pertaining to Transferred
Employees shall be identified on a Schedule 5.9.2 to be prepared by Seller and
submitted to Buyer on or before the Closing Date. Seller shall cooperate with
Buyer in Buyer's efforts to contact the unions representing Transferred
Employees. Buyer agrees (i) to credit the service of each Transferred Employee
with Seller and its Affiliates before the Closing, for all purposes under all
employee benefit plans and arrangements maintained by Buyer (and/or any of its
Affiliates) for the
41
<PAGE>
California
benefit of any Transferred Employee (including without limitation for purposes
of attainment of retirement dates and payment of optional forms of benefits),
other than for purposes of benefit accrual under any "defined benefit plan",
within the meaning of Section 3(35) of ERISA, (ii) to provide accrued vacation
to Transferred Employees in the year in which the Closing occurs, equal to the
excess, if any, of the accrued vacation to which the Transferred Employee would
otherwise be entitled under Seller's vacation plan during that year over the
amount of accrued vacation the Transferred Employee had taken during that year,
and, thereafter, to provide vacation to Transferred Employees on the same basis
as provided to similarly situated employees of Buyer, with service credit as
provided in (i) hereof, (iii) to provide severance benefits to Transferred
Employees terminated by Buyer that are substantially comparable to those
benefits provided by Buyer to similarly situated employees, and (iv) to comply
with all applicable legal requirements with respect to Union Employees
(including without limitation any applicable duty to bargain with those
employees' bargaining representative). Buyer shall be responsible for providing
to each Transferred Employee vacation in an amount equal to the Transferred
Employee's vacation entitlement for the year of Closing reduced by the number of
vacation days such Transferred Employee has taken on or before Closing. Nothing
in this Section 5.9 shall limit Buyer's authority to terminate the employment of
any Transferred Employee at any time and for whatever reason. Until the second
anniversary of the Closing Date, neither Seller nor any of its Affiliates shall
directly or indirectly solicit or offer employment to any Transferred Employee
then employed by Buyer or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by Buyer as the result of any claims against Buyer or its Affiliates
that are made by any Employees or Former Employees (or the Beneficiary of any
Employee or Former Employee) who are not made offers to become employees of
Buyer or its Affiliates including, without limitation, claims asserted against
Buyer as a result of their termination by Seller or its
Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
42
<PAGE>
California
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, Buyer shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of Buyer incurred after Closing) owed to
any Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between Buyer or any of its
Affiliates and any Transferred Employee or (ii) any benefit claim or expense
(including medical expense) incurred after Closing under any employee benefit
plan sponsored or contributed to by Buyer or an ERISA Affiliate after Closing.
Notwithstanding the foregoing, Buyer shall not be responsible for the payment of
any employee benefits that become due to any Transferred Employees under any
Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) Buyer does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. Buyer will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The Buyer's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall retain
liability and related assets for benefits accrued through the Closing Date by
Transferred Employees under Seller's Pension Plan.
43
<PAGE>
California
5.10.2 As of the Closing Date except as may be required under the
California Agreement, Transferred Employees shall be covered under the American
Pension Plan, and shall be given credit for service with Seller and its
Affiliates for eligibility, vesting, attainment of retirement dates, subsidized
benefits, and entitlement to optional forms of payment, but not for accrual of
benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section 5.11.2,
subject to the terms and conditions of this Agreement, Parent shall cause the
Savings Plan for Employees of American Water Works Company, Inc. (the "American
Savings Plan") to assume the liability of the Seller's 401(k) Plan for the
account balances of those Transferred Employees participating in the Seller's
401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Buyer's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Buyer that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to Affected Participants to the trustee of the American
Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which
44
<PAGE>
California
Transferred Employees were entitled under the Seller's 401(k) Plan as of such
date, and Seller and the Seller's 401(k) Plan shall cease to have any liability,
contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to transfer
to trusts established by Buyer under Section 501(c)(9) of the Code ("Buyer's
VEBAs") the amount held under any trust established by Seller under Section
501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health care and
life insurance benefits attributable to the Business, including Former Employees
identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Buyer under its corresponding welfare benefit plans (the "Buyer's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Buyer Welfare Plans shall be waived in Buyer's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective Beneficiaries shall receive credit under the Buyer
Welfare Plans for co-payments, payments under a deductible limit made by them,
and for out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in which the Closing Date occurs. As soon as practicable
after the Closing Date, Seller shall deliver to Buyer a list of the Transferred
Employees and retirees of the Water Sector and their respective Beneficiaries
who had credited service under
45
<PAGE>
California
a Seller Welfare Plan, together with each such individual's service, copayment,
deductible and out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan any balances
standing to the credit of Transferred Employees under Seller's flexible benefits
plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing
Date a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller, together with their
elections made prior to the Closing Date with respect to such Account, and
balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and Buyer, on
the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and Buyer
shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or Buyer to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of Buyer to
provide a debt obligation relating to the California Water Debt satisfactory to
the lender in replacement of and in substitution for the obligations of Citizens
Utilities Company of California to such lender under the California Water Debt,
all to enable Buyer to assume the California Water Debt.
46
<PAGE>
California
5.16 Assumption of Seller Debt. Each of Buyer and Parent shall use its
reasonable efforts (as defined in Section 5.15) to assist Seller in obtaining
all consents and opinions and taking such other actions as may be required to
enable Buyer or Parent, as the case may be, to assume at the Closing all of
Seller's liabilities and obligations under the Assumed Indebtedness to the
extent provided in Section 2.3.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens shall
deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets forth
all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use its
reasonable efforts to deliver to Buyer true, correct and complete copies of all
existing title policies, surveys, leases, deeds, instruments and agreements
relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing Date,
except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.26, 5.27 and
2.7.1(j) of this Agreement, Seller shall have terminated and canceled all
contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated
hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain
47
<PAGE>
California
or similar proceeding affecting all or any portion of any of the Real Estate
received after the date hereof but prior to the Closing Date; and (d) a copy of
any Contract where Seller is a lessee relating to the use or occupancy of the
Real Estate and where such Contract involves annual payments in excess of
$100,000 entered into by Seller after the date hereof and prior to the Closing
Date.
5.21.2 Within fifteen (15) days after the receipt of notice of violation,
Citizens shall notify Buyer of any violations of state or federal drinking water
standards which, if such violations existed on the date hereof, would be
required to be disclosed pursuant to Section 3.8.10 hereof, and shall promptly
notify Buyer of the actions proposed to be taken by Seller to correct or
otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of fifteen
(15) years after the Closing Date no Seller Party nor any Affiliate of a Seller
Party shall directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of or be otherwise connected
in any substantial manner with any entity (other than Buyer and its successors
and assigns) engaged in the business of storing, supplying and distributing
water in the States in which Buyer acquires any Acquired Assets, whether or not
such business is subject to regulation by a PUC (it being understood that the
individual directors of Seller and Citizens are not Affiliates of a Seller
Party).
5.23 Intentionally Omitted.
5.24 Intentionally Omitted.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller may, at Seller's written election delivered to Buyer no later than five
(5) days prior to the Closing Date, direct that all or a portion of the Initial
Cash Payment be delivered to a "qualified intermediary" as defined in Treasury
Regulation ss.1.1031(k) - (g)(4) as to enable Seller's relinquishment of the
Acquired Assets to qualify as part of a like-kind exchange of property covered
by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees that Seller may assign all
or part of its rights (but no obligations) under this Agreement to a person or
entity acting as a qualified intermediary to qualify the transfer of the Assets
as part of a like-kind exchange of property covered by Section 1031 of the Code.
Buyer and Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall
48
<PAGE>
California
indemnify and hold Buyer harmless from any cost, expense or liability arising
from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer
and use commercially reasonable efforts to assist Buyer if Buyer desires to
obtain ALTA title insurance commitments (collectively, the "Title Commitments,"
and each a "Title Commitment"), in final form, from one or more title insurance
companies (collectively, the "Title Company"), committing the Title Company
(subject only to the satisfaction of any industry standard requirements
contained in the Title Commitment) to issuing ALTA (or its local equivalent)
form of title insurance policies insuring good, valid, indefeasible fee simple
title to the Real Estate in Buyer, in all cases, at Buyer's sole expense and in
the respective amounts that Buyer requests prior to Closing, subject to no Liens
or other exceptions to title other than Permitted Exceptions (collectively the
"Title Policies"). On or prior to the Closing Date, Seller shall execute and
deliver, or cause to be executed and delivered, to the Title Company, at no cost
to Seller, any customary affidavits, standard gap indemnities and similar
documents reasonably requested by the Title Company in connection with the
issuance of the Title Commitments or the Title Policies; provided that such
efforts and Buyers' request for Title
49
<PAGE>
California
Policies or Title Commitments shall, in no event, result in any delay in the
consummation of the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing Date if any Material Adverse Effect that may have arisen or occurred
between the execution date of this Agreement and the Closing Date shall have
been cured or remedied such that such Material Adverse Effect is not continuing
as of the Closing Date. Buyer shall have been furnished with a certificate of
the Chief Financial Officer or other Vice President of Citizens dated the
Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L. Russell Mitten
II, Vice President and General Counsel of Seller, an opinion dated the Closing
Date, in form and substance satisfactory to Buyer, to the effect set forth in
Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
50
<PAGE>
California
6.1.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby, and such order shall not contain
any restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory treatment with respect to the Business in
existence as of the date of this Agreement applicable to Seller be continued
following the transactions contemplated hereby) which would have a Material
Adverse Effect or a material adverse effect on any other regulated business of
Buyer in the state in which the PUC has jurisdiction, and such order shall be
final and unappealable; Seller shall have obtained all statutory, regulatory and
other consents and approvals which are required in order to consummate the
transactions contemplated hereby and to permit Buyer to conduct the Business in
the manner contemplated by Section 3.25 hereof other than those the failure of
which to obtain would not have a Material Adverse Effect and other than with
respect to the assumption of the California Water Debt. Seller shall have also
obtained (i) all consents and legal opinions required to enable Seller to sell
the Acquired Assets to Buyer at the Closing, free and clear of all Liens other
than Permitted Exceptions (and specifically free and clear of any Lien arising
under or pursuant to the Mortgage Indenture) and (ii) all consents required
under Contracts and Permits relating to Seller's water appropriation and flowage
rights to the extent reasonably sufficient to enable Buyer to service the
customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Buyer's ownership of all or any material portion of the
Acquired Assets, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied that the
consummation of each of the asset purchase and sale transactions contemplated by
those certain purchase agreements described on Schedule 6.1.7 (the "Related
Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The obligations
of the Seller Parties to cause the sale of the Acquired Assets and to consummate
the other transactions contemplated hereby are subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions (any one or
more of which may be waived in writing in whole or in part by the Seller Parties
in their sole discretion):
51
<PAGE>
California
6.2.1 Performance of Agreements; Representations and Warranties. Parent and
Buyer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by Buyer and Parent shall be true and correct
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 4.2), such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a material adverse effect on the respective ability of Buyer and Parent
to perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and Buyer, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price &
Rhoads, counsel to Parent and Buyer, an opinion dated the Closing Date, in form
and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby and such order shall not contain
any restrictions or conditions which would have a material adverse effect on
Seller's business activities in the State in which the PUC has jurisdiction or
any significant adverse effect on Citizens' acquisition and divestiture
activities in that State (including divestiture of the Acquired Assets), and
such order shall be final and unappealable; Seller shall have obtained all
statutory and regulatory consents and approvals which are required in order to
consummate the transactions contemplated hereby, other than those the failure of
which to obtain would not have a material adverse effect on the Seller after the
Closing. Seller shall have obtained (i) all consents and legal opinions required
to enable Seller to sell the Acquired Assets to Buyer at the Closing, free and
clear of all Liens other than Permitted Exceptions (and specifically free and
clear of any Lien arising under or pursuant to the Mortgage Indenture), and (ii)
all other consents required or advisable in order for Seller to transfer
Acquired Assets without incurring material liability under any Contract, Permit
or Real Estate instrument.
52
<PAGE>
California
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7 and 5.27, and
shall have taken such actions as Seller may have requested pursuant to Section
5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to the
Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before
March 31, 2001; provided, however, that the right to terminate this Agreement
under this Section 6.3.2(iii) will not be available to any party that is in
material breach of its representations, warranties, covenants or agreements
contained herein; and provided, further, that if Closing has not occurred by
such date because the conditions precedent to Closing set forth in the first
sentence of Section 6.1.4 and the first sentence of Section 6.2.4 have not been
fulfilled, then such date shall be automatically extended to September 30, 2001;
or
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating to brokerage
and Section 7.1 relating to expenses. Nothing in this Section 6.3 shall be
deemed to release either party from any liability for any willful breach by such
party of the terms and provisions of this Agreement.
53
<PAGE>
California
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible for
all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one hand,
and Buyer and Parent, on the other hand, shall cooperate fully with each other
after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section 7.4.2(j),
all representations, warranties, covenants and agreements contained in this
Agreement or the Transaction Documents shall survive (and not be affected in any
respect by) the Closing, any investigation conducted by any party hereto and any
information which any party may receive. Notwithstanding the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained in
Section 7.4 shall terminate
54
<PAGE>
California
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the related indemnity
obligations contained in Section 7.4 shall terminate on, and no action or
claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in Sections 3.12 and
3.16 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in Section 3.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
(e) the representations and warranties contained in Section 3.10 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(f) the representations and warranties contained in Section 3.7 and
3.17 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3, 3.5,
3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in Section 3.11 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
(j) the representations and warranties contained in Sections 4.3 and
4.4 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
55
<PAGE>
California
(k) the representations and warranties contained in Section 4.5 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
Closing Date; and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may
be brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the foregoing
clauses (c) through (k), and the covenants contained in Section 5.1, 5.2,
5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim,
whether or not fixed as to liability or liquidated as to amount, with
respect to which such party has been given written notice setting forth the
facts upon which the claim for indemnification is based and, if possible, a
reasonable estimate of the amount of the claims prior to the relevant
anniversary of the Closing Date or the 30th day after the expiration of the
applicable statute of limitations (or extensions or waivers thereof), as
the case may be. If any claim for indemnification is asserted or could be
asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the Buyer or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach of
any other representation or warranty in this Agreement for which there is a
shorter survival period, such shorter period will apply to such claim
except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made by
Buyer or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing
Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any
locations other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any action or
claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
56
<PAGE>
California
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" (other than liabilities
arising after the Closing Date and relating to the California Water Debt) on the
financial statements of Seller; (w) not exclusively related to the Acquired
Assets or not exclusively related to the Business; and (x) with respect to any
of the matters discussed in Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors, officers and other
Affiliates (including Parent) and hold Buyer and such other parties
harmless from and against any and all Damages arising out of or resulting
from (A) any breach of any representation, warranty, covenant or agreement
made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B)
subject to Section 7.3.2, any Excluded Assets or Retained Liabilities; and
(C) subject to Section 7.3.2, the ownership, operation or use of any of the
businesses or assets of the Seller Parties or their Affiliates (other than
the Business and the Acquired Assets) whether before, on or after the
Closing Date.
(b) Buyer and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and such
other parties harmless from and against any and all Damages arising out of
or resulting from (A) any breach of any representation, warranty, covenant
or agreement made by Parent or Buyer in this Agreement or in any document
or certificate required to be furnished to Seller by Parent or
Buyer pursuant to this Agreement (including the Transaction Documents); (B)
any Assumed Liabilities after the Closing Date, including the Assumed
Indebtedness; (C) the ownership, operation or use of the Business or
57
<PAGE>
California
the Acquired Assets after the Closing Date (except to the extent resulting
from Retained Liabilities or to the extent resulting from breaches by the
Seller Parties of representations, warranties, covenants or agreements
hereunder or in the other Transaction Documents); and (D) any claim by a
Transferred Employee or a Former Employee referred to on Schedule 5.12 or
the Beneficiary of any such employee or former employee for post-retirement
health care or life insurance benefits "incurred" (within the meaning of
Section 5.9.4) after the Closing.
(c) For purposes of this Agreement, "Damages" shall mean any and all
losses, liabilities, obligations, damages (including any governmental
penalty or punitive damages assessed or asserted against the party seeking
indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable
expenses (including reasonable attorneys' fees and all other reasonable
expenses incurred in investigating, preparing or defending any litigation
or proceeding, commenced or threatened, incident to the successful
enforcement of this Agreement). For purposes of this Section 7.4, the
determination of whether any breach of any representation, covenant or
agreement has occurred, and the calculation of the amount of Damages
incurred by the Indemnified Party arising out of or resulting from any
breach of a representation, covenant or agreement by any party hereto, the
references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall
be found to have occurred due to facts or circumstances arising from an
occurrence or condition described in Section 1.1.61(a). Notwithstanding the
foregoing, Damages shall not include the loss of profits of the party
seeking indemnification, or punitive damages unless the party seeking
indemnification has had punitive damages assessed or asserted against it.
(d) Notwithstanding any language contained in any Transaction Document
(including deeds to Real Estate and instruments delivered by Seller to the
Title Company), representations and warranties as to Real Estate set forth
in Section 3.10 and 3.11 will not be merged into any Transaction Document
and the indemnification obligations of Seller, and the limitations on such
obligations, set forth in this Agreement, shall control. No provision set
forth in any Transaction Document shall be deemed to enlarge, alter or
amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4 (an
"Indemnified Party") shall give prompt written notice to the party from
whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement
of any action, suit or proceeding, of which it has knowledge and in respect
of which indemnity may be sought hereunder, and will give the Indemnifying
Party such information with respect thereto as the Indemnifying Party may
reasonably request, but failure to give such required notice shall relieve
the Indemnifying Party of any liability hereunder only to the extent that
the Indemnifying Party has suffered actual prejudice thereby. The
Indemnifying Party
58
<PAGE>
California
shall have the right, exercisable by written notice to the Indemnified
Party after receipt of notice from the Indemnified Party of the
commencement of or assertion of any claim or action, suit or proceeding
by a third party in respect of which indemnity may be sought hereunder (a
"Third Party Claim"), to assume the defense of such Third Party Claim which
involves (and continues to involve) solely monetary damages; provided, that
(A) the Indemnifying Party expressly agrees in such notice that, as between
the Indemnifying Party and the Indemnified Party, solely the Indemnifying
Party shall be obligated to satisfy and discharge the Third Party Claim,
(B) such Third Party Claim does not include a request or demand for
injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the
Indemnified Party of the ability of the Indemnifying Party to satisfy the
full amount of any adverse monetary judgment that is reasonably likely to
result. The Indemnifying Party shall be deemed to have satisfied the
condition set forth in clause (C) of the proceeding sentence if it is a
regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party shall
settle any Third Party Claim without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as the case may
be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither Parent
nor Buyer (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages incurred unless
the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"),
in which case Seller shall then be liable for Damages in excess of the
Threshold Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the
cumulative aggregate indemnity obligation of Citizens and its Affiliates
under Section 7.4 of this Agreement and the Related Purchase Agreements
shall not exceed $60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that Parent
or Buyer (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages in respect of
intentional and wilful breaches of covenants or agreements in this
Agreement or any of the Retained Liabilities other than the Specified
Liabilities irrespective of the Threshold Amount or the Ceiling (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful breach). As used herein, the "Specified Liabilities"
shall mean the Retained Liabilities arising from claims made after the
Closing
59
<PAGE>
California
Date which (i) do not relate to matters within the scope of clauses
(u), (v), (w) and (x) of Section 7.3.2; (ii) were not known to the Seller
Parties on or prior to Closing; and (iii) relate exclusively to the
Acquired Assets or the Business prior to the Closing Date. Notwithstanding
anything to the contrary in this Section 7.4, Parent or Buyer (or the other
Persons for which they can claim indemnification) shall be entitled to
indemnification for Damages in respect of a breach of Section 3.2, 3.12 or
3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer under this
Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed
made) by Seller, Parent or Buyer in or pursuant to this Agreement or any of
the Transaction Documents or (y) any breach or failure to perform any
covenant or agreements set forth in this Agreement or any of the
Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j) below, no right
to indemnification under this Section 7.4 shall be limited by reason of any
investigation or audit conducted before or after the Closing of any party
hereto including, without limitation, the knowledge of such party of any
breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such Damages
shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance proceeds covering
the Damages or otherwise recovers payments in respect of such Damages
from any other source (whether in a lump sum or stream of payments);
or
(B) the Indemnified Party's Tax liability is actually reduced as
a result of a tax benefit to which the Indemnified Party becomes
entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under this Section
7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by
Seller pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable efforts to give
timely and effective written notice to the appropriate insurance carrier(s)
of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management
60
<PAGE>
California
practices, appear likely to give rise to a claim against Buyer that is
likely to involve one or more insurance policies of Buyer. Any such notice
shall be given in good faith by Buyer without regard to the possibility of
indemnification payments by Seller under this Section 7.4, and shall be
processed by Buyer in good faith and in a manner consistent with its risk
management practices involving claims for which no third party contractual
indemnification is available. Buyer agrees that (i) if it is entitled to
receive payment from Seller for Damages arising under or pursuant to a
breach of the representation and warranty set forth in Section 3.10, and
(ii) if Buyer has obtained title insurance which may cover the claim or
matter giving rise to such Damages, then (iii) such title insurance shall
be primary coverage and Buyer will make a claim under the title insurance
if such claim can be made in good faith before enforcing its right to
receive payment from Seller. Buyer shall be under no obligation to obtain
title insurance or prosecute such claim (other than the initial filing of
such claim).
(l) If at any time subsequent to the receipt by an Indemnified Party
of an indemnity payment hereunder, such Indemnified Party (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with
respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section
7.4.2(i)(A) and a tax benefit pursuant to Section 7.4.2(i)(B)) (the
"Recovery"), such Indemnified Party shall promptly pay to the Indemnifying
Party an amount equal to the amount of such Recovery, less any expense
incurred by such Indemnified Party (or its Affiliates) in connection with
such Recovery, but in no event shall any such payment exceed the amount of
such indemnity payment;
(m) In the event of any indemnification claim under this Section 7.4
involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with
the Indemnifying Party in the defense of any such claim under this Section
7.4. Without limiting the generality of the foregoing, the Indemnified
Party shall furnish the Indemnifying Party with such documentary or other
evidence as is then in its or any of its Affiliates' possession as may
reasonably be requested by the Indemnifying Party for the purpose of
defending against any such claim. Whether or not the Indemnifying Party
chooses to defend or prosecute any claim involving a third party, all the
parties hereto shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL
FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
61
<PAGE>
California
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets or the
Business to Buyer. In addition, Seller will execute such documents and financing
statements as Buyer may reasonably request from time to time to evidence
transfer of the Acquired Assets to Buyer in accordance with this Agreement,
including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing of
any registration statement or periodic report of Buyer or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall provide
Buyer (a) by April 30, 2000 or within 120 days after Buyer's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly (and in
any event no later than five (5) Business Days following receipt) deliver all
such payments with respect to accounts receivable from customers of the Business
received on and after the Closing Date (including but not limited to negotiable
instruments tendered in payment of accounts receivable assigned to Buyer
hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have participated
jointly in the negotiation and drafting of this Agreement and the Transaction
Documents. In the event any ambiguity or question of intent or interpretation
arises, this Agreement and the Transaction Documents shall be construed as if
drafted jointly by Parent, Buyer and the Seller Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
62
<PAGE>
California
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8229
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
63
<PAGE>
California
If to Buyer:
California-American Water Company
880 Kuhn Drive
Chula Vista, CA 91914
Fax: (619) 656-2406
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
64
<PAGE>
California
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
74
<PAGE>
California
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto; provided that Seller
may assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the transactions contemplated hereby
as a like-kind exchange of property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Disclosure of any fact or item in any
Schedule referenced by a particular paragraph or Section in this Agreement
shall, should the existence of the fact or item or its contents be clearly
related to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any dispute,
controversy or claim between the parties relating to, arising out of or in
connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in good
faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation
to assist in the negotiations. Discussions and correspondence among the
parties' representatives for purposes of these negotiations shall be
treated as confidential information developed for the purposes of
settlement, exempt from discovery and production, and without the
concurrence of both parties shall
65
<PAGE>
California
not be admissible in the arbitration described below, or in any lawsuit.
Documents identified in or provided with such communications, which are not
prepared for purposes of the negotiations, are not so exempted and may, if
otherwise admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the parties do not
resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in
effect, of the American Arbitration Association (the "Rules"); provided,
however, that at the election of either party, the arbitration shall take
place before three (3) arbitrators, one arbitrator being selected by
Parent, one arbitrator being selected by Citizen, and the third arbitrator,
knowledgeable in the general subject matter of the dispute, controversy or
claim, being selected by the other two arbitrators. Either party may demand
such arbitration in accordance with the procedures set out in the Rules.
The parties hereto shall use reasonable efforts to coordinate any
arbitration commenced under this Agreement with any arbitration on the same
or similar issues commenced under any of the Related Purchase Agreements so
that the resolution under this Agreement and the similar issues under the
Related Purchase Agreements can be resolved as expeditiously and
efficiently as reasonably practicable. Reasonable efforts shall include use
of a common arbitrator or panel of arbitrators where practicable. The
arbitration shall take place in Newark, New Jersey. The arbitration hearing
shall be commenced within 60 days of such party's demand for arbitration.
The arbitrator(s) shall have the power to and will instruct each party to
produce evidence through discovery (i) that is reasonably requested by the
other party to the arbitration in order to prepare and substantiate its
case and (ii) the production of which will not materially delay the
expeditious resolution of the dispute being arbitrated; each party hereto
agrees to be bound by any such discovery order. The arbitrator(s) shall
control the scheduling (so as to process the matter expeditiously) and any
discovery. The parties may submit written briefs. At the arbitration
hearing, each party may make written and oral presentations to the
arbitrator(s), present testimony and written evidence and examine
witnesses. No party shall be eligible to receive, and the arbitrator(s)
shall not have the authority to award, exemplary or punitive damages. The
arbitrator(s) shall rule on the Dispute by issuing a written opinion within
30 days after the close of hearings. The arbitrators' majority decision
shall be binding and final. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in submitting and
presenting its position with respect to any Dispute to the arbitrator(s);
provided, however, that if the arbitrator(s) determines that the position
taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear
such fees and expenses, and reimburse the prevailing party for all or such
portion of its reasonable costs and expenses in submitting and presenting
its position, as the arbitrator(s) shall reasonably determine to be fair
under the circumstances. Each party to the arbitration shall pay one-half
of the fees and expenses of the arbitrator(s) and the American Arbitration
Association.
(d) Notwithstanding any other provision of this Agreement, (i) either
party may commence an action to compel compliance with this Section 8.6 and
(ii) if any party, as party
66
<PAGE>
California
of a Dispute, seeks injunctive relief or any other equitable remedy,
including specific enforcement, then such party shall be permitted to seek
such injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a mediation
or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended or should be construed to confer upon or give to any Person other than
the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the other Transaction Documents, and the Confidentiality Agreement dated August
2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (i) extend the
time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in representations and warranties by the other party;
(iii) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
67
<PAGE>
California
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF THE
SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR
REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR PREDICTIONS
OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS THAT HAVE
BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings under any
tax bulk sales provisions with respect to the transactions contemplated by this
Agreement.
[Signatures appear on following page]
68
<PAGE>
California
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
--------------------------------------
Robert J. DeSantis, Chief Financial Officer,
Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF CALIFORNIA
By: Robert J. DeSantis
--------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett, Jr.
--------------------------------------
Joseph F. Hartnett, Jr., Treasurer
CALIFORNIA-AMERICAN WATER COMPANY
By: Theodore Jones, Jr.
--------------------------------------
Theodore Jones, Jr., President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by California-American Water Company, a California corporation ("Transferee"),
in favor of Citizens Utilities Company, a Delaware corporation ("citizens"), and
each of the wholly-owned subsidiaries of Citizens named on the signature page
hereof (collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF CALIFORNIA
By:________________________________________________
Name:
Title:
TRANSFEREE:
CALIFORNIA-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
_________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
California-American Water Company, a California corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF CALIFORNIA
By:________________________________________________
Name:
Title:
TRANSFEREE:
CALIFORNIA-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
107726.0
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
<PAGE>
EXHIBIT 10(s)
Illinois
EXECUTION COPY
ASSET AND STOCK PURCHASE AGREEMENT
AMONG
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
ILLINOIS-AMERICAN WATER COMPANY
DATED AS OF
OCTOBER 15, 1999
<PAGE>
Illinois
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS..................................................1
1.1 Certain Definitions..........................................1
ARTICLE 2 THE TRANSACTION.............................................10
2.1 Sale and Purchase...........................................10
2.2 Excluded Assets.............................................11
2.3 Assumption of Certain Liabilities...........................12
2.4 Consent of Third Parties....................................15
2.5 Closing.....................................................16
2.6 Purchase Price..............................................16
2.6.1 Purchase Price.....................................16
2.6.2 Payment of Initial Cash Payment....................16
2.6.3 Estimated Closing Statement........................17
2.6.4 Post-Closing Adjustment to Purchase Price..........17
2.6.5 Adjustment for Certain Liabilities.................19
2.6.6 Additional Adjustment to the Purchase Price........19
2.7 Deliveries and Proceedings at Closing.......................19
2.7.1 Deliveries to each of Parent and IAWC......................19
2.7.2 Deliveries By Parent and IAWC to the Seller Parties........20
2.8 Tax Allocation of Consideration.............................21
2.9 Prorations..................................................21
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................22
3.1 Qualification; No Interest in Other Entities................22
3.2 Authorization and Enforceability............................22
3.3 No Violation of Laws or Agreements..........................23
3.4 Financial Statements........................................23
3.5 No Changes..................................................23
3.6 Contracts...................................................24
3.7 Permits and Compliance With Laws Generally..................25
3.8 Environmental Matters.......................................25
3.9 Consents....................................................27
3.10 Title.......................................................28
3.11 Real Estate.................................................28
3.12 Taxes.......................................................28
3.13 Patents and Intellectual Property Rights....................29
3.14 Accounts Receivable.........................................29
3.15 Labor Relations.............................................29
3.16 Employee Benefit Plans......................................29
3.17 Absence of Undisclosed Liabilities..........................31
3.18 No Pending Litigation or Proceedings........................31
3.19 Supply of Utilities.........................................32
3.20 Insurance...................................................32
3.21 Relationship with Customers.................................32
3.22 WARN Act....................................................32
<PAGE>
Illinois
3.23 Condition of Assets.........................................32
3.24 Brokerage...................................................32
3.25 All Assets..................................................33
3.26 Year 2000 Matters...........................................33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND IAWC...........34
4.1 Organization and Good Standing..............................34
4.2 Authorization and Enforceability............................34
4.3 No Violation of Laws or Agreements..........................34
4.4 Consents....................................................35
4.5 Financing...................................................35
4.6 Brokerage...................................................35
4.7 Insurance...................................................35
ARTICLE 5 ADDITIONAL COVENANTS........................................36
5.1 Conduct of Business.........................................36
5.2 Negotiations................................................37
5.3 Disclosure Schedules........................................38
5.4 Mutual Covenants............................................38
5.5 Filings and Authorizations..................................39
5.6 Public Announcement.........................................39
5.7 Further Assurances..........................................40
5.8 Cooperation.................................................40
5.9 Employees; Employee Benefits................................41
5.10 Employee Pension Plan.......................................44
5.11 Employee Savings Plan.......................................44
5.12 Welfare Benefits............................................45
5.13 Taxes.......................................................46
5.14 Intentionally Omitted.......................................46
5.15 Citizens' Guarantees and Surety Instruments.................46
5.16 Assumption of Seller Debt...................................47
5.17 Schedule of Permits.........................................49
5.18 Title Information...........................................49
5.19 Transaction with Related Parties............................49
5.20 Approval by Citizens........................................50
5.21 Supplemental Information....................................50
5.22 Non-Competition.............................................50
5.23 Intentionally Omitted.......................................50
5.24 IDRB Obligations............................................51
5.25 Cooperation with Respect to Like-Kind Exchange..............51
5.26 Transition Plan.............................................52
5.27 Procedures regarding Refunds of Advances....................52
5.28 Title Insurance.............................................52
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...........................53
6.1 Conditions Precedent to Obligations of IAWC and Parent......53
6.1.1 Performance of Agreements; Representations and Warranties...53
6.1.2 Opinion of Counsel..........................................53
<PAGE>
Illinois
6.1.3 HSR Act.....................................................53
6.1.4 Required PUC and Other Consents.............................53
6.1.5 Injunction; Litigation......................................54
6.1.6 Documents...................................................54
6.1.7 Related Closings............................................54
6.2 Conditions Precedent to Obligations of Seller Parties.......54
6.2.1 Performance of Agreements; Representations and Warranties...55
6.2.2 Opinion of Counsel..........................................55
6.2.3 HSR Act.....................................................55
6.2.4 Required PUC and Other Consents.............................55
6.2.5 Injunction; Litigation......................................56
6.2.6 Documents...................................................56
6.2.7 Related Closings............................................56
6.3 Termination.................................................56
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS................................57
7.1 Certain Taxes and Expenses..................................57
7.2 Maintenance of Books and Records............................57
7.3 Survival....................................................57
7.4 Indemnification.............................................60
7.4.1 General Indemnification Obligations................60
7.4.2 General Indemnification Procedures.................61
7.4.3 Indemnification for Negligence.....................64
7.5 UCC Matters.................................................64
7.6 Financial Statements........................................64
7.7 Collection of Receivables...................................65
ARTICLE 8 MISCELLANEOUS...............................................65
8.1 Construction................................................65
8.2 Notices.....................................................65
8.3 Successors and Assigns......................................67
8.4 Exhibits and Schedules......................................68
8.5 Governing Law...............................................68
8.6 Dispute Resolution..........................................68
8.7 Severability................................................69
8.8 No Third Party Beneficiaries................................69
8.9 Entire Agreement............................................69
8.10 Amendment and Waiver........................................70
8.11 Counterparts................................................70
8.12 Headings....................................................70
8.13 Definitions.................................................70
8.14 No Implied Representation...................................70
8.15 Construction of Certain Provisions..........................71
8.16 Bulk Sales..................................................71
<PAGE>
Illinois
LIST OF SCHEDULES
Schedule 1.1.1(a) . . . . . . . . .. . . . . . . . . . . . . . . . Real Estate
Schedule 1.1.10 . . . . . . . . . .. . . . . . . . . . . .Assumed Indebtedness
Schedule 1.1.51 . . . . . . . . . . . . . . . . . . . . . . . . IDRB Documents
Schedule 2.2.12 . . . .. . . . . . . . . . . . . . . . . . . . . Excluded Assets
Schedule 2.6 . . . . . . . .. . . . . . . . . . . . . . . . . . Purchase Price
Schedule 3.3 . . . . . . . . . . . . . . . No Violation of Laws or Agreements
Schedule 3.4 . . . . . . . . . . . . . . . . . . . . . .Financial Statements
Schedule 3.5 .. . . . . . . . . . . . . . . . . . . . . . . . . . . No Changes
Schedule 3.6 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts
Schedule 3.7 . . . . . . . . . . . Permits and Compliance with Laws Generally
Schedule 3.8 . . . . . . . . . . . . . . . . Environmental Matters - Generally
Schedule 3.8.10 . . . . . . . . . . . . . . . . Compliance with Water Standards
Schedule 3.8.11 . . . . . . . . . . . . . . . . . . . . . . . .Deed Restriction
Schedule 3.9 .. . . . . . . . . . . . . . . . . . . .Seller Parties' Consents
Schedule 3.10 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title
Schedule 3.11 . .. . . . . . . . . . . . . . . . . . . .Real Estate Proceedings
Schedule 3.12 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
Schedule 3.15 .. . . . . . . . . . . . . . . . . . . . . . . . Labor Relations
Schedule 3.16.1.. . . . . . . . . . . . . . . . . . . . . Employee Benefit Plans
Schedule 3.16.4. .. . . . . . . . . . . . . Employee Benefit Plans - Compliance
Schedule 3.16.9. .. . . . . . . Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 . . . . . . . . . . . . . . .Absence of Undisclosed Liabilities
Schedule 3.18 . . . . . . . . . . . . . . .No Pending Litigation or Proceedings
Schedule 3.19 . . . . . . . . . . . . . . . . . . . . . . . Supply of Utilities
Schedule 3.20 . .. . . . . . . . . . . . . . . . . . . . . Seller's Insurance
Schedule 3.22 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . WARN Act
Schedule 3.23 . . . . . . . . . . . . . . . . . . . . . . . Condition of Assets
Schedule 3.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . .All Assets
Schedule 3.27 . . . . . . . . . . . . . . . . . . . . . . . . Product Liability
Schedule 4.7 . .. . . . . . . . . . . . . . . . . . . . . . IAWC's Insurance
Schedule 5.1. .. . . . . . . . . . . . . . . . . . . . . . Conduct of Business
Schedule 5.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees
Schedule 5.9.2 . . . . . . . . . . . . . . . . Collective Bargaining Agreements
Schedule 5.12 . . . . . . . . . . . . . . . . . . . . . . . . .Former Employees
Schedule 5.15 . . . . . . . . . . . . . . . . . . . . . . .Citizens' Guarantees
Schedule 5.16 . . . . . . . . . . . . . . . . . . . . . . . Schedule of Permits
Schedule 6.1.7 . . . . . . . . . . . . . . . . . . Related Purchase Agreements
<PAGE>
Illinois
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Parent's and IAWC's Opinion of Counsel
<PAGE>
Illinois
ASSET AND STOCK PURCHASE AGREEMENT
THIS IS AN ASSET AND STOCK PURCHASE AGREEMENT (the "Agreement"), dated as
of October 15, 1999, by and among Citizens Utilities Company, a Delaware
corporation ("Citizens"), Citizens Resources Company, a Delaware corporation
("Citizens Resources"), Citizens Utilities Company of Illinois, an Illinois
corporation ("CUCI"), Citizens Business Services Company, an Illinois
corporation ("CBSC"), and Citizens Lake Water Company, an Illinois corporation
("CLWC" and, together with Citizens, Citizens Resources, CUCI and CBSC, "Seller"
or the "Seller Parties"), and American Water Works Company, Inc., a Delaware
corporation ("Parent"), and Illinois-American Water Company, an Illinois
corporation ("IAWC").
Background
A. The Seller Parties are engaged, among other things, in the business of
storing, supplying, distributing and selling water to the public, wholesale
water transmission, wastewater treatment, and related services and activities in
the State of Illinois (the "Business").
B. CUCI is engaged, among other things, in that part of the Business that
consists of storing, supplying, distributing and selling water to the public,
wastewater treatment, and related services and activities, all in the State of
Illinois.
C. Citizens owns all of the issued and outstanding shares of capital stock
of CLWC (the "CLWC Stock"). CLWC is engaged in that part of the Business that
consists of wholesale water transmission.
D. CBSC and Citizens Resources own certain assets, properties and rights
that relate to the Business, in whole or in part.
E. Parent is a holding company that desires to purchase the CLWC Stock,
substantially all of the assets, properties and rights of Citizens Resources
relating to the Business, and those assets of CBSC that relate in part to the
Business and in part to businesses being acquired under the Related Purchase
Agreements (as that term is defined below).
F. Parent also desires to cause IAWC to purchase (and IAWC desires to
Purchase) substantially all of the assets, properties and rights of CUCI and
those assets, properties and rights of CBSC that primarily relate to the
Business.
G. Citizens desires to sell the CLWC Stock and to cause the sale of such
assets, properties and rights referred to above, on the terms and subject to the
conditions set forth in this Agreement.
<PAGE>
Illinois
Terms
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each Seller
Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in, or, in the case of Citizens Resources
and CBSC, primarily related to, the Business as a going concern of every kind,
nature and description existing on the Closing Date, wherever such assets,
properties and rights are located and whether such assets, properties and rights
are real, personal or mixed, tangible or intangible, and whether or not any of
such assets, properties and rights have any value for accounting purposes or are
carried or reflected on or specifically referred to in Seller's books or
financial statements, including all of the assets, properties and rights
exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a), together with
all fixtures, fittings, buildings, structures and other improvements
erected thereon, and easements, rights of way, water lines, rights of use,
licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related
to the Business (such as appurtenant rights in and to public streets) (the
"Real Estate");
(b) to the extent not included in clause (a) above, all water tanks,
reservoirs, water works, plant and systems, purification and filtration
systems, pumping stations, pumps, wells, mains, water pipes, hydrants,
equipment, machinery, vehicles, tools, dies, spare parts, materials, water
supplies, fixtures and improvements, construction in progress, jigs, molds,
patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to
Section 2.4, all water appropriation and flowage rights of Seller other
than CLWC (it being intended that any such rights of CLWC will remain with
CLWC whose stock is being acquired by Parent) to the extent not transferred
to IAWC upon assignment of the Contracts and Permits to IAWC;
(d) all notes receivable, accounts receivable, accrued utility
revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
2
<PAGE>
Illinois
(e) all unamortized debt expense related to the Assumed Indebtedness,
deferred capital costs, and other deferred charges (excluding deferred
taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and sublicenses
granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments,
agreements and instruments relating to the sale of any assets, services,
properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and
other agreements relating exclusively to the purchase of any assets,
services, properties, materials, or products for the Business; (iii) all
leases of Real Estate exclusively related to the Business; (iv) all other
contracts, agreements and instruments related exclusively to the Business
(other than contracts, agreements and instruments included in the
definition of Real Estate or Permits); and (v) any such contracts,
agreements and other instruments referred to in clauses (i) - (iv)
inclusive, entered into between the date hereof and the Closing Date which
are consistent with the terms of this Agreement and are entered into in the
ordinary course of business consistent with past practice, and including in
the case of clauses (i) - (iv) all such contracts, agreements and
instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances,
and other similar permits or rights obtained from any Authority relating
exclusively to the conduct of the Business and all pending applications
therefor (the "Permits");
(i) books, records, ledgers, files, documents (including originally
executed copies of written Contracts, to the extent available, and copies
to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials,
creative materials, advertising and promotional materials, studies,
reports, sales and purchase correspondence, books of account and records
relating to the Transferred Employees (to the extent such transfer is not
prohibited by law), photographs, records of plant operations and materials
used, quality control records and procedures, equipment maintenance
records, manuals and warranty information, research and development files,
data and laboratory books, inspection processes, in each case, whether in
hard copy or magnetic format, in each instance, to the extent exclusively
relating to the Business, the Acquired Assets or the Transferred Employees;
(j) all rights or choses in action arising out of occurrences before
or after the Closing Date and exclusively related to any of the Acquired
Assets, including third party warranties and guarantees and all related
claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller;
provided, however, that (notwithstanding the foregoing provisions of this
Section 1.1.1(j)), to the extent that Seller pays or discharges a liability
related to the Business or any of the Acquired Assets and related to such
right or chose in action (whether by reason of indemnification under this
Agreement or otherwise), IAWC
3
<PAGE>
Illinois
or Parent, as the case may be, will reassign or reconvey to Seller such
right or chose in action to the extent that such right or chose in action
relates to a recovery of amounts paid to IAWC or Parent, as the case may
be;
(k) all rights to insurance and condemnation proceeds (i) to the
extent relating to the damage, destruction, taking or other impairment of
the Acquired Assets which damage, destruction, taking or other impairment
occurs on or prior to the Closing but only to the extent that the proceeds
exceed the amount of the write-down of the net book value of such Acquired
Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment, (ii) to the extent they relate to
amounts paid by IAWC or Parent, as the case may be, for Damages to the
extent IAWC or Parent, as the case may be, does not receive payment
pursuant to Section 7.4.1(a), but only to the extent IAWC or Parent, as the
case may be, is entitled to indemnification by Seller pursuant to Sections
7.3 and 7.4, and (iii) as provided in Section 4 of the agreement attached
as Exhibit D hereto; and
(l) without limiting the foregoing, but for the avoidance of doubt, in
any case, all of the assets reflected on the Interim Statement of Net
Assets attached as Schedule 3.4.
For purposes of this Agreement, "Citizens Assets" shall mean the CLWC
Stock; "CUCI Assets" shall mean those Acquired Assets owned or held by
CUCI; "Citizens Resources Assets"shall mean those Acquired Assets owned or held
by Citizens Resources; "CBSC Assets" shall mean those Acquired Assets owned or
held by CBSC; and "CLWC Assets" shall mean those Acquired Assets owned or held
by CLWC. For the avoidance of doubt, the "Acquired Assets" include the Citizens
Assets, CUCI Assets, CLWC Assets, Citizens Resources Assets and the CBSC Assets.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section 2.6.4(a)
hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section 5.11.1
hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5 hereof.
4
<PAGE>
Illinois
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in Section
3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and obligations from
and after the Closing Date (except as set forth below) with respect to the IDRB
Financings and IDRB Documents set forth on Schedule 1.1.10. For purposes of
clarity, except as set forth in the next sentence below, "Assumed Indebtedness"
shall not include any liability or obligation to the extent accrued prior to the
Closing Date or to the extent arising out of or relating to an event,
circumstance or occurrence prior to the Closing Date. "Assumed Indebtedness"
shall include the outstanding principal amount and the accrued but unpaid
interest owed by Seller on the debt obligations set forth in the first sentence
of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section 2.3.2
hereof.
1.1.13 "Authority" means any federal, state, local or foreign governmental
or regulatory entity (or any department, agency, authority or political
subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section 3.16.1 hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the Indentures of
Trust, the proceeds from the issuance of which were advanced to Seller pursuant
to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
1.1.19 "Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the Commonwealth of Pennsylvania are authorized
or obligated by law or executive order to close.
1.1.20 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.21 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.22 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
1.1.23 "Citizens" has the meaning set forth in the introduction hereof.
5
<PAGE>
Illinois
1.1.24 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.25 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.26 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.27 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.28 "Collective Bargaining Agreement" means the agreement identified as
such on Schedule 3.6 hereto.
1.1.29 "Competing Transaction" has the meaning set forth in Section 5.2.
1.1.30 "Contracts" has the meaning set forth in Section 1.1.1(g) hereof.
1.1.31 "Control" with respect to any Person means the ownership, directly
or indirectly, of at least a majority of the voting power of each class of
capital stock of such Person entitled to vote in the election of directors of
such Person generally.
1.1.32 "Damages" has the meaning set forth in Section 7.4.1 hereof.
1.1.33 "Disclosure Schedules" means the Schedules referenced in Articles 3,
4 and 5 of this Agreement, as amended or supplemented pursuant to Section 5.3.
1.1.34 "Dispute" has the meaning set forth in Section 8.6.
1.1.35 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.36 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.37 "Equipment and Other Tangible Personal Property" has the meaning set
forth in Section 1.1.1(b) hereof.
1.1.38 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.1.39 "ERISA Affiliate" means (a) any corporation included with any of the
Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.40 "Excluded Assets" has the meaning set forth in Section 2.2 hereof.
6
<PAGE>
Illinois
1.1.41 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.42 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.43 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.44 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.45 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.46 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
1.1.47 "HSR Act" has the meaning set forth in Section 3.9 hereof.
1.1.48 "IAWC" has the meaning set forth in the introduction hereof.
1.1.49 "IAWC's IDRB Obligations" means the obligations of Parent and IAWC
set forth in Section 5.24 (a) and in the instruments to be executed and
delivered by Parent and IAWC on or prior to the Closing Date in accordance with
Section 5.24 (a).
1.1.50 "IAWC's Accountants" means PricewaterhouseCoopers LLP or any firm of
independent public accountants hereafter designated by IAWC for purposes of this
Agreement.
1.1.51 "IDRB Documents" shall mean the Loan Agreements, the Tax Regulatory
Agreements, the Project Tax Certificates, and the other Contracts related
thereto to which Citizens is a party and which are listed on Schedule 1.1.51.
1.1.52 "IDRB Financings" shall mean the indebtedness arising under the Loan
Agreements included among the IDRB Documents.
1.1.53 "Indemnified Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.54 "Indemnifying Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.55 "Intellectual Property" means the trademarks, patents, trade names
and copyrights and applications therefor, inventions, trade secrets, and
confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
7
<PAGE>
Illinois
1.1.56 "Interim Statement of Net Assets" means the Citizens Water Resources
Statement of Net Assets-Illinois, which is attached hereto as Schedule 3.4.
1.1.57 "Interim Statement of Net Assets Date" means June 30, 1999.
1.1.58 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.59 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other encumbrance (including the filing of,
or agreement to give, any financing statement under the Uniform Commercial Code
or statute or law of any jurisdiction).
1.1.60 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Parent or Affiliates of Parent pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) to the extent that it consists of strikes, work
stoppages, walk-outs, slow-downs or other business interruption at the
facilities in Illinois that are part of the Acquired Assets, or (c) solely with
respect to matters arising prior to Closing, to the extent that either (i)
Seller realizes the benefit of insurance maintained by Citizens on or prior to
the Closing Date and IAWC or Parent, as the case may be, receives the cash
proceeds of such insurance to the extent required by Section 1.1.1(k), or (ii)
Seller arranges for IAWC or Parent, as the case may be, to recover payments in
respect of such occurrence or condition from any other source (whether in a lump
sum or stream of payments), it being understood and agreed that a Material
Adverse Effect may have occurred irrespective of such insurance recovery if the
occurrence or condition giving rise to such recovery also causes a non-monetary
material adverse change in or effect upon the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Parent or Affiliates of Parent pursuant to the Related Purchase
Agreements.
1.1.61 "Mortgage Indenture" means Indenture of Mortgage and Deed of Trust
between BNY Western Trust Company (successor in interest to Wells Fargo Bank,
N.A.) and First Interstate Bank of California (as successor trustee to Marine
Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.62 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.63 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.64 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
8
<PAGE>
Illinois
1.1.65 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.66 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.67 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.68 "Prime Rate" means the rate per annum announced from time to time
during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
1.1.69 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.70 "Purchase Price" has the meaning set forth in Section 2.6.1 hereof.
1.1.71 "Real Estate" has the meaning set forth in Section 1.1.1(a) hereof.
1.1.72 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
1.1.73 "Related Purchase Agreements" as the meaning set forth in Section
6.1.7 hereof.
1.1.74 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.75 "Remedial Action" has the meaning set forth in Section 3.8 hereof.
1.1.76 "Retained IDRB Indebtedness" means the indebtedness of the Seller
owing to the issuers of the Bonds and arising under the Loan Agreements included
among the IDRB Documents but only to the extent not included in the Assumed
Indebtedness.
1.1.77 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.78 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.79 "SEC" means the U.S. Securities and Exchange Commission.
1.1.80 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.81 "Seller" and "Seller Parties" have the respective meaning set forth
in the introduction hereof.
1.1.82 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
9
<PAGE>
Illinois
1.1.83 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.84 "Seller's Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.85 "Seller's 401(k) Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.86 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.87 "Taxes" means any federal, state, local and foreign income, payroll,
withholding, excise, sales, use, personal property, use and occupancy, business
and occupation, mercantile, real estate, gross receipts, license, employment,
severance, stamp, premium, windfall profits, social security (or similar
unemployment), disability, transfer, registration, value added, alternative, or
add-on minimum, estimated, or capital stock and franchise and other tax of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
1.1.88 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.89 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.90 "Third Party Claim" has the meaning set forth in Section 7.4(b)(i)
hereof.
1.1.91 "Transferred Accounts" has the meaning set forth in Section 5.11.2
hereof.
1.1.92 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.93 "Transferred Employees" has the meaning set forth in Section 5.9.2
hereof.
1.1.94 "Union Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.95 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.96 "WARN Act" means the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
10
<PAGE>
Illinois
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase.
2.1.1 Subject to the terms and conditions of this Agreement, at the Closing
referred to in Section 2.5 below:
(i) Citizens shall cause CUCI to, and CUCI shall, sell, assign,
transfer, deliver and convey the CUCI Assets to IAWC, and Parent shall
cause IAWC to, and IAWC shall, purchase the CUCI Assets;
(ii) Citizens shall cause CBSC to, and CBSC shall, sell, assign,
transfer, deliver and convey to IAWC, and Parent shall cause IAWC to, and
IAWC shall, purchase the CBSC Assets primarily related to the Business (for
the avoidance of doubt, such CBSC Assets primarily related to the Business
described in this subsection (ii) shall not include any CBSC Assets
described in subsection (iii) of this Section 2.1.1);
(iii) Citizens shall cause CBSC to, and CBSC shall, sell, transfer,
deliver and convey to Parent, and Parent shall purchase, the CBSC Assets
that relate in part to the Business and in part to businesses being
acquired under the Related Purchase Agreements;
(iv) Citizens shall cause Citizens Resources to, and Citizens
Resources shall, sell assign, transfer deliver and convey the Citizens
Resources Assets to Parent, and Parent shall purchase the Citizens
Resources Assets; and
(v) Citizens shall sell, assign transfer, deliver and convey the
Citizens Assets to Parent, and Parent shall purchase the Citizens Assets
(for the avoidance of doubt, "Citizens Assets" is defined in Section 1.1.1
as the CLWC Stock).
2.2 Excluded Assets. The following assets of Seller shall be excluded from
the - Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens' gas,
electric or communications businesses, the material items of which are described
on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank accounts.
2.2.3 except as otherwise set forth herein, assets attributable or related
to any Benefit Plan;
2.2.4 the stock record and minute books of Seller (other than the stock
record and minute books of CLWC);
11
<PAGE>
Illinois
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
2.2.6 except to the extent set forth in Section 2.9, rights to refunds of
Taxes payable with respect to the Business, assets, properties or operations of
any of the Seller Parties or any member of any affiliated group of which any of
them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and accounts
receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to IAWC or
Parent, as the case may be; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Neither Parent nor IAWC shall assume any liabilities of Citizens,
CUCI, Citizens Resources, CBSC, CLWC or any of their Affiliates, except that
IAWC or Parent, as the case may be, shall assume the following specific
liabilities and obligations from their respective Seller Parties:
(a) the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned or
transferred to IAWC or Parent, as the case may be, pursuant to this
Agreement in accordance with the respective terms thereof, except that
neither Parent nor IAWC shall assume any liabilities or obligations for any
breach or default by, or payment obligations of, Seller under such
Contracts and Permits occurring or arising or accruing on or prior to the
Closing Date;
(c) the Assumed Indebtedness and the IAWC's IDRB Obligations;
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common law,
now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment at the Real
12
<PAGE>
Illinois
Estate or into or from any building, structure, pipeline or other facility
at the Real Estate, or from violation of any law relating to the foregoing,
including without limitation, any CERCLA or similar liability under any
federal or state law or regulation, except to the extent Parent or IAWC has
given written notice of a claim for indemnification pursuant to Sections
7.3 and 7.4 hereof prior to the expiration of the claims period set forth
in Section 7.3.2(a) or (b) (and if Parent or IAWC has given written notice
prior to the expiration of such claims period, to the extent that such
claim is not entitled to indemnification under Sections 7.3 and 7.4) (the
foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to unperformed
service obligations, easement and right-of-way relocation obligations, and
construction work in progress, and all engineering and construction
required to complete scheduled construction and other capital projects for
the Business, in each case relating to the Business and outstanding on or
arising after the Closing Date except that neither Parent nor IAWC shall
assume any liabilities or obligations for any breach or default by, or
payment obligations of, Seller under such Contracts and Permits occurring
or arising or accruing on or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for the Transferred
Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to customer
deposits held by Seller on the Closing Date and relating to the Business;
and
(h) all liabilities and obligations imposed on Parent or IAWC by any
PUC in connection with the operation of the Business or the ownership of
the Acquired Assets, including with respect to any liability of the types
that appear as "Accrued Liabilities" and "Non-Current Liabilities" on the
financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by Parent or IAWC
pursuant to Section 2.3.1 above are hereinafter referred to as the "Assumed
Liabilities." At the Closing, each of Parent and IAWC shall (and Parent shall
cause IAWC to) execute and deliver to Seller an assumption agreement, in
substantially the form of the Assumption Agreement attached hereto as Exhibit A
(the "Assumption Agreement"), pursuant to which Parent and IAWC shall assume
their respective Assumed Liabilities. Each of Parent and IAWC hereby irrevocably
and unconditionally waives and releases the Seller Parties from all Assumed
Liabilities and all liabilities or obligations exclusively relating to the
Business or, the Acquired Assets to the extent arising from events or
occurrences after the Closing or to the extent otherwise relating to the period
after the Closing, including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Parent and IAWC on the
one hand, and the Seller Parties on the other hand).
2.3.3 Neither Parent nor IAWC shall assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Parent
or IAWC
13
<PAGE>
Illinois
hereunder as Assumed Liabilities are being retained by the Seller
Parties, (the "Retained Liabilities"). Each of the Seller Parties hereby
irrevocably and unconditionally waives and releases Parent and IAWC from all
Retained Liabilities including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Parent and IAWC on the
one hand, and the Seller Parties on the other hand).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury to
person or property, regardless of when made or asserted, to the extent that
it arises out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by any of the Seller Parties or any
of their Affiliates prior to Closing, or alleged to have been made by any
of such Persons, or to the extent that it is imposed or asserted to be
imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or
any of their Affiliates prior to Closing, including any claim referred to
above in this Section 2.3.3(a) relating to water quality standards, any
claim relating to any product delivered in connection with the performance
of services provided by Seller and any claim seeking recovery for
consequential damages, lost revenue or income;
(b) all refund obligations relating to the advances existing on the
Closing Date for construction of facilities relating to the Business;
(c) except to the extent set forth in Section 2.9, any federal, state,
foreign or local income or other Tax payable with respect to the business,
assets, properties or operations of any of the Seller Parties or any member
of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in connection with
any common plant assets of Seller (other than the liabilities and
obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any nature
owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by
Parent or IAWC after the Closing, that arises out of or relates to events
or conditions to the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any liability,
obligation or responsibility of any of the Seller Parties, or any of their
Affiliates or predecessors, whether based on statutory or common law, but
only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous Substances into the environment
or into or from any building, structure, pipeline or other facility or
14
<PAGE>
Illinois
relating to or arising from the generation, use, storage, treatment,
disposal, transport or other handling of Hazardous Substances or sale or
product containing Hazardous Substances from violation of any law relating
to the foregoing (but only as such law is interpreted, amended and in
effect on the Closing Date) including without limitation (A) any CERCLA or
similar liability under any federal or state law or regulation as
interpreted, amended and in effect on the Closing Date or (B) any such
liability associated with businesses or assets of the Seller Parties other
than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the extent
arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any contract,
commitment, instrument or agreement (1) except for IAWC's IDRB Obligations
(subject to the penultimate sentence of Section 2.4) that are not
transferred to Parent or IAWC as part of the Acquired Assets, or (2) that
relates to any breach or default (or to the extent that it relates to an
event which would, with the passing of time or the giving of notice, or
both, constitute a default) under any Contract, instrument or agreement or
to any services to be provided by Seller under any such Contract,
instrument or agreement to the extent that such services were performed or
were required to have been performed on or prior to the Closing Date;
(i) any liability or obligation in respect of the Excluded Assets;
(j) any liability or obligation of any of the Seller Parties or any of
their Affiliates existing as a result of any act, failure to act or other
state of facts or occurrence which constitutes a breach or violation of any
of Seller's representations, warranties, covenants or agreements contained
in this Agreement, except to the extent set forth in Section 7.4;
(k) except for the Assumed Liabilities as specifically and expressly
set forth herein, any liability to the extent arising out of or relating to
the ownership or operation of the Acquired Assets or the Business prior to
the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to
events or conditions occurring before the Closing Date, and any liability
associated with any business other than the Business; or
(l) for the avoidance of doubt, even though Parent is acquiring the
CLWC Stock and is not directly acquiring the assets of CLWC, all
liabilities of CLWC other than those referred to in the last sentence of
Section 3.28 shall be considered Retained Liabilities subject to the
indemnification provisions of clause (B) of Section 7.4.1(a).
2.4 Consent of Third Parties. On the Closing Date, Citizens and each of the
other Seller Parties shall, and Citizens shall cause each of the other Seller
Parties to, assign or transfer to Parent or IAWC, and Parent and IAWC shall
assume (and Parent shall cause IAWC to assume) the Contracts and the Permits
which are to be transferred to Parent and IAWC respectively as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation
15
<PAGE>
Illinois
thereof) of the other party thereto or any other third party, and such consent
shall not be obtained prior to Closing, this Agreement shall not constitute an
agreement to assign any such Contract or Permit included in the Acquired Assets.
In order, however, to provide IAWC or Parent, as the case may be, the full
realization and value of every Contract of the character described in the
immediately preceding sentence, Seller agrees that on and after the Closing, it
will, at the request and under the direction of Parent or IAWC, in the name of
Seller or otherwise as Parent or IAWC shall specify, take all reasonable actions
(including without limitation the appointment of IAWC or Parent, as the case may
be, as attorney-in-fact for Seller to proceed at Parent's or IAWC's sole cost
and expense) and do or cause to be done all such things as shall in the
reasonable opinion of IAWC or Parent, as the case may be, be necessary (a) to
assure that the rights of Seller or its Affiliates under such Contracts shall be
preserved for the benefit of IAWC or Parent, as the case may be, and (b) to
facilitate receipt of the consideration to be received by Seller or its
Affiliates in and under every such Contract. To the extent that IAWC or Parent,
as the case may be, does receive the benefits of any such Contract pursuant to
the preceding sentence, such Contract shall be a Contract "assigned or
transferred to IAWC or Parent, as the case may be, pursuant to this Agreement"
within the meaning of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall
in any way diminish the obligations of Seller to obtain consents and approvals
under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase described in Section 2.1 hereof (the "Closing")
shall take place at 10 a.m., East Coast time, on a date mutually satisfactory to
Parent, IAWC and Seller Parties which is no later than the fifth Business Day
after satisfaction (or waiver) of the conditions to Closing set forth in
Sections 6.1 and 6.2 hereof (other than those conditions which require the
delivery of any documents or the taking of other action, at the Closing) at the
offices of Fleischman and Walsh, LLP, 1400 Sixteenth Street, N.W., Washington,
D.C. 20036, or on such other date and at such other time or place as may be
mutually agreed upon by the parties hereto (the "Closing Date"). Upon payment of
the Initial Cash Payment by IAWC and Parent and confirmed receipt thereof by
Seller or the Escrow Agent pursuant to Section 2.6.2 below, Seller shall operate
the Business at the direction of and under the control of Parent or IAWC as to
the respective Acquired Assets acquired by each. Notwithstanding the foregoing,
the Closing shall be deemed to be effective as of 11:59 p.m. on the Closing Date
for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price to be paid by Parent and IAWC for the
purchase of their respective Acquired Assets (including the CLWC Stock) (the
"Purchase Price") shall be: (i) $253,160,000 in cash representing the sum of the
amounts owing by Parent and IAWC, respectively, set forth on Schedule 2.6 (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by IAWC or
Parent, as the case may be, of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and conditions
of this agreement, the Initial Cash Payment shall be paid by Parent and IAWC for
the respective
16
<PAGE>
Illinois
Acquired Assets being acquired by each on the Closing Date by federal or other
wire transfer of immediately available funds to the account designated by Seller
in writing at least two (2) Business Days prior to the Closing Date. If the
Closing Date is not a business day on which financial institutions are open and
operating, then on or before the last business day on which financial
institutions are open and operating before the Closing Date, Parent and IAWC
shall deliver the Initial Cash Payment to Parent's lead bank (the "Escrow
Agent") in immediately available funds in U.S. dollars. The Escrow Agent shall
keep amounts deposited by Parent and IAWC in separate accounts. Upon receipt,
the Escrow Agent shall invest the Initial Cash Payment in an interest-bearing
account mutually agreed upon by Seller, Parent and IAWC. At Closing, Parent and
IAWC shall sign and deliver to Citizens a statement which confirms that the
Closing has occurred and which instructs the Escrow Agent to transfer to
Citizens the funds representing the Initial Cash Payment, plus an amount
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to IAWC and Parent from
their respective accounts. The fees and expenses of Escrow Agent shall be paid
by Parent and IAWC in proportion to the amount deposited by each.
2.6.3 Estimated Closing Statement. At least five (5) business days prior to
the Closing Date, Citizens shall deliver to Parent and IAWC a statement of net
assets (the "Estimated Statement of Net Assets") reflecting its good faith
calculation of the Acquired Assets of the Business as of the last day of the
latest calendar month for which financial statements of Seller are available
(the "Estimated Adjusted Net Assets"). The Estimated Statement of Net Assets
shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than
$163,999,975 (such increases or decreases, as the case may be, are collectively
referred to herein as the "Estimated Net Asset Adjustment"). For the avoidance
of doubt, the increase or decrease in the Base Cash Purchase Price described in
this Section 2.6.3 shall be applied to the amounts owing by Parent and IAWC as
referenced on Schedule 2.6 as such increase or decrease relates to the Acquired
Assets being acquired by each of Parent and IAWC, respectively.
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and
deliver to Parent and IAWC a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflect the Acquired Assets, as of 11:59
p.m. on the Closing Date, based on actual financial performance and
calculated in the same manner, utilizing the same accounting principles,
policies and methods utilized in preparing the Interim Statement of Net
Assets (excluding for this purpose any change required by GAAP or any
Authority since June 30, 1999), together with (A) an audit report of
Seller's Accountants stating that the Closing Statement of Net Assets have
been prepared utilizing the same accounting principles, policies and
methods used in the preparation of the Interim Statement of Net Assets and
(B) a calculation of Citizens' determination of the amount of increase or
decrease in the amount of the Acquired Assets of the Business from the
Interim Statement of Net Assets Date to the Closing Date which is derived
from the Closing Statement of Net Assets ("Seller's Adjustment Amount").
The Closing Statement of Net Assets shall not give effect to any purchase
accounting
17
<PAGE>
Illinois
treatment arising from Parent's and IAWC's purchase of their respective
Acquired Assets. IAWC and Parent shall pay the fees and expenses of
Seller's Accountants incurred in connection with this Section 2.6.4,
each bearing the same proportion of such fees and expenses as its
respective portion of the Purchase Price bears to the total Purchase Price.
Parent and IAWC agree to cooperate, and agree to cause IAWC's Accountants
to cooperate, with Citizens and Seller's Accountants in connection with the
preparation of the Closing Statement of Net Assets, and related
information, and shall provide to Citizens and Seller's Accountants such
books, records and information as may be reasonably requested from time to
time, including the work papers of IAWC's Accountants. Citizens will give
Parent and IAWC and their representatives access during the normal business
hours of Citizens to the personnel, books and records of Citizens and the
work papers of Seller's Accountants to assist Parent and IAWC in the review
of the Closing Statement of Net Assets and related matters. Parent and IAWC
agree that, following the Closing through the date on which the Closing
Statement of Net Assets are delivered, they will not take any actions with
respect to any accounting books, records, policies or procedures on which
the Closing Statement of Net Assets are to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner
and utilizing the methods required hereby. Without limiting the generality
of the foregoing, no changes shall be made in any reserve or other account
existing as of the date of the Interim Statement of Net Assets except in
the ordinary course or as a result of events occurring after the date of
the Interim Statement of Net Assets and, in such event, only in a manner
consistent with past practices of Seller.
(b) Parent and IAWC may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Parent or
IAWC shall notify Citizens in writing of each disputed amount, and specify
the amount thereof in dispute and the basis of such dispute, within 30 days
of the Parent's or IAWC's receipt of the Closing Statement of Net Assets
and the Seller's Adjustment Amount (such 30 day period hereinafter referred
to as the "Review Period"). In the event of a dispute with respect to the
Closing Statement of Net Assets, the Seller's Adjustment Amount or the
Statement of Certain Assumed Liabilities, Parent, IAWC and Seller shall
attempt to reconcile their differences and any resolution by them as to any
disputed amounts shall be final, binding and conclusive on the parties. If
Parent, IAWC and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Parent's or IAWC's written notice
of dispute to Seller, then Parent, IAWC and Seller shall submit the amounts
remaining in dispute (together with any amounts remaining in dispute
pursuant to Section 2.6.4(b) of each of the Related Purchase Agreements)
for resolution to an independent accountant firm of national reputation
mutually appointed by Seller, Parent, and IAWC (such independent accounting
firm being herein referred to as the "Third Accounting Firm"), which shall
be requested to determine and report to the parties, within 30 days after
such submission, upon such remaining disputed amounts, and such report
shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting
Firm shall be allocated between Parent and IAWC on the one hand and Seller
Parties on the other hand so that the Seller Parties' share of such fees
and disbursements shall be in the same proportion that the aggregate amount
of such remaining disputed amounts so submitted by Parent and IAWC to the
Third Accounting Firm that is unsuccessfully disputed by Parent and IAWC
(as finally determined by the Third Accounting Firm) bears to the total
amount of such remaining disputed amounts so submitted by Parent and IAWC
to the Third Accounting Firm. Parent and IAWC shall pay the fees and
expenses of IAWC's Accountants incurred in connection with this Section
2.6.4(b). Seller's Adjustment Amount, if there are no
18
<PAGE>
Illinois
disputes with respect thereto, or Seller's Adjustment Amount as adjusted
after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the
Final Net Asset Adjustment exceeds the Initial Cash Payment, then within
five (5) business days after final determination thereof Parent and IAWC
shall pay Seller the amount of such excess together with interest thereon
for the period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check. If the
Initial Cash Payment exceeds the sum of the Base Cash Purchase Price plus
(or minus, if negative) the Final Net Asset Adjustment, then within five
(5) business days after final determination thereof Seller shall pay Parent
and IAWC the amount of such excess together with interest thereon for the
period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check. The
amount paid by or to Parent and/or IAWC under this Section 2.6.5(c) shall
be based on the appropriate adjustments to the prices of the Acquired
Assets being acquired by each of Parent and IAWC, respectively.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery of
the Estimated Statement of Net Assets, Citizens also shall deliver to Parent
and IAWC a statement reflecting (i) the customer and other deposits held by
Seller on the Closing Date and relating to the Business, (ii) the total amount
of the Assumed Indebtedness that will be outstanding immediately after the
Closing Date, (iii) the items specified in Section 2.9 to the extent set forth
therein, and (iv) without duplications of any amount included in clause (i)
above any payments received by Seller under the Contracts and Permits for
obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent and IAWC a statement showing any adjustments to the Statement of Certain
Assumed Liabilities and the Base Cash Purchase Price shall be further adjusted
to give effect to any such adjustments to the Statement of Certain Assumed
Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The aggregate amount of
the Base Cash Purchase Price (and the portion thereof to be paid by IAWC in
accordance with Section 2.6) shall be decreased by an amount equal to the
proceeds of Seller's sale of the property described in Item 7 of Schedule 3.5
(net of expenses) (which property, for the avoidance of doubt, was property
previously used by IAWC in connection with the Business) less the sum of (i) the
federal and state income taxes payable by Seller in respect of those proceeds
and (ii) the book value of such property, as of June 30, 1999, on Seller's
books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to each of Parent and IAWC. Citizens shall, and shall
cause Seller to, deliver to each of Parent and IAWC with respect to the Acquired
Assets acquired by each:
19
<PAGE>
Illinois
(a) bills of sale and instruments of assignment to the Acquired
Assets, duly executed by Citizens, CUCI, CBSC and Citizens Resources, as
the case may be, substantially in the form of Exhibit B hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the Acquired
Assets, duly executed by Citizens, CUCI, CBSC and Citizens Resources, as
the case may be (together with any other transfer forms necessary to
transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to the parcels
of Real Estate owned in fee simple by Citizens, CUCI and Citizens
Resources, as the case may be (or, with respect to any such parcel which
was acquired by Citizens, CUCI and Citizens Resources (or its predecessor
in interest, in cases involving mergers) by deed without covenant or
warranty of title, a quit claim deed without covenant or warranty of title)
to Parent or IAWC, as the case may be, duly executed and acknowledged by
Citizens, CUCI and Citizens Resources as appropriate, and in recordable
form;
(e) the Foreign Investment in Real Property Tax Act Certification and
Affidavit for each parcel of Real Estate, duly executed by Citizens, CUCI
and Citizens Resources, as appropriate (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and
certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly
executed by Citizens;
(i) the CLWC Stock by delivering the certificate representing the CLWC
Stock, endorsed or accompanied by a stock power (in form reasonably
satisfactory to counsel to Parent), in favor of Parent;
(j) duly executed letters of resignation, effective as of the Closing
Date, of all the officers and directors of CLWC; and
(k) all such other instruments of conveyance as shall, in the
reasonable opinion of Parent, IAWC and their counsel, be necessary to
transfer to Parent and IAWC, as the case may be, the Acquired Assets being
acquired by each in accordance with this Agreement and where necessary or
desirable, in recordable form.
20
<PAGE>
Illinois
2.7.2 Deliveries By Parent and IAWC to the Seller Parties. Each of Parent
and IAWC shall, and Parent shall cause IAWC to, deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount equal to
the Initial Cash Payment payable by each;
(b) Assumption Agreements, duly executed by IAWC and Parent, with
respect to the liabilities being assumed by each;
(c) the certificates, opinions and other documents required to be
delivered by Parent and/or IAWC pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent and
IAWC to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Tax Allocation of Consideration. Parent, IAWC and Seller shall use
their good faith efforts to agree upon the allocation (the "Allocation") of the
Purchase Price, the Assumed Liabilities and other relevant items (including, for
example, adjustments to the Purchase Price but excluding amounts attributable to
the CLWC Stock) to the individual assets or classes of assets other than the
CLWC Stock within the meaning of Section 1060 of the Code. If Parent, IAWC and
Seller agree to such Allocation on or before ninety (90) days after the Closing
Date, Parent, IAWC and Seller covenant and agree that (i) the values assigned to
the assets by the parties' mutual agreement shall be conclusive and final for
all purposes, and (ii) none of Parent, IAWC or Seller will take any position
before any Authority or in any proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Parent, IAWC and Seller
cannot agree to an Allocation on or before ninety (90) days after the Closing
Date, Parent, IAWC and Seller covenant and agree to file and to cause their
respective Affiliates to file, all Tax returns and schedules thereto (including,
for example, amended returns, claims for refund, and those returns and forms
required under Section 1060 of the Code and any Treasury regulations promulgated
thereunder) consistent with each of Parent, IAWC and Seller's good faith
Allocations, unless otherwise required because of a change in any legal
requirement.
2.9 Prorations. The parties hereto agree that the following expenses shall
be calculated and pro rated as of the Closing Date, with Seller responsible for
such expenses and to receive the benefit for the same for the period through and
including the Closing Date, and Parent and IAWC to be responsible for and to
receive the benefit of the same after the Closing Date with respect to the
Acquired Assets being acquired by each:
2.9.1 personal and real property taxes (on the basis on which the same were
assessed and paid) and sales, occupation and use taxes, in each case, to the
extent relating to the Business and except as otherwise provided in Section 7.1;
21
<PAGE>
Illinois
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in each
case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Parent or
IAWC, as the case may be, pursuant to Section 2.3 (except to the extent provided
in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other Contracts
(except to the extent provided in Section 2.3.3(h)), and fees under Permits to
be transferred to Parent or IAWC, as the case may be, as part of the Acquired
Assets;
2.9.5 water, sewer and other similar types of taxes, and installments on
special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
2.10 Intercompany Accounts. Notwithstanding any other provision of this
Agreement, any amounts due to CLWC from any of its Affiliates as of the Closing
Date (collectively, "Affiliate Receivables") shall be netted against any amounts
due from CLWC to any of its Affiliates as of the Closing Date (collectively,
"Affiliate Payables"). Seller shall arrange for the elimination of any net
excess of Affiliate Receivables due to CLWC, or any net excess of Affiliate
Payables due from CLWC, so that the balances of the Affiliate Receivables and
Affiliate Payables of CLWC as of the Closing Date shall be zero.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and IAWC as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to own, lease and operate the
Acquired Assets and the Business as presently being conducted. Each of the
Seller Parties is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions wherein the nature of the business conducted by
it or such Seller Party's ownership or use of assets and properties make such
qualification necessary, except such failures to be qualified or to be in good
standing, if any, which when taken together with all such other failures of the
Seller Parties do not have a Material Adverse Effect.
3.1.2 Except for the CLWC Stock, no shares of any corporation or any
ownership or other investment interest, either of record, beneficially or
equitably, in any Person are included in the Acquired Assets.
22
<PAGE>
Illinois
3.2 Authorization and Enforceability. Each of the Seller Parties has full
corporate power and authority to execute, deliver and perform this Agreement and
all other agreements and instruments to be executed by them in connection
herewith (such other agreements and instruments being hereinafter referred to
collectively as the "Transaction Documents"). The execution, delivery and
performance by each of the Seller Parties of this Agreement and the Transaction
Documents to which such Seller Party is a party have been duly authorized by all
necessary corporate action on the part of each of them. This Agreement has been
duly executed and delivered by each of the Seller Parties, and as of the Closing
Date the other Transaction Documents will be duly executed and delivered by the
Seller Parties. This Agreement is a legal, valid and binding obligation of each
Seller Party, enforceable against them in accordance with its terms except as
such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which each of the Seller Parties is a party will be
duly executed and delivered by each of the Seller Parties and will constitute
the legal, valid and binding obligations of each of the Seller Parties,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or the CLWC Stock or give to
others any interests or rights therein under (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit or other
agreement or commitment, oral or written, to which any of the Seller Parties is
a party, or by which the Business or any of the Acquired Assets may be bound or
affected, except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or rights which,
individually and in the aggregate, do not have a Material Adverse Effect or will
be cured, waived or terminated prior to the Closing Date, or (ii) any judgment,
injunction, writ, award, decree, restriction, ruling, or order of any court,
arbitrator or Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than those
violations or conflicts which individually and in the aggregate would not have a
Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Parent and
IAWC the statement of income of the Business (the "Income Statement") and the
Interim Statement of Net Assets contained in Schedule 3.4 (collectively, the
"Financial Statements"). The Income Statement (a) fairly presents in all
material respects the results of operations of the Business in accordance with
generally accepted accounting principles ("GAAP") consistently applied except
for the omission of
23
<PAGE>
Illinois
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the date
hereof, except as disclosed in Schedule 3.5, the Seller Parties have conducted
the Business as presently operated only in the ordinary course of business
consistent with past practice. Since the Interim Statement of Net Assets Date,
except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries or
other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by the Collective Bargaining Agreement;
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to or
for the use of any Permit of the Business which individually or in the aggregate
would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and as set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business,
except in the ordinary course of business consistent with past practice.
24
<PAGE>
Illinois
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than (i) with respect to which the Business' total
annual liability or expense is less than (a) $250,000 per such Contract and (b)
$6,123,000 per all such Contracts (when taken together with similar contracts
omitted from Schedule 3.6 of the Related Purchase Agreements), and (ii)
Contracts that may be terminated by Seller, without penalty, on notice of 90
days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Parent or IAWC a
correct and complete copy of each written agreement listed in Schedule 3.6.
Except as disclosed on Schedule 3.6, with respect to each Contract, neither
Seller nor, to the Seller Parties' knowledge, any other party thereto, is in
breach or default, and to the Seller Parties' knowledge, no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the Contract, except in
each case where such breaches, terminations, modifications, accelerations or
defaults, individually or in the aggregate, do not have a Material Adverse
Effect. Except as set forth in Schedule 3.6, there are no disputes pending or to
the best of the Seller Parties' knowledge, threatened, under or in respect of
any of the Contracts, other than those that individually and in the aggregate do
not have a Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice, citation,
summons or order has been issued, no outstanding complaint has been filed, no
outstanding penalty has been assessed and no investigation or review is pending
or, to the knowledge of the Seller Parties, threatened, by any Authority or
other Person with respect to any alleged (i) violation by Seller or any
Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
25
<PAGE>
Illinois
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto, and
with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate, or, in connection with the Business or Acquired
Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request for information
with respect to, and to the best of the Seller Parties' knowledge, Seller has
not been designated a potentially liable party for Remedial Action, in
connection with any Real Estate, or, as of the date hereof, with respect to the
Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use or
storage of Hazardous Substances as is incidental to the conduct of the Business,
which use and storage is or has been in compliance with Environmental Laws, and
which use and storage has not caused any condition that requires Remedial
Action, no Real Estate has been used for the storage, treatment, generation,
processing, production or disposal of any Hazardous Substances or as a landfill
or other waste disposal site in violation of any Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real Estate or, as of the date hereof, with
respect to the Business or the Acquired Assets or at any other facility,
location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous Substance
managed or generated by or on behalf of Seller at the Real Estate or in
connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real
26
<PAGE>
Illinois
Estate, that are reasonably likely to result in any material reduction in the
quality or quantity of water available for supply to the Seller Parties'
customers.
3.8.9 The Seller Parties will within thirty (30) days of the date hereof
provide Parent or IAWC with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual Report on
Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section 3.8.10(a)
and
(b), Affiliates and predecessors of the Seller Parties) are and have
been for the past three years in full compliance with all federal and state
primary drinking water standards; (b) The Seller Parties are and have been
for the past three years in full compliance with all federal and state
secondary drinking water standards; and
(c) As to all outstanding violations of state or federal drinking
water standards, as of the date hereof, the Seller Parties have completed
or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to
correct or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller Parties
will be required to place any notice or restriction relating to the presence of
Hazardous Substances in the deed to any Real Estate, or in any written
instrument accompanying this Agreement, and no Real Estate has such a notice or
restriction in its deed or any other written instrument relating to the
purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means
all actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
27
<PAGE>
Illinois
3.9 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment or transfer of the Contracts and
Permits contemplated hereby, except (i) as required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) as specified on
Schedule 3.9, (iii) as required by the IDRB Documents, and (iv) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired Assets
constituting personal property, good and marketable title in fee simple to all
of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or oral
notice for assessments for public improvements against the Real Estate which
remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof, Seller
is not a lessee under any Contract relating to the use or occupancy of the Real
Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have a Material Adverse Effect. To Seller's
knowledge, no fact or condition exists which would result in the termination of
(a) the current access from each parcel of the Real Estate, and (b) continued
use, operation, maintenance, repair and replacement of all existing and
currently committed water lines used by Seller in connection with the Business,
except where such termination would not have a Material Adverse Effect.
28
<PAGE>
Illinois
3.12 Taxes. The Seller Parties have (a) timely filed all material returns
and reports for Taxes, including information returns, that are required to have
been filed in connection with, relating to, or arising out of, the Business, (b)
paid all Taxes that are shown to have come due pursuant to such returns or
reports and (c) paid all other material Taxes not required to be reported on
returns in connection with, relating to, or arising out of, or imposed on the
property of the Business for which a notice of assessment or demand for payment
has been received or which have otherwise become due. To the best of the Seller
Parties' knowledge, all such returns or reports have been prepared in accordance
with all applicable laws and requirements in all material respects. Except to
the extent disclosed on Schedule 3.12, none of the assets of the Business or
constituting any of the Acquired Assets (a) is property that is required to be
treated as owned by another Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code or (c) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the Seller
Parties' knowledge, the operations of Seller do not make any unauthorized use of
any Intellectual Property except for any such unauthorized uses which do not
have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, neither Parent nor IAWC will lose any of Seller's
rights to, or be required to pay increased royalties for, any Intellectual
Property included in the Acquired Assets being acquired by it as a result of the
Closing and the consummation of the transactions contemplated by this Agreement,
except for any such rights or such increased royalties the loss or payment of
which would, individually or in the aggregate, not have a Material Adverse
Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising from
the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net ASSETS has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
29
<PAGE>
Illinois
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each "employee
benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer
plan" as defined in Section 3(37) of ERISA), bonus, incentive, deferred
compensation, excess benefit, employment contract, stock purchase, stock
ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's current
summary plan description and in the case of an unwritten Benefit Plan, a written
description thereof, has been furnished to Parent or IAWC. In addition, to the
extent applicable, Parent or IAWC has been provided a copy of the most recent
Internal Revenue Service ("IRS") determination letter issued to each Benefit
Plan and a copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code (as designated on Schedule 3.16.1) is so qualified, and will
remain so qualified upon the timely making of certain amendments required by law
during the applicable remedial amendment period, and any trust forming a part of
such a Benefit Plan is tax exempt under Section 501(a) of the Code. Each such
Benefit Plan has been amended, as and when necessary, to comply with the Tax
Reform Act of 1986 and upon timely filing of an Application for Determination
with the Internal Revenue Service, will be eligible to make further such
amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under the
Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge of
the Seller Parties, no other Person, has taken any action or failed to take any
action with respect to any Benefit Plan that may subject Parent or IAWC or any
Benefit Plan under which liabilities may be assumed by Parent or IAWC under
Sections 5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material
liability or Tax under the Code or ERISA.
30
<PAGE>
Illinois
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects to
incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably be
expected to give rise to a material liability to IAWC.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law, or
(ii) death or retirement benefits under a Benefit Plan qualified under Section
401(a) of the Code. Seller's Retiree Medical Plan contains provisions permitting
Seller to modify or terminate retiree medical benefits at any time, without
prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
3.17, Seller has no liabilities with respect to the Business which would
constitute Assumed Liabilities, either direct or indirect, matured or unmatured
or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities which would
decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to the extent
assumed by Parent or IAWC at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business practice,
in or as a result of the normal and ordinary course of business and reflected in
the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
31
<PAGE>
Illinois
3.17.5 those other liabilities, which individually and in the aggregate,
would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in Schedule
3.18, there are no actions, suits, investigations or proceedings pending against
or, to the best of the Seller Parties' knowledge, threatened, against or
affecting, Seller, the Business or any of the Acquired Assets before any court
or arbitrator or Authority which individually or in the aggregate, would have a
Material Adverse Effect. Except as disclosed in Schedule 3.18, there are
currently no outstanding judgments, decrees or orders of any court or Authority
against any of the Seller Parties, which relate to or arise out of the conduct
of the Business or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs and similar
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the Real
Estate has adequate arrangements for supplies of electricity, gas, oil, coal
and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, CUCI does not have
any current customer which accounted for more than 5% of the net sales of the
Business (taken together with the businesses being acquired by Parent or IAWC or
Affiliates of Parent pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set forth
in Schedule 3.22 hereto, within six months prior to the date hereof, (i) Seller
has not effectuated (a) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or (b) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the
Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included
32
<PAGE>
Illinois
among the assets being acquired by Parent or IAWC or Affiliates of Parent
pursuant to the Related Purchase Agreements, are in good operating condition and
repair, reasonable wear and tear excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to IAWC or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the Excluded
Assets, the Acquired Assets include all assets, rights, properties and contracts
the use of which is necessary to the continued conduct of the Business by Parent
or IAWC, as the case may be, substantially in the manner as it was conducted
prior to the Closing Date, including the service of all utility customers in
substantially the same manner and at substantially the same service levels as
provided by Seller on the date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and assessment
of all mission critical areas within the Business and related operations
(including those affected by suppliers and vendors) that it reasonably believes
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any Seller Party (or suppliers and vendors) may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem all as set forth in
Citizens' Annual report on Form 10-K for the fiscal year ended December 31, 1998
and Citizens' Quarterly reports on Form 10-Q for the periods ending March 31,
1999 and June 30, 1999, and (iii) to date, implemented that plan substantially
in accordance with that timetable. Seller has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millennium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to Seller after making reasonable inquiries of such suppliers and
vendors. Seller makes no representation or warranty with respect to the receipt
or accuracy of any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except for
those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
3.28 Capitalization of CLWC; Title to CLWC Stock. There are 100 shares of
CLWC common stock authorized and 100 shares of CLWC common stock issued and
outstanding. The CLWC Stock comprises all of the shares of capital stock of CLWC
that are issued and outstanding. All shares of CLWC Stock are duly authorized,
validly issued and outstanding, fully paid and nonassessable. All CLWC Stock is
owned by Citizens. By delivery of payment for the
33
<PAGE>
Illinois
CLWC Stock and by delivery of the certificate representing the CLWC Stock as
provided for in this Agreement, Parent shall acquire good title to the CLWC
Stock, free and clear of all Liens. There are no outstanding subscriptions,
options, warrants, conversion rights, convertible securities, preemptive rights,
preferential rights, or other rights (contractual or otherwise) or agreements of
any kind for the purchase or acquisition from (or the purchase, sale or issuance
by) Citizens or CLWC of any shares of CLWC Stock or other equity or ownership
interests in CLWC, and no outstanding authorization therefor has been given.
CLWC has no liabilities other than those that, if outstanding as of the Closing
Date, would have been included among the Assumed Liabilities under the terms of
Section 2.3 had Parent purchased the assets of CLWC rather than its stock.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND IAWC
Parent and IAWC jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.1.2 IAWC is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and each of Parent and
IAWC has all requisite corporate power and authority to own, lease and operate
the Acquired Assets and the Business being acquired by it hereunder. Each of
Parent and IAWC is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it or its
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of such Parent and IAWC do not have a
material adverse effect on its ability to perform each of their obligations
under this Agreement and the Transaction Documents.
4.2 Authorization and Enforceability. Each of IAWC and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by IAWC and Parent of this Agreement and the
Transaction Documents to which IAWC and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by IAWC and Parent, and as of the
Closing Date the other Transaction Documents will be duly executed and delivered
by IAWC and Parent. This Agreement is a legal, valid and binding obligation of
IAWC and Parent, enforceable against them in accordance with its terms, except
as such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which IAWC and Parent is a
34
<PAGE>
Illinois
party will be duly executed and delivered by IAWC and Parent and will constitute
the legal, valid and binding obligations of IAWC and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by IAWC and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of IAWC or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or IAWC is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which IAWC or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by IAWC and Parent of this Agreement,
the other Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by IAWC or Parent except (i) as required by the
HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such consents,
approvals, authorizations, registrations or filings, the failure to obtain or
make would not individually or in the aggregate have a material adverse effect
on their respective ability to perform their obligations under this Agreement
and the Transaction Documents.
4.5 Financing. IAWC and Parent have, and at the Closing Date, will have
sufficient resources to pay the Purchase Price, and Parent, IAWC or the other
Affiliates of Parent that are buyers of the assets and businesses being acquired
pursuant to the Related Purchase Agreements have, and at the Closing Date, will
have sufficient resources to pay the purchase prices set forth in the Related
Purchase Agreements.
4.6 Brokerage. None of Parent, IAWC or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
35
<PAGE>
Illinois
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect as
of the date hereof for casualty and property insurance covering IAWC's assets
and properties and the operation of IAWC's business, together with the risks
insured against, coverage limits and deductible amounts.
4.8 Purchase for Investment. Parent acknowledges that the CLWC Stock has
not been registered under the Securities Act of 1933, as amended (the "Act"), or
qualified or registered under any state securities law and that no public market
now exists for the CLWC Stock and a public market may never exist therefore.
Parent has no Contract with any Person to sell, transfer or pledge to such
Person, or to any other Person, the CLWC Stock, and Parent has no present plans
or intentions to enter into any such Contract. Parent is acquiring the CLWC
Stock for its own account, for investment only, without a view to distribution,
as that phrase has meaning under the Act, and rules and regulations of the SEC.
Parent understands that the effect of the foregoing representation and warranty
is that the CLWC Stock must be held by it indefinitely unless subsequently
registered under the Act or unless an exemption from registration is available
at the time of any proposed sale or other transfer thereof. Parent agrees to
indemnify and hold harmless Seller against all liabilities, costs and expenses,
including reasonable attorneys' fees, and other Damages incurred by Seller as a
result of any sale, transfer or other disposition by Parent of all or any part
of the CLWC Stock in violation of the Act or applicable state securities laws.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted by
this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the prior
written consent of Parent and IAWC, from and after the date of this Agreement
and up to and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only in
the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Parent and IAWC in writing of any specific
event or circumstance of which they are aware, or of which they receive notice,
that has or is likely to have, individually or in the aggregate, taken together
with the other events or circumstances, a Material Adverse Effect on the
Acquired Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or enter
into any other transaction (except in the ordinary course of business)
which would have a Material Adverse Effect;
36
<PAGE>
Illinois
(c) except in the event of service interruption, emergency or casualty
loss, commit to acquire subsequent to the Closing Date on behalf of the
Business any capital asset or group of capital assets costing in excess of
$1,000,000 that is not included in the capital budget of Seller for fiscal
year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances
for construction in excess of $9,000,000 when combined with customer
advances relating to the businesses being acquired by IAWC or Affiliates of
IAWC pursuant to the Related Purchase Agreements per each of the next four
consecutive three-month periods unless pursuant to an existing tariff,
Contract or Permit of Seller; or sell or lease or agree to sell or lease or
otherwise dispose of any assets included in the Acquired Assets except in
the ordinary course of the conduct of the Business, consistent with past
practice;
(d) except in the ordinary course of business, consistent with past
practice or as required under any of Seller's debt instruments or
indentures, mortgage, pledge or subject to any Lien (other than Permitted
Liens) any of the Acquired Assets (including the CLWC Stock);
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred
Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective
Bargaining Agreement in existence on the date hereof; provided, however, no
individual Employee shall in any event receive a compensation increase in
excess of seven percent (7%) except as required by the Collective
Bargaining Agreement in existence on the date hereof;
(f) other than in the ordinary course of business consistent with past
practice, sell or otherwise transfer any assets necessary, or otherwise
material to the conduct of, the Business which would constitute Acquired
Assets;
(g) change the Seller's method of accounting or keeping its books of
account or accounting practices with respect to the Business, except as
required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any action which
if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties set forth in Sections 3.1,
3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action);
(i) prepay, redeem, retire, refund or otherwise extinguish any of the
Assumed Indebtedness; or
(j) permit CLWC to amend its articles of incorporation or bylaws, to
issue any shares of its capital stock or to enter into any Contract calling
for the issuance of any such shares, to merge or consolidate with any other
Person or to acquire any stock, securities, or business assets of any other
Person.
37
<PAGE>
Illinois
5.2 Negotiations. Neither Citizens nor any Person controlled by Citizens or
under common control with Citizens (each such person being a "Section 5.2
Affiliate"), nor any officer, director, employee, representative or agent of
Citizens or any of their Section 5.2 Affiliates, shall, directly or indirectly,
solicit or initiate or participate in any way in discussions or negotiations
with, or provide any information or assistance to, or enter into an agreement
with any Person or group of Persons (other than Parent, IAWC or any Person
controlled by Parent or IAWC or under common control with Parent, IAWC or any
Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller Parties
will provide Parent and IAWC with a supplement or amendment to the Disclosure
Schedules with respect to any matter, condition or occurrence which is required
to be set forth or described in the Disclosure Schedules. For the avoidance of
doubt, a matter, condition or occurrence shall only be "required" to be set
forth or described in the Disclosure Schedules if the failure to be so disclosed
would result in a breach of the applicable representation or warranty (qualified
by Material Adverse Effect where applicable) on the date hereof or on the
Closing Date. In addition, Seller shall have the right at any time and from time
to time prior to the Closing to supplement or amend the Disclosure Schedules.
Seller may provide Disclosure Schedules with respect to any representation or
warranty of this Agreement whether or not a specific schedule is referred to
therein. In the event that any supplement or amendment of such Disclosure
Schedules shall be provided later than five (5) business days prior to the
Closing Date, Parent or IAWC shall have the right to delay the Closing for a
period of five (5) business days in order for Parent and IAWC to review such
supplement or amendment. No such supplement or amendment shall be deemed to cure
any breach of or alter any representation or warranty made in this Agreement so
as to permit the Closing to occur unless Parent and IAWC specifically agree
thereto in writing. The Seller Parties shall promptly inform Parent and IAWC,
and Parent and IAWC will promptly inform the Seller Parties of any fact or event
which comes to their attention, the existence of which constitutes or likely
will constitute a breach in any material respects of any representation or
warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Parent or IAWC receives
from a title company with respect to the Real Estate and (ii) any written
communication regarding a specific Lien or title defect affecting a specifically
identified parcel of the Real Estate sent to the President, Treasurer or General
Counsel of Parent or the President or Corporate Counsel of IAWC, and sent by a
party other than the Seller Parties, their legal counsel, financial advisors or
representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this Agreement,
including Section 5.8 hereof):
38
<PAGE>
Illinois
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied in a
timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and IAWC, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and IAWC and
Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and IAWC will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets (including the CLWC Stock) in
accordance with the terms and conditions hereof. Notwithstanding the foregoing,
nothing contained in this Agreement will require or obligate any party or their
respective Affiliates: (i) to initiate, pursue or defend any litigation (or
threatened litigation) to which any Authority (including the PUC, the Antitrust
Division and the FTC) is a party; (ii) to agree or otherwise become subject to
any material limitations on (A) the right of Parent and IAWC effectively to
control or operate the Business being acquired by each or the right of Seller or
its Affiliates effectively to control or operate Citizens' other businesses, (B)
the right of Parent and IAWC or its Affiliates to acquire or hold the Business
being acquired by each or the right of Seller or its Affiliates to hold the
Excluded Assets or Citizens' other businesses, or (C) the right of Parent and
IAWC to exercise full rights of ownership of the Business or all or any material
portion of the Acquired Assets being acquired by each or the right of Citizens
to exercise full rights of ownership of Citizens' other businesses or all or any
material portion of the Excluded Assets; or (iii) to agree or otherwise be
required to sell or otherwise dispose of, hold separate (through the
establishment of a trust or otherwise), or divest itself of all or any portion
of the business, assets or operations of Citizens, Seller, Parent, IAWC, any
Affiliate of Parent or the Business. The parties agree that no representation,
warranty or covenant of IAWC, Parent, or Citizens contained in this Agreement
shall be breached or deemed breached as a result of the failure
39
<PAGE>
Illinois
by Parent and IAWC on the one hand or the Seller Parties, on the other, to take
any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause to
be made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required announcement).
5.7 Further Assurances. Each of Citizens, Parent, IAWC and Seller, from
time to time after the Closing, at Parent's, IAWC's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions and execute such
other documents, certifications, and further assurances as Parent, IAWC or
Seller, as the case may be, may reasonably require in order to transfer, in
accordance with the terms and conditions of this Agreement, more effectively in
Parent or IAWC or to put Parent or IAWC more fully in possession of any of the
Acquired Assets being acquired by each or better to enable Parent or IAWC to
complete, perform and discharge any of the Assumed Liabilities being assumed by
each. Each party shall cooperate and deliver such instruments and take such
action as may be reasonably requested by the other party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
5.8 Cooperation.
5.8.1 Parent, IAWC, Citizens and Seller shall cooperate and shall cause
their respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly transition of the Business from Seller to Parent
and IAWC to the extent being acquired by each and to minimize the disruption to
the Business resulting from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and IAWC, nor Citizens
and Seller (nor any of their respective Affiliates) shall make any filings
pursuant to federal or state securities laws ("Securities Filings") or make any
consent solicitations to holders of Assumed Indebtedness which include any
information about Seller, IAWC (or their respective Affiliates) or the
transactions contemplated hereby without consulting with the other party and
providing the other party a reasonable opportunity to review and comment on such
information, it being understood and agreed that any party may so disclose such
information in its reasonable judgment to the extent such party's counsel
advises it that such disclosure is advisable under applicable law. Each of
Parent, IAWC, Citizens and Seller shall, and shall cause their respective
Affiliates to, comply with all applicable federal and state securities laws in
connection with this Agreement and the transactions contemplated hereby
(including any solicitation of consents of holders of Assumed Indebtedness), and
all information supplied by any party for inclusion in any Securities Filing or
consent solicitation, including, without limitation, any proxy or information
statement, or any registration statement on Form S-4 shall be true and correct
in all material respect and shall not contain any untrue statement of a material
fact or omit to state any material fact which is required to be stated therein
or which is
40
<PAGE>
Illinois
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Parent and IAWC shall have the right to use all of the
logos, trademarks and trade identification of Seller as are located at the Real
Estate or on the Acquired Assets (collectively, the "Trademarks"). Parent's and
IAWC's use of the Trademarks shall be in accordance with such reasonable quality
control standards as may be promulgated by Seller and provided to Parent and
IAWC. If Seller shall notify Parent and IAWC in writing of Parent's or IAWC's
(as the case may be) material failure to comply with such reasonable quality
control standards and Parent or IAWC continues to not comply with such
reasonable quality control standards for more than 20 days after receipt of such
notice, Seller shall have the right to terminate Parent's and IAWC's right under
this Section 5.8.3 to use the Trademarks.
5.8.4 Seller shall give Parent and IAWC and its representatives (including
IAWC's Accountants, consultants, counsel and employees), upon reasonable notice
and during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Parent and IAWC all documents, records
and information (and copies thereof), to the extent relating to the Business and
the Acquired Assets, as Parent and IAWC may reasonably request. Except to the
extent disclosed in the Disclosure Schedules in accordance with Sections 5.3 and
8.4, no investigation or receipt of information by Parent or IAWC pursuant to,
or in connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Seller Parties under
this Agreement or the conditions to the obligations of Parent or IAWC under this
Agreement. All information provided to Parent or IAWC under this Agreement shall
be held subject to the terms and conditions of the Confidentiality Agreement
dated August 2, 1999 between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. Schedule 5.9.1 lists job classifications and number of
employees in each job classification of those employees whose terms and
conditions of employment are subject to the Collective Bargaining Agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the "Employees." For the avoidance of doubt, it is understood
that no employees of CBSC or Citizens Resources are included in Schedule 5.9.1.
No later than March 1, 2000, IAWC and Seller shall determine the number of
Employees to whom IAWC will offer employment, which number shall be at least
equal to 250 (when combined with offers made by IAWC or Affiliates of IAWC to
employees of Affiliates of Seller in connection with the Related Purchase
Agreements) (the "Base Number"), and such additional number of Employees, if
any, whom IAWC also wishes to employ. Upon determination of such Employees,
Seller will supplement Schedule 5.9.1 with the name, job title, unused vacation,
current base salary or hourly wage, date of hire and assigned location of each
Transferred Employee (as that term is defined below). At the Closing, Seller
shall provide an updated Schedule 5.9.1 which
41
<PAGE>
Illinois
shall disclose all the information required under the preceding sentence as of
the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, IAWC shall offer employment to at least
the Base Number of those employees included on Schedule 5.9.1. All Employees to
whom IAWC offers employment and who accept such employment are herein referred
to as the "Transferred Employees." In the event any Employees do not accept
IAWC's offer of employment, IAWC shall offer employment to such additional
employees (the identity of whom shall be determined by IAWC and Seller) as are
necessary to bring the total number of Transferred Employees to the Base Number.
Subject to the provisions of this Section 5.9 and Section 5.12, IAWC shall
provide each Non-Union Transferred Employee with base compensation at least
equal to that provided by Seller on the Closing Date, and employee benefits
which are substantially comparable to those provided by IAWC to its other
similarly situated employees. Except as otherwise provided under the terms of
Section 5.12, IAWC shall provide each Union Transferred Employee with
compensation at least equal to that provided by Seller immediately prior to the
Closing Date and with the benefits provided to IAWC's similarly situated
collectively bargained employees. Each collective bargaining agreement
pertaining to Transferred Employees shall be identified on a Schedule 5.9.2 to
be prepared by Seller and submitted to IAWC on or before the Closing Date.
Seller shall cooperate with IAWC in IAWC's efforts to contact the unions
representing Transferred Employees. IAWC agrees (i) to credit the service of
each Transferred Employee with Seller and its Affiliates before the Closing, for
all purposes under all employee benefit plans and arrangements maintained by
IAWC (and/or any of its Affiliates) for the benefit of any Transferred Employee
(including without limitation for purposes of attainment of retirement dates and
payment of optional forms of benefits), other than for purposes of benefit
accrual under any "defined benefit plan", within the meaning of Section 3(35) of
ERISA, (ii) to provide accrued vacation to Transferred Employees in the year in
which the Closing occurs, equal to the excess, if any, of the accrued vacation
to which the Transferred Employee would otherwise be entitled under Seller's
vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of IAWC, with service credit as provided in (i) hereof, (iii)
to provide severance benefits to Transferred Employees terminated by IAWC that
are substantially comparable to those benefits provided by IAWC to similarly
situated employees, and (iv) to comply with all applicable legal requirements
with respect to the Union Employees (including without limitation any applicable
duty to bargain with those employees' bargaining representative). IAWC shall be
responsible for providing to each Transferred Employee vacation in an amount
equal to the Transferred Employee's vacation entitlement for the year of Closing
reduced by the number of vacation days such Transferred Employee has taken on or
before Closing. Nothing in this Section 5.9 shall limit IAWC's authority to
terminate the employment of any Transferred Employee at any time and for
whatever reason. Until the second anniversary of the Closing Date, neither
Seller nor any of its Affiliates shall directly or indirectly solicit or offer
employment to any Transferred Employee then employed by IAWC or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by IAWC as the result of any claims against IAWC or its Affiliates that
are made by any Employees or Former Employees (or the Beneficiary of any
42
<PAGE>
Illinois
Employee or Former Employee) who are not made offers to become employees of IAWC
or its Affiliates including, without limitation, claims asserted against IAWC as
a result of their termination by Seller or its Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, IAWC shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of IAWC incurred after Closing) owed to any
Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between IAWC or any of its Affiliates
and any Transferred Employee or (ii) any benefit claim or expense (including
medical expense) incurred after Closing under any employee benefit plan
sponsored or contributed to by IAWC or an ERISA Affiliate after Closing.
Notwithstanding the foregoing, IAWC shall not be responsible for the payment of
any employee benefits that become due to any Transferred Employees under any
Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 IAWC agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) IAWC does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. IAWC will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The IAWC's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
43
<PAGE>
Illinois
5.9.7 Until the second anniversary of the Closing Date, IAWC shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall retain
liability and related assets for benefits accrued through the Closing Date by
Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be covered under
the American Pension Plan, and shall be given credit for service with Seller and
its Affiliates for eligibility, vesting, attainment of retirement dates,
subsidized benefits, and entitlement to optional forms of payment, but not for
accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section 5.11.2,
subject to the terms and conditions of this Agreement, Parent shall cause the
Savings Plan for Employees of American Water Works Company, Inc. (the "American
Savings Plan") to assume the liability of the Seller's 401(k) Plan for the
account balances of those Transferred Employees participating in the Seller's
401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Parent shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Parent's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Parent as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Parent that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to
44
<PAGE>
Illinois
Affected Participants to the trustee of the American Savings Plan an amount
equal to the sum of the account balances of the Transferred Employees (the
"Transferred Accounts") calculated as of the most recent valuation date under
the Seller's 401(k) Plan (which shall, in any event, be within thirty (30) days
of the transfer). Both the Seller Parties and Parent will file any IRS Form
5310A that is required with respect to the transfer contemplated by this Section
5.11 date at least 30 days prior to the transfer. Upon the transfer described in
this Section 5.11, Parent and the American Savings Plan shall be responsible for
all benefits attributable to the Transferred Accounts to which Transferred
Employees were entitled under the Seller's 401(k) Plan as of such date, and
Seller and the Seller's 401(k) Plan shall cease to have any liability,
contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to transfer
to trusts established by Parent under Section 501(c)(9) of the Code ("Parent's
VEBAs") the amount held under any trust established by Seller under Section
501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health care and
life insurance benefits attributable to the Business, including Former Employees
identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. For the
avoidance of doubt, it is understood that no employees of CBSC or Citizens
Resources are included in Schedule 5.12. Parent agrees to provide post-
retirement health care and life insurance benefits to the Water Sector Retirees
and, as applicable, Transferred Employees who become eligible for such benefits
after Closing and further agrees that Parent's VEBAs will apply an amount at
least equal to the sum of the assets (and earnings thereon calculated at the
rate of return generated by Parent's VEBAs) transferred from Seller's VEBAs to
provide post-retirement health care and life insurance benefits for such
employees. Upon Closing, Parent shall be responsible for all obligations of the
Seller Parties to provide post-retirement health care and life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the Closing and
the Seller Parties shall cease to have any liability, contingent or otherwise,
for such benefits. In consideration of such transfer, Parent agrees not to
terminate or materially modify those post-retirement health and life benefit
provisions applicable to such grandfathered Transferred Employees and Water
Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Parent shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Parent provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Parent under its corresponding welfare benefit plans (the "Parent's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Parent Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Parent Welfare Plans shall be waived in Parent's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective
45
<PAGE>
Illinois
Beneficiaries shall receive credit under the Parent Welfare Plans for co-
payments, payments under a deductible limit made by them, and for out-of-pocket
maximums applicable to them during the plan year of the Seller Welfare Plan in
which the Closing Date occurs. As soon as practicable after the Closing Date,
Seller shall deliver to Parent a list of the Transferred Employees and retirees
of the Water Sector and their respective Beneficiaries who had credited service
under a Seller Welfare Plan, together with each such individual's service,
copayment, deductible and out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Parent's flexible benefits plan any
balances standing to the credit of Transferred Employees under Seller's flexible
benefits plan as of the Closing Date. Seller shall provide to Parent prior to
the Closing Date a list of those Transferred Employees that have participated in
the health or dependent care reimbursement accounts of Seller, together with
their elections made prior to the Closing Date with respect to such Account, and
balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and IAWC, on
the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and IAWC, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and IAWC
shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or IAWC's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or IAWC to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of IAWC
and/or Parent to provide a debt obligation (including obtaining a minimum credit
rating necessary to prevent any change to the tax-exempt status of any of the
Assumed Indebtedness and providing credit enhancements such as bond insurance)
to the issuer of any Bonds relating to the Assumed Indebtedness satisfactory to
such issuer in replacement of and in substitution for Citizens'
46
<PAGE>
Illinois
obligations to such issuer under the Assumed Indebtedness, all to enable Parent
or IAWC to assume the Assumed Indebtedness.
5.16 Assumption of Seller Debt.
5.16.1 Each of IAWC and Parent shall use its reasonable efforts (as defined
in Section 5.15) to assist Seller in obtaining all consents and opinions and
taking such other actions as may be required to enable IAWC or Parent, as the
case may be, to assume at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and IAWC
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3, including complying with the provisions of Section 5.24 to the extent
applicable to such assignment of the Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds which make up
the Assumed Indebtedness is a bond issue which was used to finance sewage
facilities within the meaning of Section 103(b)(4)(E) of the Internal
Revenue Code of 1954 as amended ("1954 Code") or Section 142(a)(5) of the
Code, as the case may be, or facilities for the furnishing of water within
the meaning of Section 103(b)(4)(G) of the 1954 Code or Section 142(a)(4)
and Section 142(e) of the Code, as the case may be, and that the interest
of such Bonds was as of their date of issue, excludable from the gross
income of the holders of such Bonds for federal or state (other than
Illinois) income tax purposes pursuant to such sections of the IRC or the
Code. In the case of the facilities for the furnishing of water (a) the
water is or will be made available to members of the general public
(including electric utility, industrial, agricultural, or commercial users)
and (b) either the facility is operated by a governmental unit or the rates
for the furnishing or sale of the water have been established or approved
by a State or political subdivision thereof, by an agency or
instrumentality of the United States, or by a public service or public
utility commission or other similar body of any State or political
subdivision thereof.
(b) The Seller Parties represent that they have complied with all of
their duties and obligations under the IDRB Documents, including their
obligations relating to the use of the proceeds of the bonds and the
ownership, operation, use and maintenance of the Assets financed with the
proceeds of the Bonds. Citizens and the other Seller Parties represent that
the representations and warranties of "Company" in the IDRB Documents
remain true and correct, and that they have not taken nor permitted to be
taken any action which would have the effect of subjecting the interest on
any of such Bonds to federal or state (other than Illinois) income
taxation, except as otherwise contemplated or permitted by the IDRB
Documents.
(c) The Seller Parties represent that as of Closing all the proceeds
of the Bonds will have been spent in accordance with the IDRB Documents,
the construction of the
47
<PAGE>
Illinois
projects to be financed with the Bonds will have been completed, that there
are no reserve funds associated with the Trust Indentures for such Bonds,
and that all of the proceeds of such Bonds were invested in tax-exempt
obligations of state and local governments (except to the extent used to
acquire or construct the facilities financed by such Bonds) and, that
therefore, the Seller Parties do not have any arbitrage profits subject to
the rebate requirements of Section 148 of the Code.
(d) The Seller Parties represent that there is and has been no audit
or other examination by any taxing authority relating to the Bonds.
(e) The Seller Parties further represent the following with respect to
the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a) the water
is or will be made available to members of the general public
(including electric utility, industrial, agricultural, or commercial
users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision thereof,
by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any
State or political subdivision thereof;
(2) They have not caused or permitted to be caused any reissuance
of the Bonds under Section 1001 of the Code, without first obtaining a
"no adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such
Bonds without first obtaining a "no adverse effect" opinion of bond
counsel;
(4) They have not taken or caused to be taken any action that
would cause the Bonds to be arbitrage bonds under Section 148 of the
Code, including, but not limited to, the failure to rebate arbitrage
profits, if any, as required by Section 148(f) of the Code;
(5) They have not taken any action that would cause the Bonds not
to be registered in accordance with Section 149(a) of the Code; and
(6) They have not permitted the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the Code.
5.16.3 Covenants of Parent and IAWC. Each of Parent and IAWC covenants and
agrees, so long as any Assumed IDRB Indebtedness is outstanding, to cause the
Assets that were acquired, constructed, improved or equipped with the proceeds
of such Assumed IDRB Indebtedness to be used as sewage facilities within the
meaning of Section 103(b)(4)(E) of the 1954 Code or Section 142(a)(5) of the
Code, as the case may be, and facilities for the furnishing of water within the
48
<PAGE>
Illinois
meaning of Section 103(b)(4)(G) of the 1954 Code or 142(a)(4) and Section 142(e)
of the Code, as the case may be, which means in the case of the facilities for
the furnishing of water that (a) the water is or will be made available to
members of the general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility is operated by a
governmental unit or the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public service or public
utility commission or other similar body of any State or political subdivision
thereof. Each of Parent and IAWC further covenants and agrees, so long as any
Assumed IDRB Indebtedness is outstanding, the following:
(a) It will not cause or permit to be caused any reissuance under
Section 1001 of the Code without first obtaining a "no adverse effect"
opinion of bond counsel;
(b) It will not cause an extension of the maturity of the Bonds
without first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action that would cause
the Bonds to be arbitrage bonds under Section 148 of the Code, including,
but not limited to, the failure to rebate arbitrage profits, if any, as
required by Section 148(f) of the Code;
(d) It will not take any action that would cause the Bonds not to be
registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or indirectly
"federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty, covenant or
other agreement or obligation set out by the IDRB Documents as in effect on
the date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Seller shall
deliver to Parent and IAWC a schedule, to be identified as Schedule 5.17, which
sets forth all material Permits required for the use of the Acquired Assets
being acquired by each and the operation of the Business by Parent and IAWC
substantially in the manner as it was conducted prior to the date hereof. For
purposes of this Section 5.17, material Permits shall include those required for
the service of all utility customers at substantially the same service levels as
provided by Seller on the date of this Agreement. All Permits listed on Schedule
5.17 that are required to be listed on Schedule 3.3 or Schedule 3.9 shall be so
designated. Seller has made or will make prior to the Closing Date timely
applications for renewals of all such Permits listed on Schedule 5.17, which
under applicable law must be filed prior to the Closing Date to maintain the
Permits listed on Schedule 5.17 in full force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use its
reasonable efforts to deliver to Parent or IAWC true, correct and complete
copies of all existing title policies, surveys, leases, deeds, instruments and
agreements in Seller's possession relating to title to the Real Estate that will
be acquired by each.
49
<PAGE>
Illinois
5.19 Transaction with Related Parties. Effective as of the Closing Date,
except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24, 5.26,
5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and canceled
all contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide IAWC, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date. Citizens will also provide
the copies referred to in clauses (b), (c) and (d) of this Section 5.2.1.1 to
Parent if the copies relate to Real Estate being purchased by Parent.
5.21.2 Within fifteen (15) days after the receipt of notice of violation,
Citizens shall notify Parent and IAWC of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Parent and IAWC of the actions proposed to be taken by Seller to
correct or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of fifteen
(15) years after the Closing Date no Seller Party nor any Affiliate of a Seller
Party shall directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of or be otherwise connected
in any substantial manner with any entity (other than IAWC and its successors
and assigns) engaged in the business of storing, supplying and distributing
water in the States in which IAWC acquires any Acquired Assets, whether or not
such business is subject to regulation by a PUC (it being understood that the
individual directors of Seller and Citizens are not Affiliates of a Seller
Party).
5.23 Intentionally Omitted.
50
<PAGE>
Illinois
5.24 IDRB Obligations.
(a) IAWC's IDRB Obligations. Each party acknowledges that (x) Citizens
is and after the Closing Date shall continue to be and shall remain the
primary obligor with respect to the Retained IDRB Indebtedness outstanding
immediately after the Closing Date to the same extent as though no sale of
the Acquired Assets had been made and that Parent and IAWC shall have no
payment obligations with respect to such Retained IDRB Indebtedness and (y)
the IDRB Documents require Citizens not to take or permit to be taken any
action which would have the effect, directly or indirectly, of subjecting
the interest on any of the Bonds to federal or state (other than Illinois)
income taxation. Accordingly, Parent and IAWC covenant and agree (i) at
Closing to execute and deliver to Citizens an agreement substantially in
the form attached hereto as Exhibit D, with respect to each issuer of Bonds
relating to Retained IDRB Documents that will be outstanding after the
Closing Date, and (ii) so long as any such Bonds are outstanding, to cause
the Acquired Assets that were acquired, constructed, improved or equipped
with the proceeds of such Bonds to be used as facilities for the furnishing
of water (that is, (a) the water is or will be made available to members of
the general public (including electric utility, industrial, agricultural,
or commercial users) and (b) either the facility is operated by a
governmental unit or the rates for the furnishing or sale of the water have
been established or approved by a State or political subdivision thereof,
by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof) or sewage facilities within the meaning of
Section 103(b)(4)(E) of the 1954 Code, or Section 142(a)(5) of the Code as
the case may be.
(b) IDRB Construction Funds. Citizens hereby represents that there
will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the
Retained IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their respective best
commercially reasonable efforts to obtain all consents and legal opinions
as may be required under the Retained IDRB Documents to enable Seller to
retain all Retained IDRB Indebtedness and to sell the Acquired Assets to
IAWC or Parent.
5.25 Cooperation with Respect to Like-Kind Exchange. Parent and IAWC agree
that Seller may, at Seller's written election delivered to Parent and IAWC no
later than five (5) days prior to the Closing Date, direct that all or a portion
of the Initial Cash Payment be delivered to a "qualified intermediary" as
defined in Treasury Regulation ?ss.1.1031(k) - (g)(4) as to enable Seller's
relinquishment of the Acquired Assets to qualify as part of a like-kind exchange
of property covered by Section 1031 of the Code. If Seller so elects, Parent and
IAWC shall reasonably cooperate with Seller (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to enable Seller to qualify such transfer as part of a like-kind exchange of
property covered by Section 1031 of the Code (including any actions reasonably
required to facilitate the use of a "qualified intermediary"), and Parent and
IAWC agree that Seller may assign all or part of its rights (but no obligations)
under this Agreement to a person or entity acting as a qualified intermediary to
qualify the transfer of the Assets as part of a like-kind exchange of property
covered by Section 1031 of the Code. Parent, IAWC and
51
<PAGE>
Illinois
Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Parent, IAWC or Seller; provided that such efforts shall, in no
event, result in any delay in the consummation of the transactions contemplated
by this Agreement. Seller shall indemnify and hold Parent and IAWC harmless from
any cost, expense or liability arising from its cooperating under this Section
5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing IAWC, at IAWC's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to IAWC's systems
on the Closing Date. Parent, IAWC and Seller shall use their commercially
reasonable efforts to cause their representatives on such transition team to
cooperate in good faith and take all reasonable steps necessary to develop a
mutually acceptable transition plan no later than 60 days prior to the Closing
Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and IAWC regarding notification and the provision of other
accurate and timely data to Citizens to enable Citizens timely and accurately to
satisfy the refund obligations described in Section 2.3.3(b). Such working group
will be responsible for preparing a comprehensive agreement no later than March
13, 2000, which agreement shall be executed by the parties at Closing. Among
other arrangements, the parties would require that the customers and developers
owed refunds provide joint notices to IAWC and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with Parent
and IAWC and use commercially reasonable efforts to assist each of Parent and
IAWC if either of them desires to obtain ALTA title insurance commitments
(collectively, the "Title Commitments," and each a "Title Commitment"), in final
form, from one or more title insurance companies (collectively, the "Title
Company"), committing the Title Company (subject only to the satisfaction of any
industry standard requirements contained in the Title Commitment) to issuing
ALTA (or its local equivalent) form of title insurance policies insuring good,
valid, indefeasible fee simple title to the Real Estate in IAWC or Parent, as
the case may be, in all cases, at IAWC's and Parent's sole expense and in the
respective amounts that IAWC or Parent, as the case may be, requests prior to
Closing, subject to no Liens or other exceptions to title other than Permitted
Exceptions (collectively the "Title Policies"). On or prior to the Closing Date,
Seller shall execute and deliver, or cause to be executed and delivered, to the
Title Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and IAWC's and
52
<PAGE>
Illinois
Parent's request for Title Policies or Title Commitments shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of IAWC and Parent. The obligations
of IAWC and Parent to consummate the transactions contemplated hereby are
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions (any one or more of which may be waived in writing in whole
or in part by IAWC and Parent in their sole discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing Date if any Material Adverse Effect that may have arisen or occurred
between the execution date of this Agreement and the Closing Date shall have
been cured or remedied such that such Material Adverse Effect is not continuing
as of the Closing Date. IAWC and Parent shall have been furnished with a
certificate of the Chief Financial Officer or other Vice President of Citizens
dated the Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. IAWC and Parent shall have received from L.
Russell Mitten II, Vice President and General Counsel of Seller, an opinion
dated the Closing Date, in form and substance satisfactory to IAWC and Parent,
to the effect set forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby, and such order shall not contain
any restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory treatment with respect to the Business in
existence as of the date of this Agreement applicable to
53
<PAGE>
Illinois
Seller be continued following the transactions contemplated hereby) which would
have a Material Adverse Effect or a material adverse effect on any other
regulated business of Parent or IAWC in the state in which the PUC has
jurisdiction, and such order shall be final and unappealable; Seller shall have
obtained all statutory, regulatory and other consents and approvals which are
required in order to consummate the transactions contemplated hereby and to
permit IAWC and Parent to conduct the Business being acquired by each in the
manner contemplated by Section 3.25 hereof other than those the failure of which
to obtain would not have a Material Adverse Effect. Seller shall have also
obtained (i) all consents and legal opinions required to enable Parent or IAWC
to assume (or for Citizens to assign to Parent or IAWC) the Assumed Indebtedness
(without any change in the tax-exempt status of such Assumed Indebtedness and
without any event of taxability relating to the matters set forth in Sections
7.4.1(a)(D) and 7.4.1(b)(F)) and all other consents and legal opinions required
to enable Seller to sell to Parent and IAWC the Acquired Assets being acquired
by each at the Closing (without any change in the tax-exempt status of such
Assumed Indebtedness and without any event of taxability relating to the matters
set forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture) and (ii) all consents
required under Contracts and Permits relating to Seller's water appropriation
and flowage rights to the extent reasonably sufficient to enable IAWC to service
the customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect IAWC's and Parent's respective ownership of all or any material
portion of the Acquired Assets, nor (ii) shall there be pending or threatened
any litigation, suit, action or proceeding by any party which would reasonably
be expected to materially limit or materially adversely affect IAWC's and
Parent's respective ownership of the Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Parent and IAWC to deliver to
Parent and IAWC as promptly as practicable after the Closing such records
(including customer and employee records) necessary to own and operate the
respective portion of the Business being acquired by each.
6.1.7 Related Closings. Parent and IAWC shall be reasonably satisfied that
the consummation of each of the asset purchase and sale transactions
contemplated by those certain purchase agreements described on Schedule 6.1.7
(the "Related Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The obligations
of the Seller Parties to cause the consummation of the transactions contemplated
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions (any one or more of which may be waived in writing
in whole or in part by the Seller Parties in their sole discretion):
54
<PAGE>
Illinois
6.2.1 Performance of Agreements; Representations and Warranties. Parent and
IAWC shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by IAWC and Parent shall be true and correct on
and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 4.2), such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a material adverse effect on the respective ability of IAWC and Parent
to perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and IAWC, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price &
Rhoads, counsel to IAWC and Parent, an opinion dated the Closing Date, in form
and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby and such order shall not contain
any restrictions or conditions which would have a material adverse effect on
Seller's business activities in the State in which the PUC has jurisdiction or
any significant adverse effect on Citizens' acquisition and divestiture
activities in that State (including divestiture of the Acquired Assets), and
such order shall be final and unappealable; Seller shall have obtained all
statutory and regulatory consents and approvals which are required in order to
consummate the transactions contemplated hereby, other than those the failure of
which to obtain would not have a material adverse effect on the Seller after the
Closing. Seller shall have obtained (i) all consents and legal opinions required
to enable Parent or IAWC to assume (or Citizens to assign to Parent or IAWC) the
Assumed Indebtedness without any change in the tax-exempt status thereof and
without any event of taxability relating to the matters set forth in Sections
7.4.1(a)(D) and 7.4.1(b)(F), (ii) all consents and legal opinions required under
the Retained IDRB Documents to enable Seller to retain the Retained IDRB
Indebtedness until maturity and to sell to Parent and IAWC the Acquired Assets
being acquired by each at the Closing (in each case without any change in the
tax-exempt status of the Assumed Indebtedness or the Retained IDRB Indebtedness
and without any event of taxability relating to the matters set forth in
Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens other than
Permitted Exceptions (and specifically free and clear of any Lien arising under
or pursuant to the Mortgage Indenture), and (iii)
55
<PAGE>
Illinois
all other consents required or advisable in order for Seller to transfer
Acquired Assets without incurring material liability under any Contract, Permit
or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and IAWC shall have delivered all the certificates,
instruments, contracts and other documents specified to be delivered by it
hereunder, including pursuant to Sections 2.7, 5.24 and 5.27, and shall have
taken such actions as Seller may have requested pursuant to Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to the
Closing Date:
6.3.1 by mutual written consent of the Seller Parties, IAWC and Parent;
6.3.2 by any of the Seller Parties, Parent or IAWC if: (i) any governmental
or regulatory body the consent of which is a condition to the obligations of the
Seller Parties, Parent and IAWC to consummate the transactions contemplated
hereby shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful; (ii) any court
of competent jurisdiction shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, judgment or
decree shall have become final and nonappealable; or (iii) the Closing shall not
have occurred on or before March 31, 2001; provided, however, that the right to
terminate this Agreement under this Section 6.3.2(iii) will not be available to
any party that is in material breach of its representations, warranties,
covenants or agreements contained herein; and provided, further, that if Closing
has not occurred by such date because the conditions precedent to Closing set
forth in the first sentence of Section 6.1.4 and the first sentence of Section
6.2.4 have not been fulfilled, then such date shall be automatically extended to
September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating to brokerage
and Section 7.1 relating to expenses. Nothing in this Section 6.3 shall be
deemed to release either party from any liability for any willful breach by such
party of the terms and provisions of this Agreement.
56
<PAGE>
Illinois
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible for
all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and each of Parent and IAWC shall be solely
responsible for all transfer, registration, documentary stamp, recording and
other similar fees and charges arising from and with respect to the transfer and
recording of title documentation relating to the Acquired Assets being acquired
by each. Parent shall be responsible for all costs and expenses relating to the
assumption by or assignment to Parent or IAWC of the Assumed Indebtedness.
Except as otherwise provided in this Agreement, each of the parties hereto shall
each bear its respective accounting, legal and other expenses incurred in
connection with the transactions contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one hand,
and IAWC and Parent, on the other hand, shall cooperate fully with each other
after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or IAWC or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section 7.4.2(j),
all representations, warranties, covenants and agreements contained in this
Agreement or the Transaction Documents shall survive (and not be affected in any
respect by) the Closing, any investigation conducted by any party hereto and any
information which any party may receive. Notwithstanding the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
57
<PAGE>
Illinois
(b) the covenants contained in Section 5.2 and the related indemnity
obligations contained in Section 7.4 shall terminate on, and no action or
claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in Sections 3.12 and
3.16 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in Section 3.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
(e) the representations and warranties contained in Section 3.10 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(f) the representations and warranties contained in Section 3.7 and
3.17 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3, 3.5,
3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in Section 3.11 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
(j) the representations and warranties contained in Sections 4.3 and
4.4 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in Section 4.5 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
Closing Date; and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no
58
<PAGE>
Illinois
further action or claim with respect thereto may be brought after, the second
anniversary of the Closing Date;
(m) such representations and warranties specified in the foregoing
clauses (c) through (k), and the covenants contained in Section 5.1, 5.2,
5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim,
whether or not fixed as to liability or liquidated as to amount, with
respect to which such party has been given written notice setting forth the
facts upon which the claim for indemnification is based and, if possible, a
reasonable estimate of the amount of the claims prior to the relevant
anniversary of the Closing Date or the 30th day after the expiration of the
applicable statute of limitations (or extensions or waivers thereof), as
the case may be. If any claim for indemnification is asserted or could be
asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the IAWC or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach of
any other representation or warranty in this Agreement for which there is a
shorter survival period, such shorter period will apply to such claim
except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made by
IAWC or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing
Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any
locations other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any action or
claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or IAWC to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is
59
<PAGE>
Illinois
used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and IAWC agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Parent and IAWC and their directors,
officers and other Affiliates and hold Parent and IAWC and such other
parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by the Seller Parties in this Agreement or in any document
or certificate required to be furnished to Parent or IAWC by any of the
Seller Parties pursuant to this Agreement (including the Transaction
Documents); (B) subject to Section 7.3.2, any Excluded Assets or Retained
Liabilities; (C) subject to Section 7.3.2, the ownership, operation or use
of any of the businesses or assets of the Seller Parties or their
Affiliates (other than the Business, the Acquired Assets or the CLWC Stock)
whether before, on or after the Closing Date; and (D) an event of
taxability, as such term is customarily used in municipal securities
transactions, relating to the Retained IDRB Indebtedness and arising from
the sale of the Acquired Assets pursuant to this Agreement.
(b) IAWC and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and such
other parties harmless from and against any and all Damages arising out of
or resulting from (A) any breach of any representation, warranty, covenant
or agreement made by Parent or IAWC in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or IAWC pursuant
to this Agreement (including the Transaction Documents), including the
IAWC's IDRB Obligations; (B) any Assumed Liabilities after the Closing
Date, including the Assumed Indebtedness; (C) the ownership, operation or
use of the Business, the Acquired Assets or the CLWC Stock after the
Closing Date (except to the extent resulting from Retained Liabilities or
to the extent resulting from breaches by the Seller Parties of
representations, warranties, covenants or agreements hereunder or in the
other Transaction Documents); (D) any claim by a Transferred Employee or a
Former Employee referred to on Schedule 5.12 or the Beneficiary of any such
employee or former employee for post-retirement health care or life
insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing; (E) any violation by Parent or IAWC, or any assignee, lessee
or successor of Parent or IAWC, of the covenants and agreements as provided
by Section 5.16.3 hereof and Section 5 of Exhibit D hereto; and (F) an
event of taxability, as such term is customarily used in municipal
securities transactions, relating to the Assumed Indebtedness and arising
from the sale of the Acquired Assets pursuant to this Agreement and/or the
assignment or assumption of the Assumed Indebtedness.
60
<PAGE>
Illinois
(c) For purposes of this Agreement, "Damages" shall mean any and all
losses, liabilities, obligations, damages (including any governmental
penalty or punitive damages assessed or asserted against the party seeking
indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable
expenses (including reasonable attorneys' fees and all other reasonable
expenses incurred in investigating, preparing or defending any litigation
or proceeding, commenced or threatened, incident to the successful
enforcement of this Agreement). For purposes of this Section 7.4, the
determination of whether any breach of any representation, covenant or
agreement has occurred, and the calculation of the amount of Damages
incurred by the Indemnified Party arising out of or resulting from any
breach of a representation, covenant or agreement by any party hereto, the
references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall
be found to have occurred due to facts or circumstances arising from an
occurrence or condition described in Section 1.1.60(a). Notwithstanding the
foregoing, Damages shall not include the loss of profits of the party
seeking indemnification, or punitive damages unless the party seeking
indemnification has had punitive damages assessed or asserted against it.
(d) Notwithstanding any language contained in any Transaction Document
(including deeds to Real Estate and instruments delivered by Seller to the
Title Company), representations and warranties as to Real Estate set forth
in Section 3.10 and 3.11 will not be merged into any Transaction Document
and the indemnification obligations of Seller, and the limitations on such
obligations, set forth in this Agreement, shall control. No provision set
forth in any Transaction Document shall be deemed to enlarge, alter or
amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4 (an
"Indemnified Party") shall give prompt written notice to the party from
whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence of any Damages, or the commencement
of any action, suit or proceeding, of which it has knowledge and in respect
of which indemnity may be sought hereunder, and will give the Indemnifying
Party such information with respect thereto as the Indemnifying Party may
reasonably request, but failure to give such required notice shall relieve
the Indemnifying Party of any liability hereunder only to the extent that
the Indemnifying Party has suffered actual prejudice thereby. The
Indemnifying Party shall have the right, exercisable by written notice to
the Indemnified Party after receipt of notice from the Indemnified Party of
the commencement of or assertion of any claim or action, suit or proceeding
by a third party in respect of which indemnity may be sought hereunder (a
"Third Party Claim"), to assume the defense of such Third Party Claim which
involves (and continues to involve) solely monetary damages; provided, that
(A) the Indemnifying Party expressly agrees in such notice that, as between
the Indemnifying Party and the Indemnified Party, solely the Indemnifying
Party shall be obligated to satisfy and discharge the Third Party Claim,
(B) such Third Party Claim does not include a request or demand for
injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the
Indemnified Party of the ability of the Indemnifying Party to satisfy the
full amount of any adverse monetary judgment that is reasonably
61
<PAGE>
Illinois
likely to result. The Indemnifying Party shall be deemed to have satisfied
the condition set forth in clause (C) of the proceeding sentence if it is
a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party shall
settle any Third Party Claim without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as the case may
be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither Parent
nor IAWC (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages incurred unless
the aggregate amount of Damages incurred by Parent and IAWC (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"),
in which case Seller shall then be liable for Damages in excess of the
Threshold Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the
cumulative aggregate indemnity obligation of Citizens and its Affiliates
under Section 7.4 of this Agreement and the Related Purchase Agreements
shall not exceed $60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that Parent
and IAWC (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages in respect of
intentional and wilful breaches of covenants or agreements in this
Agreement or any of the Retained Liabilities other than the Specified
Liabilities irrespective of the Threshold Amount or the Ceiling (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful breach). As used herein, the "Specified Liabilities"
shall mean the Retained Liabilities arising from claims made after the
Closing Date which (i) do not relate to matters within the scope of clauses
(u), (v), (w) and (x) of Section 7.3.2; (ii) were not known to
the Seller Parties on or prior to Closing; and (iii) relate exclusively to
the Acquired Assets or the Business prior to the Closing Date.
Notwithstanding anything to the contrary in this Section 7.4, Parent and
IAWC (or the other Persons for which they can claim indemnification) shall
be entitled to indemnification for Damages in respect of a breach of
Section 3.2, 3.12 or 3.16 irrespective of the Threshold Amount or the
Ceiling.
(g) The rights and remedies of Seller, Parent and IAWC under this
Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and IAWC may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed
made) by Seller, Parent or IAWC in or pursuant to this Agreement or any of
the Transaction Documents or (y) any breach or failure to perform any
covenant or agreements set forth in this Agreement or any of the
Transaction Documents.
62
<PAGE>
Illinois
(h) Except to the extent provided in Section 7.4.2(j) below, no right
to indemnification under this Section 7.4 shall be limited by reason of any
investigation or audit conducted before or after the Closing of any party
hereto including, without limitation, the knowledge of such party of any
breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such Damages
shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance proceeds covering
the Damages or otherwise recovers payments in respect of such Damages
from any other source (whether in a lump sum or stream of payments);
or
(B) the Indemnified Party's Tax liability is actually reduced as
a result of a tax benefit to which the Indemnified Party becomes
entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under this Section
7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by
Seller pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
(k) Parent and IAWC agree to use commercially reasonable efforts to
give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment of
Parent or IAWC consistent with its customary risk management practices,
appear likely to give rise to a claim against Parent or IAWC that is likely
to involve one or more insurance policies of Parent or IAWC. Any such
notice shall be given in good faith by Parent or IAWC, as the case may be,
without regard to the possibility of indemnification payments by Seller
under this Section 7.4, and shall be processed by Parent or IAWC, as the
case may be, in good faith and in a manner consistent with its risk
management practices involving claims for which no third party contractual
indemnification is available. Each of Parent and IAWC agree that (i) if it
is entitled to receive payment from Seller for Damages arising under or
pursuant to a breach of the representation and warranty set forth in
Section 3.10, and (ii) if Parent or IAWC has obtained title insurance which
may cover the claim or matter giving rise to such Damages, then (iii) such
title insurance shall be primary coverage and Parent or IAWC, as the case
may be, will make a claim under the title insurance if such claim can be
made in good faith before enforcing its right to receive payment from
Seller. Neither Parent nor IAWC shall be under any obligation to obtain
title insurance or prosecute such claim (other than the initial filing of
such claim).
(l) If at any time subsequent to the receipt by an Indemnified Party
of an indemnity payment hereunder, such Indemnified Party (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with
respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section
7.4.2(i)(A)
63
<PAGE>
Illinois
and a tax benefit pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such
Indemnified Party shall promptly pay to the Indemnifying Party an amount
equal to the amount of such Recovery, less any expense incurred by such
Indemnified Party (or its Affiliates) in connection with such Recovery, but
in no event shall any such payment exceed the amount of such indemnity
payment;
(m) In the event of any indemnification claim under this Section 7.4
involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with
the Indemnifying Party in the defense of any such claim under this Section
7.4. Without limiting the generality of the foregoing, the Indemnified
Party shall furnish the Indemnifying Party with such documentary or other
evidence as is then in its or any of its Affiliates' possession as may
reasonably be requested by the Indemnifying Party for the purpose of
defending against any such claim. Whether or not the Indemnifying Party
chooses to defend or prosecute any claim involving a third party, all the
parties hereto shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL
FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer to Parent or IAWC all inquiries with respect to ownership of the Acquired
Assets and the Business being acquired by each, and will refer to Parent all
inquiries with respect to the ownership of the CLWC Stock. In addition, Seller
will execute such documents and financing statements as Parent or IAWC may
reasonably request from time to time to evidence transfer of the Acquired Assets
to Parent or IAWC in accordance with this Agreement, including any necessary
assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing of
any registration statement or periodic report of Parent or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Parent's expense, shall provide
Parent (a) by April 30, 2000 or within 120 days after Parent's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Parent, IAWC and Affiliates of Parent pursuant to the Related
Purchase Agreements), including opinions thereon of Seller's
64
<PAGE>
Illinois
Accountants, and (b) within 90 days after Parent's written request made therefor
(provided such request is made after the end of the fiscal quarter described
below), the following unaudited statements: (i) a statement of net assets of the
Business as of the end of the last fiscal quarter prior to Closing (but only if
such quarter is subsequent to the last fiscal year prior to Closing); and (ii) a
statement of income of the Business and a statement of cash flows or its
equivalent of the Business, for the period from the end of the last fiscal year
through the end of the last fiscal quarter prior to Closing (in each case
combined with the businesses being acquired by Parent, IAWC and Affiliates of
Parent pursuant to the Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly (and in
any event no later than five (5) Business Days following receipt) deliver all
such payments with respect to accounts receivable from customers of the Business
received on and after the Closing Date (including but not limited to negotiable
instruments tendered in payment of accounts receivable assigned to IAWC
hereunder which shall be duly endorsed by Seller to the order of IAWC) to
IAWC. Seller shall cooperate with IAWC in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to IAWC.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, IAWC and the Seller Parties have participated
jointly in the negotiation and drafting of this Agreement and the Transaction
Documents. In the event any ambiguity or question of intent or interpretation
arises, this Agreement and the Transaction Documents shall be construed as if
drafted jointly by Parent, IAWC and the Seller Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
65
<PAGE>
Illinois
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Illinois-American Water Company
300 N. Water Works Drive
P.O. Box 24040
Belleville, IL 62223-9040
Fax: (618) 236-1186
Attention: Corporate Counsel
and:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to IAWC:
Illinois-American Water Company
300 N. Water Works Drive
P. O. Box 24040
Belleville, IL 62223-1186
Fax: (618) 236-1186
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
66
<PAGE>
Illinois
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto; provided, that (a)
Parent may assign this Agreement, without the prior written consent of Seller,
to any direct or indirect subsidiary of Parent provided such subsidiary assumes
in writing all the duties and obligations of Parent hereunder and, if such
assignment requires the approval of the PUC, such assignment was described in
the initial filing made by the parties pursuant to Section 5.5 (provided that no
such assignment by Parent shall in any way operate to enlarge, alter or change
any obligation due to Seller or relieve Parent of its obligations hereunder if
such subsidiary fails to perform such obligations, with the understanding that
Parent shall be jointly and severally liable with such subsidiary for any
non-performance of Parent's obligations hereunder); and (b) Seller may assign
its rights or delegate its
67
<PAGE>
Illinois
duties under this Agreement to a qualified intermediary chosen by Seller to
structure the transactions contemplated hereby as a like-kind exchange of
property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Disclosure of any fact or item in any
Schedule referenced by a particular paragraph or Section in this Agreement
shall, should the existence of the fact or item or its contents be clearly
related to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any dispute,
controversy or claim between the parties relating to, arising out of or in
connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in good
faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation
to assist in the negotiations. Discussions and correspondence among the
parties' representatives for purposes of these negotiations shall be
treated as confidential information developed for the purposes of
settlement, exempt from discovery and production, and without the
concurrence of both parties shall not be admissible in the arbitration
described below, or in any lawsuit. Documents identified in or provided
with such communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
(b) If negotiations between the representatives of the parties do not
resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in
effect, of the American Arbitration Association (the "Rules"); provided,
however, that at the election of either party, the arbitration shall take
place before three (3) arbitrators, one arbitrator being selected by Parent
and IAWC, one arbitrator being selected by Citizens, and the third
arbitrator, knowledgeable in the general subject matter of the dispute,
controversy or claim, being selected by the other two arbitrators. Either
party may demand such arbitration in accordance with the procedures set out
in the Rules. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and will
instruct each party to produce evidence through discovery (i) that is
reasonably requested by the other party to the arbitration in order to
prepare and
68
<PAGE>
Illinois
substantiate its case and (ii) the production of which will not
materially delay the expeditious resolution of the dispute being
arbitrated; each party hereto agrees to be bound by any such discovery
order. The arbitrator(s) shall control the scheduling (so as to process the
matter expeditiously) and any discovery. The parties may submit written
briefs. At the arbitration hearing, each party may make written and oral
presentations to the arbitrator(s), present testimony and written evidence
and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The arbitrator(s) shall rule on the Dispute by issuing a written
opinion within 30 days after the close of hearings. The arbitrators'
majority decision shall be binding and final. Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction.
(c) Each party will bear its own costs and expenses in submitting and
presenting its position with respect to any Dispute to the arbitrator(s);
provided, however, that if the arbitrator(s) determines that the position
taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear
such fees and expenses, and reimburse the prevailing party for all or such
portion of its reasonable costs and expenses in submitting and presenting
its position, as the arbitrator(s) shall reasonably determine to be fair
under the circumstances. Each party to the arbitration shall pay one-half
of the fees and expenses of the arbitrator(s) and the American Arbitration
Association.
(d) Notwithstanding any other provision of this Agreement, (i) either
party may commence an action to compel compliance with this Section 8.6 and
(ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party
shall be permitted to seek such injunctive or equitable relief in any
federal or state court or competent jurisdiction before, during or after
the pendency of a mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended or should be construed to confer upon or give to any Person other than
the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the other Transaction Documents, and the Confidentiality Agreement dated August
2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
69
<PAGE>
Illinois
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (i) extend the
time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in representations and warranties by the other party;
(iii) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF THE
SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR
REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR PREDICTIONS
OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS THAT HAVE
BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, IAWC OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
70
<PAGE>
Illinois
8.15 Construction of Certain Provisions. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Each of Parent and IAWC agrees that it shall not make any
filings under any tax bulk sales provisions with respect to the transactions
contemplated by this Agreement.
[Signatures appear on following page.]
71
<PAGE>
Illinois
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
-----------------------------------------------
Robert J. DeSantis, Chief Financial Officer,
Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS LAKE WATER COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF ILLINOIS
By: Robert J. DeSantis
----------------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett, Jr.
---------------------------------------------
Joseph F. Hartnett, Jr., Treasurer
ILLINOIS-AMERICAN WATER COMPANY
By: Terry L. Gloriod
---------------------------------------------
Terry L. Gloriod, President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by Illinois-American Water Company, an Illinois corporation ("Transferee"), in
favor of Citizens Utilities Company, a Delaware corporation ("citizens"), and
each of the wholly-owned subsidiaries of Citizens named on the signature page
hereof (collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS LAKE WATER COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF ILLINOIS
By:________________________________________________
Name:
Title:
TRANSFEREE:
ILLINOIS-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
_________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
Illinois-American Water Company, an Illinois corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS LAKE WATER COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF ILLINOIS
By:________________________________________________
Name:
Title:
TRANSFEREE:
ILLINOIS-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT D
================================================================================
RETAINED IDRB OBLIGATIONS AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES,
as Seller
and
AMERICAN WATER WORKS COMPANY, INC.
AND
CERTAIN OF ITS AFFILIATES,
as Buyer
Dated as of ___________________, 2000
<PAGE>
RETAINED IDRB OBLIGATIONS AGREEMENT
THIS RETAINED IDRB OBLIGATIONS AGREEMENT (this "Agreement") is made as of
the ____ day of ____________________, 2000, by and between CITIZENS UTILITIES
COMPANY, a Delaware corporation, and each of the wholly-owned subsidiaries of
Citizens Utilities Company named on the signature page hereof (collectively,
"Seller"), and AMERICAN WATER WORKS COMPANY, INC., a Delaware corporation
("Parent"), and each of the subsidiaries of Parent named on the signature page
hereof (collectively with Parent, "Buyer"). Capitalized terms used herein shall
have the meanings ascribed to them in Article I, unless otherwise provided.
W I T N E S S E T H :
WHEREAS, Seller and Buyer have entered into that certain Asset Purchase
Agreement dated as of October , 1999 (the "Purchase Agreement"), pursuant to
which as of the date hereof Seller has sold and Buyer has purchased the Assets
(as hereinafter defined); and
WHEREAS, such Assets include assets financed through the issuance by
[ISSUER] (the "Issuer") of certain Retained IDRB Indebtedness (as hereinafter
defined and as identified by Schedule I attached hereto); and
WHEREAS, notwithstanding such sale of the Assets, Seller remains primarily
liable for the payment and other obligations arising under the respective
financing agreements identified by Schedule I attached hereto relating to the
Retained IDRB Indebtedness (collectively, the "Loan Agreements"); and
WHEREAS, Buyer henceforth will have legal title to and entire operational
control of the Assets and Seller will have no further rights to enter, possess
or otherwise operate, control or maintain the Assets; and
WHEREAS, Seller's primary liability will terminate upon the respective
termination of the Loan Agreements; and
WHEREAS, pursuant to Section 5.24(a)(ii) of the Purchase Agreement, Buyer
has agreed "at Closing to execute and deliver to Seller an agreement . . . with
respect to each issuer of Bonds relating to Retained IDRB Documents that will be
outstanding after the Closing Date;" and
WHEREAS, Seller and Buyer intend that this Agreement is and shall be that
agreement required to be delivered pursuant to Section 5.24(a)(ii) of the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1. Certain Defined Terms. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Assets" means, collectively, all of the assets, property and interests of
every type and description, real, personal or mixed, tangible and intangible,
owned by Seller (as defined in the Purchase Agreement) and relating to the
Business (as defined in the Purchase Agreement), other than the "Excluded
Assets" (as defined in the Purchase Agreement).
"IDRB Documents" means, collectively, the Loan Agreements, the Tax
Regulatory Agreements, Tax Representations and Project Certificates to which
Seller is a party or by which any of the Assets is bound, and relating to the
Retained IDRB Indebtedness.
"IRS" means the Internal Revenue Service or any successor agency.
"Retained IDRB Indebtedness" means, collectively, the indebtedness of
Seller owing to the Issuer of the Bonds (as defined by each Loan Agreement and
as described further on Schedule I attached hereto) and arising under the Loan
Agreements included among the IDRB Documents.
Section 2. Receipt and Review of IDRB Documents. Buyer hereby
acknowledges that it has received the IDRB Documents and has had the opportunity
to review the agreements, obligations and covenants of Seller set forth in such
IDRB Documents and related Indentures of Trust and certain No Arbitrage
Certificates, including, in particular, those agreements, obligations,
representations, warranties and covenants relating to the ownership, operation,
use and maintenance of the Assets, to the preservation of the tax-exempt status
of the Retained IDRB Indebtedness and to the indemnification by Seller of the
Issuer.
Section 3. Representations Regarding Assets. Seller hereby represents
that it has performed all duties and obligations of "Company" under the IDRB
Documents relating to the ownership, operation, use and maintenance of the
Assets financed with the proceeds of the Retained IDRB Indebtedness and that the
representations and warranties of "Company" relating to the ownership,
operation, use and maintenance of such Assets under the IDRB Documents remain
true and correct.
Section 4. Covenant Regarding Tax Exemption. Buyer represents, warrants,
covenants and agrees that it is in the business of providing water utility and
sewage services, and that, so long as any Retained IDRB Indebtedness is
outstanding, it will cause the Assets that were acquired, constructed, improved
or equipped with the proceeds of such Retained IDRB Indebtedness to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for
2
<PAGE>
the furnishing or sale of water have been established or approved by a State or
political subdivision thereof, by an agency or instrumentality of the United
States or by a public service or public utility commission or other similar body
of any State or political subdivision thereof) or sewage facilities within the
meaning of Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as
amended, or Section 142(a)(5) of the Internal Revenue Code of 1986, as amended,
as the case may be. Buyer further represents, warrants, covenants and agrees
that it will not violate or otherwise contravene any representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on October __, 1999, which are applicable to Buyer's ownership of the
Assets, other than (x) the sale pursuant to the Asset Purchase Agreement of the
Assets to Buyer, (y) subject to the two next succeeding sentences, any such
covenants relating to the application of the proceeds of any eminent domain
proceeding or casualty loss and (z) insofar as they are not integral to Buyer's
use and operation of the Assets, the representations, warranties, covenants or
other agreements or obligations relating to the tax-exempt status of the
interest on such Retained IDRB Indebtedness. Buyer shall notify Seller in
writing promptly upon Buyer receiving notice of any threatened or impending
eminent domain proceeding against the Assets or of any material casualty loss of
Assets financed with Retained IDRB Indebtedness, shall cooperate in good faith
with Seller in Seller's efforts to ascertain the consequences of any such
eminent domain proceeding or casualty loss for the tax exemption of the Retained
IDRB Indebtedness, and shall not take any action with respect to the proceeds of
an eminent domain proceeding or insurance claim without express written consent
of Seller, which consent will not be withheld if Buyer is in receipt of a "no
adverse effect" opinion of nationally recognized bond counsel. Notwithstanding
the next preceding sentence, as between Seller and Buyer, Seller, without
recourse to Buyer, shall be responsible for any payments with respect to the
Retained IDRB Indebtedness arising as a result of an eminent domain proceeding
or casualty loss occurring on or after the date of this Agreement, and Buyer
shall be entitled to retain any eminent domain or insurance proceeds. Buyer
acknowledges and agrees that Seller's bond counsel may rely on Buyer's
representations, warranties and covenants as hereinabove provided for the
purpose of rendering legal opinions, as required by the IDRB Documents as a
precondition to the sale by Seller of such Assets, to the effect that the sale
of such Assets will not have a material adverse effect on the exclusion from
gross income of the interest on the Retained IDRB Indebtedness. Nothing in this
Agreement is intended to nor shall it be interpreted as (i) an assignment to,
and assumption by, Buyer of any of the IDRB Documents, or (ii) as an undertaking
or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other
payment obligations pursuant to the IDRB Documents.
Seller represents, warrants, covenants and agrees that it will not refund
or otherwise refinance with the proceeds of any obligation the interest on which
is excluded from gross income for federal income tax purposes any of the
Retained IDRB Indebtedness without Buyer's express written consent, which
consent Buyer shall provide unless Buyer reasonably concludes that such
refunding or refinancing would affect Buyer's use and operation of the related
Assets.
Section 5. Indemnification of Seller by Buyer. Buyer shall and hereby
agrees to indemnify and save harmless Seller against and from all claims by or
on behalf of one or more of the Issuer, the trustee or trustees (collectively,
the "Trustees") identified in the IDRB Documents, any actual or beneficial owner
of Retained IDRB Indebtedness or any other person, firm, corporation or other
legal entity arising from the conduct or management of, or from any work or
3
<PAGE>
thing done on, the Assets for the period commencing on the date hereof and
thereafter during the remaining terms of the IDRB Documents, including, without
limitation, (i) any condition of the Assets financed with the proceeds of the
Retained IDRB Indebtedness, (ii) any breach or default on the part of Buyer in
the performance of any of its obligations under this Agreement, including the
obligation to preserve the exclusion from gross income of the interest on the
Bonds for federal or state (as applicable) income tax purposes, (iii) any act or
negligence of Buyer or of any of its agents, contractors, servants, employees or
licensees or (iv) any act or negligence of any assignee, lessee or successor of
Buyer, or of any agents, contractors, servants, employees or licensees of any
assignee, lessee or successor of Buyer. Buyer shall indemnify and save harmless
Seller from any such claim arising as aforesaid, or in connection with any
action or proceeding brought thereon, and, upon notice from Seller, Buyer shall
defend it in any such action or proceeding. Any claim for indemnity under this
Agreement shall follow the procedures outlined in Sections 7.4.2(a) through (c),
inclusive, of the Asset Purchase Agreement.
Section 6. Term of Agreement. This Agreement shall be coterminous with
the term of the IDRB Documents, provided that the obligations of Buyer under
Section 5 hereof shall survive the termination of this Agreement.
Section 7. Successor Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 8. Governing Law. The validity, performance, and enforcement of
this Agreement, unless expressly provided to the contrary, shall be governed by
the laws of the State of Delaware without giving effect to the principles of
conflicts of law of such state.
Section 9. Dispute Resolution. Except as otherwise provided in this
Section 9, any dispute, controversy or claim between the parties relating to,
arising out of or in connection with this Agreement (or any subsequent
agreements or amendments thereto), including as to its existence,
enforceability, validity, interpretation, performance or breach or as to
indemnification or damages, including claims in tort and audit, regulatory or
other actions initiated by or on behalf of the IRS with respect to the Retained
IDRB Indebtedness, whether arising before or after the termination of this
Agreement (any such dispute, controversy or claim being herein referred to as a
"Dispute"), shall be settled without litigation and only by use of the following
alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint
a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to
the discretion of the representatives. Upon agreement, the
representatives may utilize other alternative dispute resolution
procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for
purposes of these negotiations shall be treated as confidential
information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties
shall not be admissible in the arbitration described below, or in any
lawsuit. Documents identified in or provided with such
communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
4
<PAGE>
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration Rules, as
then amended and in effect, of the American Arbitration Association
(the "Rules"); provided, however, that at the election of either
party, the arbitration shall take place before three (3) arbitrators,
one arbitrator being selected by the Parent, one arbitrator being
selected by Citizens Utilities Company and the third arbitrator,
knowledgeable with respect to the general subject matter of the
dispute, controversy or claim, including, if applicable, the federal
income tax laws applicable to obligations the interest on which is
excluded from gross income for federal income tax purposes, being
selected by the other two arbitrators. Either party may demand such
arbitration in accordance with the procedures set out in the Rules.
The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and
will instruct each party to produce the discovery of documents (i)
that are reasonably requested by the other party to the arbitration in
order to prepare and substantiate its case and (ii) the production of
which will not materially delay the expeditious resolution of the
dispute being arbitrated; each party hereto agrees to be bound by any
such discovery order. The arbitrator(s) shall control the scheduling
(so as to process the matter expeditiously) and any discovery. The
parties may submit written briefs. At the arbitration hearing, each
party may make written and oral presentations to the arbitrator(s),
present testimony and written evidence and examine witnesses. No
party shall be eligible to receive, and the arbitrator(s) shall not
have the authority to award, exemplary or punitive damages. The
arbitrator(s) shall rule on the Dispute by issuing a written opinion
within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to
the arbitrator(s); provided, however, that if the arbitrator(s)
determines that the position taken in the Dispute by the nonprevailing
party taken as a whole is unreasonable, the arbitrator(s) may order
the nonprevailing party to bear such fees and expenses, and reimburse
the prevailing party for all or such portion of its reasonable costs
and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the
circumstances. Each party to the arbitration shall pay one-half of
the fees and expenses of the arbitrator(s) and the American
Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 9 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceeding under this Section 9.
Section 10. Cooperation. Each of the parties hereto agrees to use its
reasonable best efforts to take or cause to be taken all action, and to do or
cause to be done all things necessary,
5
<PAGE>
proper or advisable under applicable laws, regulations or otherwise, to
consummate and to make effective the transactions contemplated by this
Agreement, including, without limitation, the timely performance of all actions
and things contemplated by this Agreement to be taken or done by each of the
parties hereto.
Section 11. Construction of Agreement. The terms and provisions of this
Agreement represent the results of negotiations between Buyer and Seller, each
of which has been represented by counsel of its own choosing, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary meanings,
and Buyer and Seller hereby waive the application in connection with the
interpretation and construction of this Agreement of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
Section 12. Publicity. No party hereto shall issue, make or cause the
publication of any press release or other announcement with respect to this
Agreement or the transactions contemplated hereby, or otherwise make any
disclosures relating thereto, without the consent of the other party, such
consent not to be unreasonably withheld or delayed; provided, however, that such
consent shall not be required in the case of any notices or other information
provided to the Trustees and the Issuer or otherwise where such release or
announcement is required by applicable law or the rules or regulations of a
securities exchange, in which event the party so required to issue such release
or announcement shall endeavor, wherever possible, to furnish an advance copy of
the proposed release to the other party.
Section 13. Waiver. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of waiver of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
Section 14. Parties in Interest. This Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their successors and permitted assigns, any
rights or remedies hereunder.
Section 15 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 16. Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 17 Entire Agreement. This Agreement and schedules hereto and the
documents specifically referred to herein (including the Purchase Agreement)
constitute the entire agreement, understanding, representations and warranties
of the parties hereto, and supersede all prior agreements, both written and
oral, between Buyer and Seller.
6
<PAGE>
Section 18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 19. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CITIZENS UTILITIES COMPANY
By ___________________________________
Name _________________________________
Title ________________________________
AMERICAN WATER WORKS COMPANY, INC.
By ___________________________________
Name _________________________________
Title ________________________________
[AWW SUBSIDIARY]
By____________________________________
Name__________________________________
Title_________________________________
7
<PAGE>
[Signature page to Retained IDRB Obligations Agreement between
Citizens Utilities Company and American Water Works Company, Inc., dated as of
____________________, 2000.]
8
<PAGE>
SCHEDULE I
Retained IDRB Indebtedness Loan Agreements
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
<PAGE>
EXHIBIT 10(t)
Indiana
EXECUTION COPY
ASSET PURCHASE AGREEMENT
AMONG
CITIZENS UTILITIES COMPANY
AND
FLOWING WELLS, INC.
AND
AMERICAN WATER WORKS COMPANY, INC. AND
INDIANA-AMERICAN WATER COMPANY
DATED AS OF
OCTOBER 15, 1999
<PAGE>
Indiana
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS.....................................................1
1.1 Certain Definitions.............................................1
ARTICLE 2 THE TRANSACTION.................................................9
2.1 Sale and Purchase of Assets.....................................9
2.2 Excluded Assets.................................................9
2.3 Assumption of Certain Liabilities..............................10
2.4 Consent of Third Parties.......................................13
2.5 Closing........................................................14
2.6 Purchase Price.................................................14
2.6.1 Purchase Price........................................14
2.6.2 Payment of Initial Cash Payment.......................14
2.6.3 Estimated Closing Statement...........................15
2.6.4 Post-Closing Adjustment to Purchase Price.............15
2.6.5 Adjustment for Certain Liabilities....................17
2.7 Deliveries and Proceedings at Closing..........................17
2.7.1 Deliveries to Buyer...................................17
2.7.2 Deliveries By Buyer to the Seller Parties.............18
2.8 Allocation of Consideration....................................18
2.9 Prorations.....................................................18
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER......................19
3.1 Qualification; No Interest in Other Entities...................19
3.2 Authorization and Enforceability...............................19
3.3 No Violation of Laws or Agreements.............................20
3.4 Financial Statements...........................................20
3.5 No Changes.....................................................21
3.6 Contracts......................................................21
3.7 Permits and Compliance With Laws Generally.....................22
3.8 Environmental Matters..........................................22
3.9 Consents.......................................................24
3.10 Title..........................................................25
3.11 Real Estate....................................................25
3.12 Taxes..........................................................25
3.13 Patents and Intellectual Property Rights.......................26
3.14 Accounts Receivable............................................26
3.15 Labor Relations................................................26
3.16 Employee Benefit Plans.........................................26
3.17 Absence of Undisclosed Liabilities.............................28
3.18 No Pending Litigation or Proceedings...........................28
3.19 Supply of Utilities............................................29
3.20 Insurance......................................................29
3.21 Relationship with Customers....................................29
3.22 WARN Act.......................................................29
<PAGE>
Indiana
3.23 Condition of Assets............................................29
3.24 Brokerage......................................................29
3.25 All Assets.....................................................29
3.26 Year 2000 Matters..............................................30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.............30
4.1 Organization and Good Standing.................................30
4.2 Authorization and Enforceability...............................31
4.3 No Violation of Laws or Agreements.............................31
4.4 Consents.......................................................32
4.5 Financing......................................................32
4.6 Brokerage......................................................32
4.7 Insurance......................................................32
ARTICLE 5 ADDITIONAL COVENANTS...........................................32
5.1 Conduct of Business............................................32
5.2 Negotiations...................................................34
5.3 Disclosure Schedules...........................................34
5.4 Mutual Covenants...............................................35
5.5 Filings and Authorizations.....................................35
5.6 Public Announcement............................................36
5.7 Further Assurances.............................................36
5.8 Cooperation....................................................36
5.9 Employees; Employee Benefits...................................37
5.10 Employee Pension Plan..........................................39
5.12 Welfare Benefits...............................................41
5.13 Taxes..........................................................42
5.14 Intentionally Omitted..........................................42
5.15 Citizens' Guarantees and Surety Instruments....................42
5.16 Intentionally Omitted. ........................................42
5.17 Schedule of Permits............................................42
5.18 Title Information..............................................42
5.19 Transaction with Related Parties..............................43
5.20 Approval by Citizens...........................................43
5.21 Supplemental Information.......................................43
5.22 Non-Competition................................................43
5.23 Intentionally Omitted..........................................43
5.24 Intentionally Omitted..........................................44
5.25 Cooperation with Respect to Like-Kind Exchange.................44
5.26 Transition Plan................................................44
5.27 Procedures regarding Refunds of Advances.......................44
5.28 Title Insurance................................................45
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION..............................45
6.1 Conditions Precedent to Obligations of Buyer and Parent........45
6.1.1 Performance of Agreements; Representations and
Warranties............................................45
6.1.2 Opinion of Counsel....................................46
6.1.3 HSR Act...............................................46
<PAGE>
Indiana
6.1.4 Required PUC and Other Consents.......................46
6.1.5 Injunction; Litigation................................46
6.1.6 Documents.............................................46
6.1.7 Related Closings......................................47
6.2 Conditions Precedent to Obligations of Seller Parties..........47
6.2.1 Performance of Agreements; Representations and
Warranties............................................47
6.2.2 Opinion of Counsel....................................47
6.2.3 HSR Act...............................................47
6.2.4 Required PUC and Other Consents.......................47
6.2.5 Injunction; Litigation................................48
6.2.6 Documents.............................................48
6.2.7 Related Closings......................................48
6.3 Termination....................................................48
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS...................................49
7.1 Certain Taxes and Expenses.....................................49
7.2 Maintenance of Books and Records...............................49
7.3 Survival.......................................................49
7.4 Indemnification................................................52
7.4.1 General Indemnification Obligations...................52
7.4.2 General Indemnification Procedures....................53
7.4.3 Indemnification for Negligence........................56
7.5 UCC Matters....................................................56
7.6 Financial Statements...........................................56
7.7 Collection of Receivables......................................57
ARTICLE 8 MISCELLANEOUS...................................................57
8.1 Construction...................................................57
8.2 Notices........................................................57
8.3 Successors and Assigns.........................................59
8.4 Exhibits and Schedules.........................................59
8.5 Governing Law..................................................60
8.6 Dispute Resolution.............................................60
8.7 Severability...................................................61
8.8 No Third Party Beneficiaries...................................61
8.9 Entire Agreement...............................................61
8.10 Amendment and Waiver...........................................61
8.11 Counterparts...................................................62
8.12 Headings.......................................................62
8.13 Definitions....................................................62
8.14 No Implied Representation......................................62
8.15 Construction of Certain Provisions.............................62
8.16 Bulk Sales.....................................................63
<PAGE>
Indiana
LIST OF SCHEDULES
Schedule 1.1.1(a). . . . . . . . . . . . . . . . . . . . . . . . . . Real Estate
Schedule 2.2.12. . . . . . . . . . . . . . . . . . . . . . . . . Excluded Assets
Schedule 3.3 . . . . . . . . . . . . . . . . .No Violation of Laws or Agreements
Schedule 3.4 . . . . . . . . . . . . . . . . . . . . . . . .Financial Statements
Schedule 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .No Changes
Schedule 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts
Schedule 3.7 . . . . . . . . . . . . .Permits and Compliance with Laws Generally
Schedule 3.8 . . . . . . . . . . . . . . . . . Environmental Matters - Generally
Schedule 3.8.10. . . . . . . . . . . . . . . . . Compliance with Water Standards
Schedule 3.8.11. . . . . . . . . . . . . . . . . . . . . . . . .Deed Restriction
Schedule 3.9 . . . . . . . . . . . . . . . . . . . . . .Seller Parties' Consents
Schedule 3.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Title
Schedule 3.11. . . . . . . . . . . . . . . . . . . . . .Real Estate Proceedings
Schedule 3.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
Schedule 3.15. . . . . . . . . . . . . . . . . . . . . . . . . .Labor Relations
Schedule 3.16.1. . . . . . . . . . . . . . . . . . . . . .Employee Benefit Plans
Schedule 3.16.4. . . . . . . . . . . . . . . Employee Benefit Plans - Compliance
Schedule 3.16.9. . . . . . . . . Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17. . . . . . . . . . . . . . . . .Absence of Undisclosed Liabilities
Schedule 3.18. . . . . . . . . . . . . . . .No Pending Litigation or Proceedings
Schedule 3.19. . . . . . . . . . . . . . . . . . . . . . . . Supply of Utilities
Schedule 3.20. . . . . . . . . . . . . . . . . . . . . . . . .Seller's Insurance
Schedule 3.22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .WARN Act
Schedule 3.23. . . . . . . . . . . . . . . . . . . . . . . . Condition of Assets
Schedule 3.25. . . . . . . . . . . . . . . . . . . . . . . . . . . . .All Assets
Schedule 3.27. . . . . . . . . . . . . . . . . . . . . . . . . Product Liability
Schedule 4.7 . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Insurance
Schedule 5.1 . . . . . . . . . . . . . . . . . . . . . . . . Conduct of Business
Schedule 5.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees
Schedule 5.9.2 . . . . . . . . . . . . . . . . .Collective Bargaining Agreements
Schedule 5.12 . . . . . . . . . . . . . . . . . . . . . . . . .Former Employees
Schedule 5.15 . . . . . . . . . . . . . . . . . . . . . . .Citizens' Guarantees
Schedule 5.16 . . . . . . . . . . . . . . . . . . . . . . . Schedule of Permits
Schedule 6.1.7 . . . . . . . . . . . . . . . . . . . Related Purchase Agreements
<PAGE>
Indiana
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted.
Exhibit D - Intentionally Omitted.
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
<PAGE>
Indiana
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and Flowing Wells, Inc., an Indiana corporation and a wholly-owned
subsidiaries of Citizens (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Indiana-American Water Company, Inc., an Indiana corporation
("Buyer").
Background
A. Flowing Wells, Inc., is a public utility engaged in the business of
storing, supplying, distributing and selling water to the public and related
services and activities in the State of Indiana, (the "Business").
B. Parent is a holding company which desires to cause the Buyer to purchase
substantially all of the assets, properties and rights of the Seller Parties
relating to the Business, and Seller desires to sell, and to cause the sale of,
such assets, properties and rights, on the terms and subject to the conditions
set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each Seller
Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in the Business as a going concern of
every kind, nature and description existing on the Closing Date, wherever such
assets, properties and rights are located and whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, and whether or
not any of such assets, properties and rights have any value for accounting
purposes or are carried or reflected on or specifically referred to in Seller's
books or financial statements, including all of the assets, properties and
rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a), together with all
fixtures, fittings, buildings, structures and other improvements erected
thereon, and easements, rights of way, water lines, rights of use, licenses,
railroad crossing agreements, hereditaments, tenements, privileges and other
appurtenances thereto or otherwise exclusively related to the Business (such as
appurtenant rights in and to public streets) (the "Real Estate");
1
<PAGE>
Indiana
(b) to the extent not included in clause (a) above, all water tanks,
reservoirs, water works, plant and systems, purification and filtration systems,
pumping stations, pumps, wells, mains, water pipes, hydrants, equipment,
machinery, vehicles, tools, dies, spare parts, materials, water supplies,
fixtures and improvements, construction in progress, jigs, molds, patterns,
gauges and production fixtures and other tangible personal property, in transit
or otherwise, used exclusively in the Business (the "Equipment and Other
Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to Section
2.4, all of Seller's water appropriation and flowage rights to the extent not
transferred to Buyer upon assignment of the Contracts and Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued utility revenues,
materials and supplies (at average cost net of reserve for obsolescence) and
prepayments attributable in each case exclusively to the Business;
(e) all deferred capital costs and other deferred charges (excluding
deferred taxes collectable) attributable exclusively to the Business of which
recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and sublicenses granted
and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments, agreements
and instruments relating to the sale of any assets, services, properties,
materials or products, including all customer contracts, operating contracts and
distribution contracts relating exclusively to the conduct of the Business; (ii)
orders, contracts, supply agreements and other agreements relating exclusively
to the purchase of any assets, services, properties, materials, or products for
the Business; (iii) all leases of Real Estate exclusively related to the
Business; (iv) all other contracts, agreements and instruments related
exclusively to the Business (other than contracts, agreements and instruments
included in the definition of Real Estate or Permits); and (v) any such
contracts, agreements and other instruments referred to in clauses (i) - (iv)
inclusive, entered into between the date hereof and the Closing Date which are
consistent with the terms of this Agreement and are entered into in the ordinary
course of business consistent with past practice, and including in the case of
clauses (i) - (iv) all such contracts, agreements and instruments more
specifically listed or described in Schedule 3.6 (but specifically
excluding any contract, agreement and instrument listed or described on Schedule
2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances, and
other similar permits or rights obtained from any Authority relating exclusively
to the conduct of the Business and all pending applications therefor (the
"Permits");
(i) books, records, ledgers, files, documents (including originally
executed copies of written Contracts, to the extent available, and copies to the
extent not available), correspondence, Tax returns relating exclusively to the
Business, memoranda, forms, lists, plats, architectural plans, drawings, and
specifications, new product development materials, creative
2
<PAGE>
Indiana
materials, advertising and promotional materials, studies, reports, sales and
purchase correspondence, books of account and records relating to the
Transferred Employees (to the extent such transfer is not prohibited by law),
photographs, records of plant operations and materials used, quality control
records and procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic format, in
each instance, to the extent exclusively relating to the Business, the Acquired
Assets or the Transferred Employees;
(j) all rights or choses in action arising out of occurrences before or
after the Closing Date and exclusively related to any of the Acquired Assets,
including third party warranties and guarantees and all related claims, credits,
rights of recovery and set-off and other similar contractual rights, as to third
parties held by or in favor of Seller; provided, however, that (notwithstanding
the foregoing provisions of this Section 1.1.1(j)), to the extent that Seller
pays or discharges a liability related to the Business or any of the Acquired
Assets and related to such right or chose in action (whether by reason of
indemnification under this Agreement or otherwise), Buyer will reassign or
reconvey to Seller such right or chose in action to the extent that such right
or chose in action relates to a recovery of amounts paid to Buyer; and
(k) all rights to insurance and condemnation proceeds (i) to the extent
relating to the damage, destruction, taking or other impairment of the Acquired
Assets which damage, destruction, taking or other impairment occurs on or prior
to the Closing but only to the extent that the proceeds exceed the amount of the
write-down of the net book value of such Acquired Assets on the books and
records of Seller as a result of such damage, destruction, taking or other
impairment and (ii) to the extent they relate to amounts paid by Buyer for
Damages to the extent Buyer does not receive payment pursuant to Section
7.4.1(a), but only to the extent Buyer is entitled to indemnification by Seller
pursuant to Sections 7.3 and 7.4.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section 2.6.4(a)
hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section 5.11.1
hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5 hereof
3
<PAGE>
Indiana
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in Section
3.16.6 hereof.
1.1.10 Intentionally Omitted.
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section 2.3.2
hereof.
1.1.13 "Authority" means any federal, state, local or foreign governmental
or regulatory entity (or any department, agency, authority or political
subdivision thereof). 1.1.14 "Base Cash Purchase Price" has the meaning set
forth in Section 2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section 3.16.1 hereof.
1.1.17 Intentionally Omitted.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
1.1.19 Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the Commonwealth of Pennsylvania are authorized
or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction hereof.
1.1.21 Intentionally Omitted.
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP or any firm
of independent public accountants hereafter designated by Buyer for purposes of
this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
4
<PAGE>
Indiana
1.1.27 "Citizens" has the meaning set forth in the introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section 1.1.1(g) hereof.
1.1.35 "Control" with respect to any Person means the ownership, directly
or indirectly, of at least a majority of the voting power of each class of
capital stock of such Person entitled to vote in the election of directors of
such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1 hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced in Articles 3,
4 and 5 of this Agreement, as amended or supplemented pursuant to Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.40 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has the meaning set
forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included with any of the
Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
5
<PAGE>
Indiana
1.1.44 "Excluded Assets" has the meaning set forth in Section 2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.47 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9 hereof.
1.1.52 Intentionally Omitted.
1.1.53 Intentionally Omitted.
1.1.54 "Indemnified Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.56 "Intellectual Property" means the trademarks, patents, trade names
and copyrights and applications therefor, inventions, trade secrets, and
confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens Water Resources
Statement of Net Assets - Indiana, June 30, 1999, which is attached hereto as
Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30, 1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other
6
<PAGE>
Indiana
encumbrance (including the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or statute or law of any
jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) solely with respect to matters arising prior to Closing,
to the extent that either (i) Seller realizes the benefit of insurance
maintained by Citizens on or prior to the Closing Date and Buyer receives the
cash proceeds of such insurance to the extent required by Section 1.1.1(k), or
(ii) Seller arranges for Buyer to recover payments in respect of such occurrence
or condition from any other source (whether in a lump sum or stream of
payments), it being understood and agreed that a Material Adverse Effect may
have occurred irrespective of such insurance recovery if the occurrence or
condition giving rise to such recovery also causes a non-monetary material
adverse change in or effect upon the Business or the Acquired Assets, taken as a
whole and taken together with the businesses and assets being acquired by Buyer
or Affiliates of Buyer pursuant to the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and Deed of Trust
between BNY Western Trust Company (successor in interest to Wells Fargo Bank,
N.A.) and First Interstate Bank of California (as successor trustee to Marine
Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.67 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from time to time
during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
7
<PAGE>
Indiana
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section 2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section 1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
1.1.74 "Related Purchase Agreements" as the meaning set forth in Section
6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section 3.8 hereof.
1.1.77 Intentionally Omitted.
1.1.78 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.79 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange Commission.
1.1.81 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.82 "Seller" and "Seller Parties" have the respective meaning set forth
in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign income, payroll,
withholding, excise, sales, use, personal property, use and occupancy, business
and occupation, mercantile, real estate, gross receipts, license, employment,
severance, stamp, premium, windfall
8
<PAGE>
Indiana
profits, social security (or similar unemployment), disability, transfer,
registration, value added, alternative, or add-on minimum, estimated, or capital
stock and franchise and other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
1.1.89 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.91 "Third Party Claim" has the meaning set forth in Section 7.4(b)(i)
hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in Section 5.11.2
hereof.
1.1.93 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.94 "Transferred Employees" has the meaning set forth in Section 5.9.2
hereof.
1.1.95 "Union Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. section 2102-2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing referred to in Section 2.5 below, Citizens shall,
and shall cause the other Seller Parties to, sell, assign, transfer, deliver and
convey to Buyer, and Parent shall cause Buyer to purchase, the Acquired Assets
for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be excluded from
the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens' gas,
electric or communications businesses, the material items of which are described
on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank accounts.
9
<PAGE>
Indiana
2.2.3 except as otherwise set forth herein, assets attributable or related
to any Benefit Plan;
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights to refunds of
Taxes payable with respect to the Business, assets, properties or operations of
any of the Seller Parties or any member of any affiliated group of which any of
them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and accounts
receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or Seller or any
of their Affiliates, except that Buyer shall assume the following specific
liabilities and obligations:
(a) the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned or
transferred to Buyer pursuant to this Agreement in accordance with the
respective terms thereof, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(c) intentionally omitted;
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common law,
now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or
10
<PAGE>
Indiana
protection of the environment, human health or safety or natural resources
or relating to or arising from the presence or Release or threat of Release
of Hazardous Substances into the environment at the Real Estate or into or
from any building, structure, pipeline or other facility at the Real
Estate, or from violation of any law relating to the foregoing, including
without limitation, any CERCLA or similar liability under any federal or
state law or regulation, except to the extent Buyer has given written
notice of a claim for indemnification pursuant to Sections 7.3 and 7.4
hereof prior to the expiration of the claims period set forth in Section
7.3.2(a) or (b) (and if Buyer has given written notice prior to the
expiration of such claims period, to the extent that such claim is not
entitled to indemnification under Sections 7.3 and 7.4) (the foregoing, the
"Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to unperformed
service obligations, easement and right-of-way relocation obligations, and
construction work in progress, and all engineering and construction
required to complete scheduled construction and other capital projects for
the Business, in each case relating to the Business and outstanding on or
arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for the Transferred
Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to customer
deposits held by Seller on the Closing Date and relating to the Business;
and
(h) all liabilities and obligations imposed on Buyer by any PUC in
connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the
financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by Buyer pursuant to
Section 2.3.1 above are hereinafter referred to as the "Assumed Liabilities." At
the Closing, Parent shall cause Buyer to execute and deliver to Seller an
assumption agreement, in substantially the form of the Assumption Agreement
attached hereto as Exhibit A (the "Assumption Agreement"), pursuant to which
Buyer shall assume the Assumed Liabilities. Each of Parent and Buyer hereby
irrevocably and unconditionally waives and releases the Seller Parties from all
Assumed Liabilities and all liabilities or obligations exclusively relating to
the Business or the Acquired Assets to the extent arising from events or
occurrences after the Closing or to the extent otherwise relating to the period
after the Closing, including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or obligations
(contingent or absolute and whether or not determinable as of the Closing) of
any of the Seller Parties or any of their Affiliates except for the Assumed
Liabilities as specifically and expressly provided for above, whether such
liabilities or obligations relate to payment, performance or
11
<PAGE>
Indiana
otherwise, and all liabilities, commitments or obligations not expressly
transferred to Buyer hereunder as Assumed Liabilities are being retained by the
Seller Parties, (the "Retained Liabilities"). Each of the Seller Parties hereby
irrevocably and unconditionally waives and releases Buyer from all Retained
Liabilities including any liabilities created or which arise by statute or
common law, including CERCLA (it being understood that this shall not constitute
a waiver and release of any claims arising out of the contractual relationships
and indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury to
person or property, regardless of when made or asserted, to the extent that
it arises out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by any of the Seller Parties or any
of their Affiliates prior to Closing, or alleged to have been made by any
of such Persons, or to the extent that it is imposed or asserted to be
imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or
any of their Affiliates prior to Closing, including any claim referred to
above in this Section 2.3.3(a) relating to water quality standards, any
claim relating to any product delivered in connection with the performance
of services provided by Seller and any claim seeking recovery for
consequential damages, lost revenue or income;
(b) all refund obligations relating to the advances existing on the
Closing Date for construction of facilities relating to the Business;
(c) except to the extent set forth in Section 2.9, any federal, state,
foreign or local income or other Tax payable with respect to the business,
assets, properties or operations of any of the Seller Parties or any member
of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in connection with
any common plant assets of Seller (other than the liabilities and
obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any nature
owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to
the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any liability,
obligation or responsibility of any of the Seller Parties, or any of their
Affiliates or predecessors, whether based on statutory or common law, but
only as any such law is interpreted, amended and in effect on the Closing
Date, known or unknown, contingent or actual, relating to or arising from
pollution, contamination or protection of the environment, human health or
safety or natural resources or relating to or arising from the presence or
Release or threat of Release of Hazardous
12
<PAGE>
Indiana
Substances into the environment or into or from any building, structure,
pipeline or other facility or relating to or arising from the generation,
use, storage, treatment, disposal, transport or other handling of Hazardous
Substances or sale or product containing Hazardous Substances from
violation of any law relating to the foregoing (but only as such law is
interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state
law or regulation as interpreted, amended and in effect on the Closing Date
or (B) any such liability associated with businesses or assets of the
Seller Parties other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the extent
arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any contract,
commitment, instrument or agreement (1) subject to the penultimate sentence
of Section 2.4, that is not transferred to Buyer as part of the Acquired
Assets, or (2) that relates to any breach or default (or to the extent that
it relates to an event which would, with the passing of time or the giving
of notice, or both, constitute a default) under any Contract, instrument or
agreement or to any services to be provided by Seller under any such
Contract, instrument or agreement to the extent that such services were
performed or were required to have been performed on or prior to the
Closing Date;
(i) any liability or obligation in respect of the Excluded Assets;
(j) any liability or obligation of any of the Seller Parties or any of
their Affiliates existing as a result of any act, failure to act or other
state of facts or occurrence which constitutes a breach or violation of any
of Seller's representations, warranties, covenants or agreements contained
in this Agreement, except to the extent set forth in Section 7.4; or
(k) except for the Assumed Liabilities as specifically and expressly
set forth herein, any liability to the extent arising out of or relating to
the ownership or operation of the Acquired Assets or the Business prior to
the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to
events or conditions occurring before the Closing Date, and any liability
associated with any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall cause
Seller to assign to Buyer, and Parent shall cause Buyer to assume, the Contracts
and the Permits which are to be transferred to Buyer as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide Buyer the full realization and value of every Contract of the character
described in the immediately preceding sentence, Seller agrees that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Seller or otherwise as Buyer shall specify, take all reasonable actions
(including without limitation the appointment of Buyer as attorney-in-fact for
13
<PAGE>
Indiana
Seller to proceed at Buyer's sole cost and expense) and do or cause to be done
all such things as shall in the reasonable opinion of Buyer be necessary (a) to
assure that the rights of Seller or its Affiliates under such Contracts shall be
preserved for the benefit of Buyer and (b) to facilitate receipt of the
consideration to be received by Seller or its Affiliates in and under every such
Contract. To the extent that Buyer does receive the benefits of any such
Contract pursuant to the preceding sentence, such Contract shall be a Contract
"assigned or transferred to Buyer pursuant to this Agreement" within the meaning
of Section 2.3.1(b) hereof. Nothing in this Section 2.4 shall in any way
diminish the obligations of Seller to obtain consents and approvals under this
Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase of the Acquired Assets (the "Closing") shall
take place at 10 a.m., East Coast time, on a date mutually satisfactory to Buyer
and Seller which is no later than the fifth Business Day after satisfaction (or
waiver) of the conditions to Closing set forth in Sections 6.1 and 6.2 hereof
(other than those conditions which require the delivery of any documents or the
taking of other action, at the Closing) at the offices of Fleischman and Walsh,
LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036, or on such other date
and at such other time or place as may be mutually agreed upon by the parties
hereto (the "Closing Date"). Upon payment of the Initial Cash Payment by Buyer
and confirmed receipt thereof by Seller or the Escrow Agent pursuant to Section
2.6.2 below, Seller shall operate the Business at the direction of and under the
control of Buyer. Notwithstanding the foregoing, the Closing shall be deemed to
be effective as of 11:59 p.m. on the Closing Date for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price be paid by Buyer for the purchase of the
Acquired Assets (the "Purchase Price") shall be: (i) $1,780,000 in cash (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3 and Section 2.6.5 is referred to as the "Initial
Cash Payment"), subject to adjustment pursuant to the provisions of this
Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5 and Section 2.9
of this Agreement) and (ii) the assumption by Buyer of the Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and conditions
of this Agreement, the Initial Cash Payment shall be paid by Buyer on the
Closing Date by federal other wire transfer of immediately available funds to
the account designated by Seller in writing at least two (2) Business Days prior
to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's lead bank
(the "Escrow Agent") in immediately available funds in U.S. dollars. Upon
receipt, the Escrow Agent shall invest the Initial Cash Payment in an
interest-bearing account mutually agreed upon by Seller and Buyer. At Closing,
Parent shall sign and deliver to Citizens a statement which confirms that the
Closing has occurred and which instructs the Escrow Agent to transfer to
Citizens the funds representing the Initial Cash Payment, plus an amount
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are
14
<PAGE>
Indiana
required to be transferred hereunder. The Escrow Agent shall refund the balance
to Buyer. The fees and expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business days prior to
the Closing Date, Citizens shall deliver to Parent and Buyer a statement of net
assets (the "Estimated Statement of Net Assets") reflecting its good faith
calculation of the Acquired Assets of the Business as of the last day of the
latest calendar month for which financial statements of Seller are available
(the "Estimated Adjusted Net Assets"). The Estimated Statement of Net Assets
shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $886,056
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and
deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59
p.m. on the Closing Date, based on actual financial performance and
calculated in the same manner, utilizing the same accounting principles,
policies and methods utilized in preparing the Interim Statement of Net
Assets (excluding for this purpose any change required by GAAP or any
Authority since June 30, 1999), together with (A) an audit report of
Seller's Accountants stating that the Closing Statement of Net Assets has
been prepared utilizing the same accounting principles, policies and
methods used in the preparation of the Interim Statement of Net Assets and
(B) a calculation of Citizens' determination of the amount of increase or
decrease in the amount of the Acquired Assets of the Business from the
Interim Statement of Net Assets Date to the Closing Date which is derived
from the Closing Statement of Net Assets ("Seller's Adjustment Amount").
The Closing Statement of Net Assets shall not give effect to any purchase
accounting treatment arising from Buyer's purchase of the Acquired Assets.
Buyer shall pay the fees and expenses of Seller's Accountants incurred in
connection with this Section 2.6.4. Buyer agrees to cooperate, and agrees
to cause Buyer's Accountants to cooperate, with Citizens and Seller's
Accountants in connection with the preparation of the Closing Statement of
Net Assets, and related information, and shall provide to Citizens and
Seller's Accountants such books, records and information as may be
reasonably requested from time to time, including the work papers of
Buyer's Accountants. Citizens will give Buyer and its representatives
access during the normal business hours of Citizens to the personnel, books
and records of Citizens and the work papers of Seller's Accountants to
assist Buyer in the review of the Closing Statement of Net Assets
and related matters. Buyer agrees that, following the Closing through the
date on which the Closing Statement of Net Assets is delivered, it will not
take any actions with respect to any accounting books, records, policies or
procedures on which the Closing Statement of Net Assets is to be based that
would make it impossible or impracticable to calculate the Acquired Assets
in the manner and utilizing the methods required hereby. Without limiting
the generality of the foregoing, no changes shall be made in any reserve or
other account existing as of the date of the Interim Statement of Net
Assets except in the ordinary course or as a result of events occurring
after the date of the Interim Statement of Net Assets and, in such event,
only in a manner consistent with past practices of Seller.
15
<PAGE>
Indiana
(b) Parent or Buyer may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer
shall notify Citizens in writing of each disputed amount, and specify the
amount thereof in dispute and the basis of such dispute, within 30 days of
the Buyer's receipt of the Closing Statement of Net Assets and the Seller's
Adjustment Amount (such 30 day period hereinafter referred to as the
"Review Period"). In the event of a dispute with respect to the Closing
Statement of Net Assets, the Seller's Adjustment Amount or the Statement of
Certain Assumed Liabilities, Buyer and Seller shall attempt to reconcile
their differences and any resolution by them as to any disputed amounts
shall be final, binding and conclusive on the parties. If Buyer and Seller
are unable to reach a resolution of such differences within 30 days of
receipt of Buyer's written notice of dispute to Seller, Buyer and Seller
shall submit the amounts remaining in dispute (together with any amounts
remaining in dispute pursuant to Section 2.6.4(b) of each of the Related
Purchase Agreements) for resolution to an independent accountant firm of
national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third
Accounting Firm"), which shall be requested to determine and report to the
parties, within 30 days after such submission, upon such remaining disputed
amounts, and such report shall be final, binding and conclusive on the
parties hereto with respect to the amounts disputed. The fees and
disbursements of the Third Accounting Firm shall be allocated between Buyer
and the Seller Parties so that the Seller Parties' share of such fees and
disbursements shall be in the same proportion that the aggregate amount of
such remaining disputed amounts so submitted by Buyer to the Third
Accounting Firm that is unsuccessfully disputed by the Buyer (as finally
determined by the Third Accounting Firm) bears to the total amount of such
remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's
Accountants incurred in connection with this Section 2.6.4(b). Seller's
Adjustment Amount, if there are no disputes with respect thereto, or
Seller's Adjustment Amount as adjusted after the resolution of all disputes
with respect thereto in accordance herewith, shall be referred to as the
"Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the
Final Net Asset Adjustment exceeds the Initial Cash Payment, then within
five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with interest thereon for the
period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check. If the
Initial Cash Payment exceeds the sum of the Base Cash Purchase Price plus
(or minus, if negative) the Final Net Asset Adjustment, then within five
(5) business days after final determination thereof Seller shall pay Buyer
the amount of such excess together with interest thereon for the period
commencing on the Closing Date through the date of payment calculated at
the Prime Rate in cash by federal or other wire transfer of immediately
available funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery of
the Estimated Statement of Net Assets, Citizens also shall deliver to Parent and
Buyer a statement reflecting (i) the customer and other deposits held by Seller
on the Closing Date and relating to the Business, (ii) the items specified in
Section 2.9 to the extent set forth therein, and (iii) without duplications of
any amount included in clause (i) above, any payments received by Seller under
the Contracts and Permits for obligations not performed as of the Closing Date
(the "Statement of
16
<PAGE>
Indiana
Certain Assumed Liabilities"). The Statement of Certain Assumed Liabilities
shall reflect Citizens' good faith calculation of such liabilities as of the
Closing Date. The Base Cash Purchase Price shall be decreased by the net amount
set forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause Seller to
deliver to Buyer:
(a) bills of sale and instruments of assignment to the Acquired
Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the Acquired
Assets, duly executed by Seller (together with any other transfer forms
necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to the parcels
of Real Estate owned in fee simple by Seller (or, with respect to any such
parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a
quit claim deed without covenant or warranty of title) to Buyer, duly
executed and acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act Certification and
Affidavit for each parcel of Real Estate, duly executed by the Seller
Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and
certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly
executed by Citizens; and
17
<PAGE>
Indiana
(i) all such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where
necessary or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall, and shall
cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount equal to
the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the "Allocation") of the Purchase
Price, the Assumed Liabilities and other relevant items (including, for example,
adjustments to the Purchase Price) to the individual assets or classes of assets
within the meaning of Section 1060 of the Code. If Buyer and Seller agree to
such Allocation on or before ninety (90) days after the Closing Date, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Authority or in
any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety (90) days after the Closing Date, Buyer and Seller covenant
and agree to file and to cause their respective Affiliates to file, all Tax
returns and schedules thereto (including, for example, amended returns, claims
for refund, and those returns and forms required under Section 1060 of the Code
and any Treasury regulations promulgated thereunder) consistent with each of
Buyer and Seller's good faith Allocations, unless otherwise required because of
a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses shall
be calculated and pro rated as of the Closing Date, with Seller responsible for
such expenses and to receive the benefit for the same for the period through and
including the Closing Date, and Buyer to be responsible for and to receive the
benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which the same were
assessed and paid) and sales, occupation and use taxes, in each case, to the
extent relating to the Business and except as otherwise provided in Section 7.1;
18
<PAGE>
Indiana
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in each
case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Buyer
pursuant to Section 2.3 (except to the extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other Contracts
(except to the extent provided in Section 2.3.3(h)), and fees under Permits to
be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and installments on
special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to own, lease and operate the
Acquired Assets and the Business as presently being conducted. Each of the
Seller Parties is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions wherein the nature of the business conducted by
it or such Seller Party's ownership or use of assets and properties make such
qualification necessary, except such failures to be qualified or to be in good
standing, if any, which when taken together with all such other failures of the
Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has full
corporate power and authority to execute, deliver and perform this Agreement and
all other agreements and instruments to be executed by them in connection
herewith (such other agreements and instruments being hereinafter referred to
collectively as the "Transaction Documents"). The execution, delivery and
performance by each of the Seller Parties of this Agreement and the Transaction
Documents to which such Seller Party is a party have been duly authorized by all
necessary corporate action on the part of each of them. This Agreement has been
duly executed and delivered by each of the Seller Parties, and as of the Closing
Date the other Transaction Documents will be duly executed and
19
<PAGE>
Indiana
delivered by the Seller Parties. This Agreement is a legal, valid and binding
obligation of each Seller Party, enforceable against them in accordance with its
terms except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which each of the Seller Parties is a
party will be duly executed and delivered by each of the Seller Parties and will
constitute the legal, valid and binding obligations of each of the Seller
Parties, enforceable against them in accordance with its respective terms,
except as such enforceability may be limited by applicable laws relating to
bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Party; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which any of the Seller Parties is a party,
or by which the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations, modifications,
accelerations, cancellations, Liens, interests or rights which, individually and
in the aggregate, do not have a Material Adverse Effect or will be cured, waived
or terminated prior to the Closing Date, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation, to
which any of the Seller Parties is subject, other than those violations or
conflicts which individually and in the aggregate would not have a Material
Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer the
statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
20
<PAGE>
Indiana
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the
date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of
Net Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries or
other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by any collective bargaining agreement, if any;
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to or
for the use of any Permit of the Business which individually or in the aggregate
would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and is set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business, except
in the ordinary course of business consistent with past practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than (i) with respect to which the Business' total
annual liability or expense is less than (a) $250,000 per such Contract and (b)
$6,123,000 per all such Contracts (when taken together with similar contracts
omitted from Schedule 3.6 of the Related Purchase Agreements), and (ii)
Contracts that may be terminated by Seller, without penalty, on notice of 90
days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6.
21
<PAGE>
Indiana
Except as disclosed on Schedule 3.6, with respect to each Contract, neither
Seller nor, to the Seller Parties' knowledge, any other party thereto, is in
breach or default, and to the Seller Parties' knowledge, no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the Contract, except in
each case where such breaches, terminations, modifications, accelerations or
defaults, individually or in the aggregate, do not have a Material Adverse
Effect. Except as set forth in Schedule 3.6, there are no disputes pending or to
the best of the Seller Parties' knowledge, threatened, under or in respect of
any of the Contracts, other than those that individually and in the aggregate do
not have a Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice, citation,
summons or order has been issued, no outstanding complaint has been filed, no
outstanding penalty has been assessed and no investigation or review is pending
or, to the knowledge of the Seller Parties, threatened, by any Authority or
other Person with respect to any alleged (i) violation by Seller or any
Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto, and
with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate,
22
<PAGE>
Indiana
or, in connection with the Business or Acquired Assets, at any other facility,
location, or other site.
3.8.2 Seller has not received any written notice or request for information
with respect to, and to the best of the Seller Parties' knowledge, Seller has
not been designated a potentially liable party for Remedial Action, in
connection with any Real Estate, or, as of the date hereof, with respect to the
Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use or
storage of Hazardous Substances as is incidental to the conduct of the Business,
which use and storage is or has been in compliance with Environmental Laws, and
which use and storage has not caused any condition that requires Remedial
Action, no Real Estate has been used for the storage, treatment, generation,
processing, production or disposal of any Hazardous Substances or as a landfill
or other waste disposal site in violation of any Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real Estate or, as of the date hereof, with
respect to the Business or the Acquired Assets or at any other facility,
location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous Substance
managed or generated by or on behalf of Seller at the Real Estate or in
connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real Estate, that are reasonably likely to result in any
material reduction in the quality or quantity of water available for supply to
the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the date hereof
provide Buyer with copies of all written environmental audits or investigations
of which they are aware (after due inquiry) prepared for the Real Estate or
operations of the Business.
23
<PAGE>
Indiana
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual Report on
Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section 3.8.10(a)
and (b), Affiliates and predecessors of the Seller Parties) are and have
been for the past three years in full compliance with all federal and state
primary drinking water standards;
(b) The Seller Parties are and have been for the past three years in
full compliance with all federal and state secondary drinking water
standards; and
(c) As to all outstanding violations of state or federal drinking
water standards, as of the date hereof, the Seller Parties have completed
or are in the process of completion in accordance with all applicable
deadlines, all actions required by Environmental Law or Authorities to
correct or otherwise respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller Parties
will be required to place any notice or restriction relating to the presence of
Hazardous Substances in the deed to any Real Estate, or in any written
instrument accompanying this Agreement, and no Real Estate has such a notice or
restriction in its deed or any other written instrument relating to the
purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment of the Contracts and Permits
contemplated hereby, except (i) as required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the
24
<PAGE>
Indiana
"HSR Act"), (ii) as specified on Schedule 3.9, and (iii) for such other
consents, approvals, authorizations, registrations or filings the failure of
which to obtain or make would not individually or in the aggregate have a
Material Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired Assets
constituting personal property, good and marketable title in fee simple to all
of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or oral
notice for assessments for public improvements against the Real Estate which
remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof, Seller
is not a lessee under any Contract relating to the use or occupancy of the Real
Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have a Material Adverse Effect. To Seller's
knowledge, no fact or condition exists which would result in the termination of
(a) the current access from each parcel of the Real Estate, and (b) continued
use, operation, maintenance, repair and replacement of all existing and
currently committed water lines used by Seller in connection with the Business,
except where such termination would not have a Material Adverse Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material returns
and reports for Taxes, including information returns, that are required to have
been filed in connection with, relating to, or arising out of, the Business, (b)
paid all Taxes that are shown to have come due pursuant to such returns or
reports and (c) paid all other material Taxes not required to be reported on
returns in connection with, relating to, or arising out of, or imposed on the
property of the Business for which a notice of assessment or demand for payment
has been received or which have otherwise become due. To the best of the Seller
Parties' knowledge, all such returns or reports have been prepared in accordance
with all applicable laws and requirements in all material respects.
25
<PAGE>
Indiana
Except to the extent disclosed on Schedule 3.12, none of the assets of the
Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (c) directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the Seller
Parties' knowledge, the operations of Seller do not make any unauthorized use of
any Intellectual Property except for any such unauthorized uses which do not
have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising from
the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each "employee
benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer
plan" as defined in Section 3(37) of ERISA), bonus, incentive, deferred
compensation, excess benefit, employment contract, stock purchase, stock
ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any
26
<PAGE>
Indiana
of its Affiliates maintains any bonus, pension or welfare benefit plan, program
or arrangement, including any deferred compensation arrangement, for directors,
consultants or independent contractors of the Business.
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's current
summary plan description and in the case of an unwritten Benefit Plan, a written
description thereof, has been furnished to Buyer. In addition, to the extent
applicable, Buyer has been provided a copy of the most recent Internal Revenue
Service ("IRS") determination letter issued to each Benefit Plan and a copy of
the most recent IRS Form 5500 together with all schedules and accountants'
statement filed, and actuarial reports prepared, on behalf of each Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code (as designated on Schedule 3.16.1) is so qualified, and will
remain so qualified upon the timely making of certain amendments required by law
during the applicable remedial amendment period, and any trust forming a part of
such a Benefit Plan is tax exempt under Section 501(a) of the Code. Each such
Benefit Plan has been amended, as and when necessary, to comply with the Tax
Reform Act of 1986 and upon timely filing of an Application for Determination
with the Internal Revenue Service, will be eligible to make further such
amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under the
Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge of
the Seller Parties, no other Person, has taken any action or failed to take any
action with respect to any Benefit Plan that may subject Buyer or any Benefit
Plan under which liabilities may be assumed by Buyer under Sections 5.10, 5.11
or 5.12 ("Assumed Benefit Liabilities") to any material liability or Tax under
the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects to
incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
27
<PAGE>
Indiana
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law, or
(ii) death or retirement benefits under a Benefit Plan qualified under Section
401(a) of the Code. Seller's Retiree Medical Plan contains provisions permitting
Seller to modify or terminate retiree medical benefits at any time, without
prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
3.17, Seller has no liabilities with respect to the Business which would
constitute Assumed Liabilities, either direct or indirect, matured or unmatured
or absolute, contingent or otherwise, except:
3.17.1 the liabilities which would decrease the Base Cash Purchase Price
pursuant to Section 2.6.5 to the extent assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business practice,
in or as a result of the normal and ordinary course of business and reflected in
the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the aggregate,
would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in Schedule
3.18, there are no actions, suits, investigations or proceedings pending against
or, to the best of the Seller Parties' knowledge, threatened, against or
affecting, Seller, the Business or any of the Acquired Assets before any court
or arbitrator or Authority which individually or in the aggregate, would have a
Material Adverse Effect. Except as disclosed in Schedule 3.18, there are
currently no outstanding judgments, decrees or orders of any court or Authority
against any of the Seller Parties, which relate to or arise out of the conduct
of the Business or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs and similar
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
28
<PAGE>
Indiana
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the Real
Estate has adequate arrangements for supplies of electricity, gas, oil, coal
and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does not
have any current customer which accounted for more than 5% of the net sales of
the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set forth
in Schedule 3.22 hereto, within six months prior to the date hereof, (i) Seller
has not effectuated (a) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or (b) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the
Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act).
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear
and tear excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
3.25 All Assets. Except as set forth on Schedule 3.25 and for the Excluded
Assets, the Acquired Assets include all assets, rights, properties and contracts
the use of which is necessary to the continued conduct of the Business by Buyer
substantially in the manner as it was conducted prior to the Closing Date,
including the service of all utility customers in substantially the same manner
and at substantially the same service levels as provided by Seller on the date
hereof.
29
<PAGE>
Indiana
3.26 Year 2000 Matters. Citizens has (1) initiated a review and assessment
of all mission critical areas within the Business and related operations
(including those affected by suppliers and vendors) that it reasonably believes
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any Seller Party (or suppliers and vendors) may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem all as set forth in
Citizens' Annual report on Form 10-K for the fiscal year ended December 31, 1998
and Citizens' Quarterly reports on Form 10-Q for the periods ending March 31,
1999 and June 30, 1999, and (iii) to date, implemented that plan substantially
in accordance with that timetable. Seller has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millennium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to Seller after making reasonable inquiries of such suppliers and
vendors. Seller makes no representation or warranty with respect to the receipt
or accuracy of any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except for
those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate the Acquired Assets and
the Business. Buyer is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it or Buyer's
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of Buyer do not have a material
adverse effect on its ability to perform its obligations under this Agreement
and the Transaction Documents.
30
<PAGE>
Indiana
4.2 Authorization and Enforceability. Each of Buyer and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by Buyer and Parent of this Agreement and
the Transaction Documents to which Buyer and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by Buyer and Parent, and as of
the Closing Date the other Transaction Documents will be duly executed and
delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Buyer and Parent of this Agreement,
the other Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by Buyer or Parent except (i) as required by the
HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such consents,
approvals, authorizations, registrations or filings, the failure to obtain or
make would not individually or in the aggregate have a material adverse effect
on their respective ability to perform their obligations under this Agreement
and the Transaction Documents.
31
<PAGE>
Indiana
4.5 Financing. Buyer and Parent have, and at the Closing Date, will have
sufficient resources to pay the Purchase Price, and Parent, Buyer or the other
Affiliates of Parent that are buyers of the assets and businesses being acquired
pursuant to the Related Purchase Agreements have, and at the Closing Date, will
have sufficient resources to pay the purchase prices set forth in the Related
Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect as
of the date hereof for casualty and property insurance covering Buyer's assets
and properties and the operation of Buyer's business, together with the risks
insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted by
this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the prior
written consent of Buyer, from and after the date of this Agreement and up to
and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only in
the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any specific event or
circumstance of which they are aware, or of which they receive notice, that has
or is likely to have, individually or in the aggregate, taken together with the
other events or circumstances, a Material Adverse Effect on the Acquired Assets
or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or enter
into any other transaction (except in the ordinary course of business)
which would have a Material Adverse Effect;
(c) except in the event of service interruption, emergency or casualty
loss, commit to acquire subsequent to the Closing Date on behalf of the
Business any capital asset or group of capital assets costing in excess of
$1,000,000 that is not included in the capital budget of Seller for fiscal
year 2000 and which, if so acquired, would be included in the Acquired
32
<PAGE>
Indiana
Assets; commencing December 1, 1999, accept or receive customer advances
for construction in excess of $9,000,000 (when combined with customer
advances relating to the businesses being acquired by Buyer or Affiliates
of Buyer pursuant to the Related Purchase Agreements) per each of the next
four consecutive three-month periods unless pursuant to an existing tariff,
Contract or Permit of Seller; or sell or lease or agree to sell or lease or
otherwise dispose of any assets included in the Acquired Assets except in
the ordinary course of the conduct of the Business, consistent with past
practice;
(d) except in the ordinary course of business, consistent with past
practice or as required under any of Seller's debt instruments or
indentures, mortgage, pledge or subject to any Lien (other than Permitted
Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred
Employee except (i) as required by law, and (ii) in the ordinary course,
consistent with past practice; provided, however, no individual Employee
shall in any event receive a compensation increase in excess of seven
percent (7%);
(f) other than in the ordinary course of business consistent with past
practice, sell or otherwise transfer any assets necessary, or otherwise
material to the conduct of, the Business which would constitute Acquired
Assets;
(g) change the Seller's method of accounting or keeping its books of
account or accounting practices with respect to the Business, except as
required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any action which
if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties set forth in Sections 3.1,
3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise extinguish any of the
Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by Citizens or
under common control with Citizens (each such person being a "Section 5.2
Affiliate"), nor any officer, director, employee, representative or agent of
Citizens or any of their Section 5.2 Affiliates, shall, directly or indirectly,
solicit or initiate or participate in any way in discussions or negotiations
with, or provide any information or assistance to, or enter into an agreement
with any Person or group of Persons (other than Parent, Buyer or any Person
controlled by Parent or Buyer or under common control with Parent, Buyer or any
Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or
33
<PAGE>
Indiana
group of Persons of ten percent (10%) of the Acquired Assets (as measured by net
book value of such assets on the date of each such transaction) or the
acquisition, merger, consolidation, liquidation, dissolution, disposition or
other transaction (or series of such transactions) involving the Seller Parties,
if such acquisition, merger, consolidation, liquidation, dissolution,
disposition or other transaction (or series of such transactions) would be
inconsistent, in any respect, with the obligations of the Seller Parties
hereunder (any of the foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller Parties
will provide Buyer with a supplement or amendment to the Disclosure Schedules
with respect to any matter, condition or occurrence which is required to be set
forth or described in the Disclosure Schedules. For the avoidance of doubt, a
matter, condition or occurrence shall only be "required" to be set forth or
described in the Disclosure Schedules if the failure to be so disclosed would
result in a breach of the applicable representation or warranty (qualified by
Material Adverse Effect where applicable) on the date hereof or on the Closing
Date. In addition, Seller shall have the right at any time and from time to time
prior to the Closing to supplement or amend the Disclosure Schedules. Seller may
provide Disclosure Schedules with respect to any representation or warranty of
this Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this Agreement,
including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
34
<PAGE>
Indiana
5.4.3 to advise the other parties promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied in a
timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or threatened litigation) to which
any Authority (including the PUC, the Antitrust Division and the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business or the right of Seller or its Affiliates effectively to control or
operate Citizens' other businesses, (B) the right of Buyer or its Affiliates to
acquire or hold the Business or the right of Seller or its Affiliates to hold
the Excluded Assets or Citizens' other businesses, or (C) the right of Buyer to
exercise full rights of ownership of the Business or all or any material portion
of the Acquired Assets or the right of Citizens to exercise full rights of
ownership of Citizens' other businesses or all or any material portion of the
Excluded Assets; or (iii) to agree or otherwise be required to sell or otherwise
dispose of, hold separate (through the establishment of a trust or otherwise),
or divest itself of all or any portion of the business, assets or operations of
Citizens, Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The
parties agree that no representation, warranty or covenant of Buyer, Parent, or
Citizens contained in this Agreement shall be breached or deemed breached as a
result of the failure by Parent and Buyer on the one hand or the Seller Parties,
on the other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause to
be made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required announcement).
35
<PAGE>
Indiana
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller, from
time to time after the Closing, at Buyer's or Seller's request, will execute,
acknowledge and deliver to the applicable person such other instruments of
conveyance and transfer and will take such other actions and execute such other
documents, certifications, and further assurances as Buyer or Seller, as the
case may be, may reasonably require in order to transfer, in accordance with the
terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and shall cause
their respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly transition of the Business from Seller to Buyer
and to minimize the disruption to the Business resulting from the transactions
contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and Buyer, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state securities laws ("Securities Filings") or
make any consent solicitations to holders of Assumed Indebtedness which include
any information about Seller, Buyer (or their respective Affiliates) or the
transactions contemplated hereby without consulting with the other party and
providing the other party a reasonable opportunity to review and comment on such
information, it being understood and agreed that any party may so disclose such
information in its reasonable judgment to the extent such party's counsel
advises it that such disclosure is advisable under applicable law. Each of
Parent, Buyer, Citizens and Seller shall, and shall cause their respective
Affiliates to, comply with all applicable federal and state securities laws in
connection with this Agreement and the transactions contemplated hereby
(including any solicitation of consents of holders of Assumed Indebtedness), and
all information supplied by any party for inclusion in any Securities Filing or
consent solicitation, including, without limitation, any proxy or information
statement, or any registration statement on Form S-4 shall be true and correct
in all material respect and shall not contain any untrue statement of a material
fact or omit to state any material fact which is required to be stated therein
or which is necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Buyer shall have the right to use all of the logos,
trademarks and trade identification of Seller as are located at the Real Estate
or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use of the
Trademarks shall be in accordance with such reasonable quality control standards
as may be promulgated by Seller and provided to Buyer. If Seller shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Seller shall have the right to terminate Buyer's right under this Section 5.8.3
to use the Trademarks.
36
<PAGE>
Indiana
5.8.4 Seller shall give Buyer and its representatives (including Buyer's
Accountants, consultants, counsel and employees), upon reasonable notice and
during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Buyer all documents, records and
information (and copies thereof), to the extent relating to the Business and the
Acquired Assets, as Buyer may reasonably request. Except to the extent disclosed
in the Disclosure Schedules in accordance with Sections 5.3 and 8.4, no
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller Parties under this Agreement
or the conditions to the obligations of Parent or Buyer under this Agreement.
All information provided to Buyer under this Agreement shall be held subject to
the terms and conditions of the Confidentiality Agreement dated August 2, 1999
between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. None of the employees listed on Schedule 5.9.1 is
subject to a collective bargaining agreement. All individuals referred to on
Schedule 5.9.1 are herein referred to as the "Employees." No later than March 1,
2000, Buyer and Seller shall determine the number of Employees to whom Buyer
will offer employment, which number shall be at least equal to 250 (when
combined with offers made by Buyer or Affiliates of Buyer to employees of
Affiliates of Seller in connection with the Related Purchase Agreements) (the
"Base Number"), and such additional number of Employees, if any, whom Buyer also
wishes to employ. Upon determination of such Employees, Seller will supplement
Schedule 5.9.1 with the name, job title, unused vacation, current base salary or
hourly wage, date of hire and assigned location of each Transferred Employee (as
that term is defined below). At the Closing, Seller shall provide an updated
Schedule 5.9.1 which shall disclose all the information required under the
preceding sentence as of the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer employment to at least
the Base Number of those employees included on Schedule 5.9.1. All Employees to
whom Buyer offers employment and who accept such employment are herein referred
to as the "Transferred Employees." In the event any Employees do not accept
Buyer's offer of employment, Buyer shall offer employment to such additional
employees (the identity of whom shall be determined by Buyer and Seller) as are
necessary to bring the total number of Transferred Employees to the Base Number.
Subject to the provisions of this Section 5.9 and Section 5.12, Buyer shall
provide each Transferred Employee with base compensation at least equal to that
provided by Seller on the Closing Date, and employee benefits which are
substantially comparable to those provided by Buyer to its other similarly
situated employees. Buyer agrees (i) to credit the service of each Transferred
Employee with Seller and its Affiliates before the Closing, for all purposes
under all employee benefit plans and arrangements maintained by Buyer (and/or
any of its Affiliates) for the benefit of any Transferred Employee (including
without limitation for purposes of attainment of retirement dates and payment of
optional forms of benefits), other than for purposes of benefit accrual under
any
37
<PAGE>
Indiana
"defined benefit plan", within the meaning of Section 3(35) of ERISA, (ii) to
provide accrued vacation to Transferred Employees in the year in which the
Closing occurs, equal to the excess, if any, of the accrued vacation to which
the Transferred Employee would otherwise be entitled under Seller's vacation
plan during that year over the amount of accrued vacation the Transferred
Employee had taken during that year, and, thereafter, to provide vacation to
Transferred Employees on the same basis as provided to similarly situated
employees of Buyer, with service credit as provided in (i) hereof, and (iii) to
provide severance benefits to Transferred Employees terminated by Buyer that are
substantially comparable to those benefits provided by Buyer. Buyer shall be
responsible for providing to each Transferred Employee vacation in an amount
equal to the Transferred Employee's vacation entitlement for the year of Closing
reduced by the number of vacation days such Transferred Employee has taken on or
before Closing. Nothing in this Section 5.9 shall limit Buyer's authority to
terminate the employment of any Transferred Employee at any time and for
whatever reason. Until the second anniversary of the Closing Date, neither
Seller nor any of its Affiliates shall directly or indirectly solicit or offer
employment to any Transferred Employee then employed by Buyer or its Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by Buyer as the result of any claims against Buyer or its Affiliates
that are made by any Employees or Former Employees (or the Beneficiary of any
Employee or Former Employee) who are not made offers to become employees of
Buyer or its Affiliates including, without limitation, claims asserted against
Buyer as a result of their termination by Seller or its Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, Buyer shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of Buyer incurred after Closing) owed to
any Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between Buyer or any of its
Affiliates and any Transferred Employee or (ii) any benefit claim or expense
(including medical expense) incurred after Closing under any
38
<PAGE>
Indiana
employee benefit plan sponsored or contributed to by Buyer or an ERISA Affiliate
after Closing. Notwithstanding the foregoing, Buyer shall not be responsible for
the payment of any employee benefits that become due to any Transferred
Employees under any Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) Buyer does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. Buyer will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The Buyer's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall retain
liability and related assets for benefits accrued through the Closing Date by
Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be covered under
the American Pension Plan, and shall be given credit for service with Seller and
its Affiliates for eligibility, vesting, attainment of retirement dates,
subsidized benefits, and entitlement to optional forms of payment, but not for
accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section 5.11.2,
subject to the terms and conditions of this Agreement, Parent shall cause the
Savings Plan for Employees of American Water Works Company, Inc. (the "American
Savings Plan") to assume the liability of the Seller's 401(k) Plan for the
account balances of those Transferred Employees participating in the Seller's
401(k) Plan on the Closing Date (the "Affected Participants") that are
39
<PAGE>
Indiana
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Buyer's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Buyer that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to Affected Participants to the trustee of the American
Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to transfer
to trusts established by Buyer under Section 501(c)(9) of the Code ("Buyer's
VEBAs") the amount held under any trust established by Seller under Section
501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health care and
life insurance benefits attributable to the Business, including Former Employees
identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
40
<PAGE>
Indiana
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Buyer under its corresponding welfare benefit plans (the "Buyer's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Buyer Welfare Plans shall be waived in Buyer's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective Beneficiaries shall receive credit under the Buyer
Welfare Plans for co-payments, payments under a deductible limit made by them,
and for out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in which the Closing Date occurs. As soon as practicable
after the Closing Date, Seller shall deliver to Buyer a list of the Transferred
Employees and retirees of the Water Sector and their respective Beneficiaries
who had credited service under a Seller Welfare Plan, together with each such
individual's service, copayment, deductible and out-of-pocket payment amounts
under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan any balances
standing to the credit of Transferred Employees under Seller's flexible benefits
plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing
Date a list of those Transferred Employees that have participated in the health
or dependent care reimbursement accounts of Seller, together with their
elections made prior to the Closing Date with respect to such Account, and
balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and Buyer, on
the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or
41
<PAGE>
Indiana
information which may be relevant to such returns for all Tax periods or
portions thereof ending before or including the Closing Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and Buyer
shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Contracts and the Permits on the terms set forth in this
Agreement; and (b) shall include an obligation on the part of Parent or Buyer to
provide a guarantee, letter of credit, bond or other required surety instrument
at Closing to the extent required by any Contract or Permit and in general to
provide an equivalent surety instrument to be substituted for any surety
instrument provided by Citizens to any beneficiary in connection with the
Business.
5.16 Intentionally Omitted.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens shall
deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets forth
all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use its
reasonable efforts to deliver to Buyer true, correct and complete copies of all
existing title policies, surveys, leases, deeds, instruments and agreements
relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing Date,
except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.26, 5.27 and
2.7.1(j) of this Agreement, Seller shall have terminated and canceled all
contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated hereby.
42
<PAGE>
Indiana
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of violation,
Citizens shall notify Buyer of any violations of state or federal drinking water
standards which, if such violations existed on the date hereof, would be
required to be disclosed pursuant to Section 3.8.10 hereof, and shall promptly
notify Buyer of the actions proposed to be taken by Seller to correct or
otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of fifteen
(15) years after the Closing Date no Seller Party nor any Affiliate of a Seller
Party shall directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of or be otherwise connected
in any substantial manner with any entity (other than Buyer and its successors
and assigns) engaged in the business of storing, supplying and distributing
water in the States in which Buyer acquires any Acquired Assets, whether or not
such business is subject to regulation by a PUC (it being understood that the
individual directors of Seller and Citizens are not Affiliates of a Seller
Party).
5.23 Intentionally Omitted.
5.24 Intentionally Omitted.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller may, at Seller's written election delivered to Buyer no later than five
(5) days prior to the Closing Date, direct that all or a portion of the Initial
Cash Payment be delivered to a "qualified intermediary" as defined in Treasury
Regulation ss. 1.1031(k) - (g)(4) as to enable Seller's relinquishment of the
Acquired Assets to qualify as part of a like-kind exchange of property covered
by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but without being required to incur any out-of-pocket
costs in the course thereof) in connection with Seller's efforts to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Seller reasonably requests in order to enable Seller to qualify
such transfer as part of a like-kind exchange of property covered by Section
1031 of the Code (including any actions reasonably required to facilitate the
use of a "qualified intermediary"), and Buyer agrees that Seller may assign all
or part of its rights (but no obligations) under this Agreement to a person or
entity acting as a qualified intermediary to qualify the transfer of the Assets
as part of a like-kind
43
<PAGE>
Indiana
exchange of property covered by Section 1031 of the Code. Buyer and Seller agree
in good faith to use reasonable efforts to coordinate the transactions
contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall indemnify and hold Buyer harmless from any cost, expense
or liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer
and use commercially reasonable efforts to assist Buyer if Buyer desires to
obtain ALTA title insurance commitments (collectively, the "Title Commitments,"
and each a "Title Commitment"), in final form, from one or more title insurance
companies (collectively, the "Title Company"), committing the Title Company
(subject only to the satisfaction of any industry standard requirements
contained in the Title Commitment) to issuing ALTA (or its local equivalent)
form of title insurance policies insuring good, valid, indefeasible fee simple
title to the Real Estate in Buyer, in all cases, at Buyer's sole expense and in
the respective amounts that Buyer requests prior to Closing, subject to no Liens
or other exceptions to title other than Permitted Exceptions (collectively the
"Title Policies"). On or prior to the Closing Date, Seller shall execute and
deliver, or cause to be executed and delivered, to the Title Company, at no cost
to Seller, any customary affidavits, standard gap indemnities and similar
documents reasonably requested by the Title Company in connection with the
issuance of the Title Commitments or the Title Policies; provided that such
efforts and Buyers' request for Title
44
<PAGE>
Indiana
Policies or Title Commitments shall, in no event, result in any delay in the
consummation of the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing Date if any Material Adverse Effect that may have arisen or occurred
between the execution date of this Agreement and the Closing Date shall have
been cured or remedied such that such Material Adverse Effect is not continuing
as of the Closing Date. Buyer shall have been furnished with a certificate of
the Chief Financial Officer or other Vice President of Citizens dated the
Closing Date, certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L. Russell Mitten
II, Vice President and General Counsel of Seller, an opinion dated the Closing
Date, in form and substance satisfactory to Buyer, to the effect set forth in
Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby, and such order shall not contain
any restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory
45
<PAGE>
Indiana
treatment with respect to the Business in existence as of the date of this
Agreement applicable to Seller be continued following the transactions
contemplated hereby) which would have a Material Adverse Effect or a material
adverse effect on any other regulated business of Buyer in the state in which
the PUC has jurisdiction, and such order shall be final and unappealable; Seller
shall have obtained all statutory, regulatory and other consents and approvals
which are required in order to consummate the transactions contemplated hereby
and to permit Buyer to conduct the Business in the manner contemplated by
Section 3.25 hereof other than those the failure of which to obtain would not
have a Material Adverse Effect. Seller shall have also obtained (i) all consents
and legal opinions required to enable Seller to sell the Acquired Assets to
Buyer at the Closing, free and clear of all Liens other than Permitted
Exceptions (and specifically free and clear of any Lien arising under or
pursuant to the Mortgage Indenture) and (ii) all consents required under
Contracts and Permits relating to Seller's water appropriation and flowage
rights to the extent reasonably sufficient to enable Buyer to service the
customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Buyer's ownership of all or any material portion of the
Acquired Assets, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied that the
consummation of each of the asset purchase and sale transactions contemplated by
those certain purchase agreements described on Schedule 6.1.7 (the "Related
Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The obligations
of the Seller Parties to cause the sale of the Acquired Assets and to consummate
the other transactions contemplated hereby are subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions (any one or
more of which may be waived in writing in whole or in part by the Seller Parties
in their sole discretion):
6.2.1 Performance of Agreements; Representations and Warranties. Parent and
Buyer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by Buyer and Parent shall be true and correct
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for
46
<PAGE>
Indiana
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 4.2), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a material adverse effect on the respective ability of Buyer and Parent to
perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and Buyer, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price &
Rhoads, counsel to Parent and Buyer, an opinion dated the Closing Date, in form
and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby and such order shall not contain
any restrictions or conditions which would have a material adverse effect on
Seller's business activities in the State in which the PUC has jurisdiction or
any significant adverse effect on Citizens' acquisition and divestiture
activities in that State (including divestiture of the Acquired Assets), and
such order shall be final and unappealable; Seller shall have obtained all
statutory and regulatory consents and approvals which are required in order to
consummate the transactions contemplated hereby, other than those the failure of
which to obtain would not have a material adverse effect on the Seller after the
Closing. Seller shall have obtained (i) all consents and legal opinions required
to enable Seller to sell the Acquired Assets to Buyer at the Closing, free and
clear of all Liens other than Permitted Exceptions (and specifically free and
clear of any Lien arising under or pursuant to the Mortgage Indenture), and (ii)
all other consents required or advisable in order for Seller to transfer
Acquired Assets without incurring material liability under any Contract, Permit
or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including
47
<PAGE>
Indiana
pursuant to Sections 2.7 and 5.27, and shall have taken such actions as Seller
may have requested pursuant to Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to the
Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating to brokerage
and Section 7.1 relating to expenses. Nothing in this Section 6.3 shall be
deemed to release either party from any liability for any willful breach by such
party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible for
all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of
48
<PAGE>
Indiana
the parties hereto shall each bear its respective accounting, legal and other
expenses incurred in connection with the transactions contemplated by this
Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one hand,
and Buyer and Parent, on the other hand, shall cooperate fully with each other
after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section 7.4.2(j),
all representations, warranties, covenants and agreements contained in this
Agreement or the Transaction Documents shall survive (and not be affected in any
respect by) the Closing, any investigation conducted by any party hereto and any
information which any party may receive. Notwithstanding the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained
in Section 7.4 shall terminate on, and no action or claim with respect
thereto may be brought after, the third anniversary of the Closing
Date;
(b) the covenants contained in Section 5.2 and the related
indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the
Closing Date;
(c) the representations and warranties contained in Sections 3.12
and 3.16 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto
may be brought following the expiration of the applicable statute of
limitations (or extensions or waivers thereof);
(d) the representations and warranties contained in Section 3.2
and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
49
<PAGE>
Indiana
(e) the representations and warranties contained in Section 3.10
and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(f) the representations and warranties contained in Section 3.7
and 3.17 and the related indemnity obligations contained in Section
7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3,
3.5, 3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations
contained in Section 7.4 shall terminate on, and no action or claim
with respect thereto may be brought after, the third anniversary of
the Closing Date;
(h) the representations and warranties contained in Section 3.11
and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2
and the related indemnity obligations contained in Section 7.4 shall
survive for an unlimited period of time;
(j) the representations and warranties contained in Sections 4.3
and 4.4 and the related indemnity obligations contained in Section 7.4
shall terminate on, and no action or claim with respect thereto may be
brought after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in Section 4.5
and the related indemnity obligations contained in Section 7.4 shall
terminate on,
and no action or claim with respect thereto may be brought after, the
Closing Date; and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section
7.4 shall terminate on and no further action or claim with respect
thereto may be brought after, the second anniversary of the Closing
Date;
(m) such representations and warranties specified in the
foregoing clauses (c) through (k), and the covenants contained in
Section 5.1, 5.2, 5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the
liability of any party with respect thereto, shall not terminate with
respect to any claim, whether or not fixed as to liability or
liquidated as to amount, with respect to which such party has been
given written notice setting forth the facts upon which the claim for
indemnification is based and, if possible, a reasonable estimate of
the amount of the claims prior to the relevant anniversary of the
Closing Date or the 30th day after the expiration of the applicable
statute of limitations (or extensions or waivers thereof), as the case
may be. If any claim for indemnification is asserted or could be
asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the Buyer or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach
of any other representation or warranty in this Agreement for
50
<PAGE>
Indiana
which there is a shorter survival period, such shorter period will
apply to such claim except to the extent that such claim is a product
liability, toxic tort or similar claim (as described in Section
2.3.3(a)) brought by a private party litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made by
Buyer or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing
Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any
locations other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any
action or claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
51
<PAGE>
Indiana
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors, officers and
other Affiliates (including Parent) and hold Buyer and such other
parties harmless from and against any and all Damages arising out of
or resulting from (A) any breach of any representation, warranty,
covenant or agreement made by the Seller Parties in this Agreement or
in any document or certificate required to be furnished to Buyer by
any of the Seller Parties pursuant to this Agreement (including the
Transaction Documents); (B) subject to Section 7.3.2, any Excluded
Assets or Retained Liabilities; and (C) subject to Section 7.3.2, the
ownership, operation or use of any of the businesses or assets of the
Seller Parties or their Affiliates (other than the Business and the
Acquired Assets) whether before, on or after the Closing Date.
(b) Buyer and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and
such other parties harmless from and against any and all Damages
arising out of or resulting from (A) any breach of any representation,
warranty, covenant or agreement made by Parent or Buyer in this
Agreement or in any document or certificate required to be furnished
to Seller by Parent or Buyer pursuant to this Agreement (including the
Transaction Documents), (B) any Assumed Liabilities after the Closing
Date, (C) the ownership, operation or use of the Business or the
Acquired Assets after the Closing Date (except to the extent resulting
from Retained Liabilities or to the extent resulting from breaches by
the Seller Parties of representations, warranties, covenants or
agreements hereunder or in the other Transaction Documents); and (D)
any claim by a Transferred Employee or a Former Employee referred to
on Schedule 5.12 or the Beneficiary of any such employee or former
employee for post-retirement health care or life insurance benefits
"incurred" (within the meaning of Section 5.9.4) after the Closing.
(c) For purposes of this Agreement, "Damages" shall mean any and
all losses, liabilities, obligations, damages (including any
governmental penalty or punitive damages assessed or asserted against
the party seeking indemnification and including costs of
investigation, clean-up and remediation), deficiencies, interest,
costs and expenses and any claims, actions, demands, causes of action,
judgments, costs and reasonable expenses (including reasonable
attorneys' fees and all other reasonable expenses incurred in
investigating, preparing or defending any litigation or proceeding,
commenced or threatened, incident to the successful enforcement of
this Agreement). For purposes of this Section 7.4, the determination
of whether any breach of any representation, covenant or agreement has
occurred, and the calculation of the amount of Damages incurred by the
Indemnified Party arising out of or resulting from any breach of a
representation, covenant or agreement by any party hereto, the
references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach
shall be found to have occurred due to facts or circumstances arising
from an occurrence or condition described in Section 1.1.61(a).
Notwithstanding the foregoing, Damages shall not include the loss of
profits of the party seeking indemnification, or punitive damages
unless the party seeking indemnification has had punitive damages
assessed or asserted against it.
52
<PAGE>
Indiana
(d) Notwithstanding any language contained in any Transaction
Document (including deeds to Real Estate and instruments delivered by
Seller to the Title Company), representations and warranties as to
Real Estate set forth in Section 3.10 and 3.11 will not be merged into
any Transaction Document and the indemnification obligations of
Seller, and the limitations on such obligations, set forth in this
Agreement, shall control. No provision set forth in any Transaction
Document shall be deemed to enlarge, alter or amend the terms or
provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4
(an "Indemnified Party") shall give prompt written notice to the party
from whom such indemnification is sought (the "Indemnifying Party") of
the assertion of any claim, the incurrence of any Damages, or the
commencement of any action, suit or proceeding, of which it has
knowledge and in respect of which indemnity may be sought hereunder,
and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but failure
to give such required notice shall relieve the Indemnifying Party of
any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall
have the right, exercisable by written notice to the Indemnified Party
after receipt of notice from the Indemnified Party of the commencement
of or assertion of any claim or action, suit or proceeding by a third
party in respect of which indemnity may be sought hereunder (a "Third
Party Claim"), to assume the defense of such Third Party Claim which
involves (and continues to involve) solely monetary damages; provided,
that (A) the Indemnifying Party expressly agrees in such notice that,
as between the Indemnifying Party and the Indemnified Party, solely
the Indemnifying Party shall be obligated to satisfy and discharge the
Third Party Claim, (B) such Third Party Claim does not include a
request or demand for injunctive or other equitable relief by an
Authority and (C) the Indemnifying Party makes reasonably adequate
provision to assure the Indemnified Party of the ability of the
Indemnifying Party to satisfy the full amount of any adverse monetary
judgment that is reasonably likely to result. The Indemnifying Party
shall be deemed to have satisfied the condition set forth in clause
(C) of the proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party
shall settle any Third Party Claim without the prior written consent
of the other, which consent shall not be unreasonably withheld or
delayed.
(c) The Indemnifying Party or the Indemnified Party, as the case
may be, shall have the right to participate in (but not control), at
its own expense, the defense of any Third Party Claim which the other
party is defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither
Parent nor Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages
incurred unless the aggregate amount of Damages incurred by
53
<PAGE>
Indiana
Parent or Buyer (or the other Persons for which they can claim
indemnification), together with all other claims for Damages under
Section 7.4.2(e) of each of the Related Purchase Agreements, exceeds
$6,123,000 in the aggregate (the "Threshold Amount"), in which case
Seller shall then be liable for Damages in excess of the Threshold
Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the
cumulative aggregate indemnity obligation of Citizens and its
Affiliates under Section 7.4
of this Agreement and the Related Purchase Agreements shall not exceed
$60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that
Parent or Buyer (and the other Persons for which they can claim
indemnity hereunder) shall be entitled to indemnification for Damages
in respect of intentional and wilful breaches of covenants or
agreements in this Agreement or any of the Retained Liabilities other
than the Specified Liabilities irrespective of the Threshold Amount or
the Ceiling (it being understood that the failure to cure a breach
shall not, by itself, be an intentional and wilful breach). As used
herein, the "Specified Liabilities" shall mean the Retained
Liabilities arising from claims made after the Closing Date which (i)
do not relate to matters within the scope of clauses (u), (v), (w) and
(x) of Section 7.3.2; (ii) were not known to the Seller Parties on or
prior to Closing; and (iii) relate exclusively to the Acquired Assets
or the Business prior to the Closing Date. Notwithstanding anything to
the contrary in this Section 7.4, Parent or Buyer (or the other
Persons for which they can claim indemnification) shall be entitled to
indemnification for Damages in respect of a breach of Section 3.2,
3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer under
this Section 7.4 are exclusive and in lieu of any and all other rights
and remedies which Seller, Parent and Buyer may have under this
Agreement or otherwise for monetary relief with respect to (x) the
inaccuracy of any representation, warranty, certification or other
statement made (or deemed made) by Seller, Parent or Buyer in or
pursuant to this Agreement or any of the Transaction Documents or (y)
any breach or failure to perform any covenant or agreements set forth
in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j) below, no
right to indemnification under this Section 7.4 shall be limited by
reason of any investigation or audit conducted before or after the
Closing of any party hereto including, without limitation, the
knowledge of such party of any breach of any representation, warranty,
agreement or covenant by the other party at any time, or the decision
by such party to complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such
Damages shall be included in determining the extent of Damages
incurred by such party for purposes of Section 7.4.2(e)) to the extent
that:
(A) the Indemnified Party recovers insurance proceeds
covering the Damages or otherwise recovers payments in respect of
such Damages from any other source (whether in a lump sum or
stream of payments); or
54
<PAGE>
Indiana
(B) the Indemnified Party's Tax liability is actually
reduced as a result of a tax benefit to which the Indemnified
Party becomes entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under this
Section 7.4 for any Damages resulting from the inaccuracy or breach of
any representation or warranty if such inaccuracy or breach is
disclosed by Seller pursuant to and in accordance with Sections 5.3
and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable efforts to
give timely and effective written notice to the appropriate insurance
carrier(s) of any occurrence or circumstances which, in the judgment
of Buyer consistent with its customary risk management practices,
appear likely to give rise to a claim against Buyer that is likely to
involve one or more insurance policies of Buyer. Any such notice shall
be given in good faith by Buyer without regard to the possibility of
indemnification payments by Seller under this Section 7.4, and shall
be processed by Buyer in good faith and in a manner consistent with
its risk management practices involving claims for which no third
party contractual indemnification is available. Buyer agrees that (i)
if it is entitled to receive payment from Seller for Damages arising
under or pursuant to a breach of the representation and warranty set
forth in Section 3.10, and (ii) if Buyer has obtained title insurance
which may cover the claim or matter giving rise to such Damages, then
(iii) such title insurance shall be primary coverage and Buyer will
make a claim under the title insurance if such claim can be made in
good faith before enforcing its right to receive payment from Seller.
Buyer shall be under no obligation to obtain title insurance or
prosecute such claim (other than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an Indemnified
Party of an indemnity payment hereunder, such Indemnified Party (or
any Affiliate thereof) receives any recovery, settlement or other
similar payment with respect to the Damages for which it received such
indemnity payment (including insurance proceeds and other payments
pursuant to Section 7.4.2(i)(A) and a tax benefit pursuant to Section
7.4.2(i)(B)) (the "Recovery"), such Indemnified Party shall promptly
pay to the Indemnifying Party an amount equal to the amount of such
Recovery, less any expense incurred by such Indemnified Party (or its
Affiliates) in connection with such Recovery, but in no event shall
any such payment exceed the amount of such indemnity payment;
(m) In the event of any indemnification claim under this Section
7.4 involving the claim of any third party, the Indemnified Party
shall cooperate fully (and shall cause its Affiliates to cooperate
fully) with the Indemnifying Party in the defense of any such claim
under this Section 7.4. Without limiting the generality of the
foregoing, the Indemnified Party shall furnish the Indemnifying Party
with such documentary or other evidence as is then in its or any of
its Affiliates' possession as may reasonably be requested by the
Indemnifying Party for the purpose of defending against any such
claim. Whether or not the Indemnifying Party chooses to defend or
prosecute any claim involving a third party, all the parties hereto
shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as
may be reasonably requested in connection therewith.
55
<PAGE>
Indiana
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL
FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets or the
Business to Buyer. In addition, Seller will execute such documents and financing
statements as Buyer may reasonably request from time to time to evidence
transfer of the Acquired Assets to Buyer in accordance with this Agreement,
including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing of
any registration statement or periodic report of Buyer or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall provide
Buyer (a) by April 30, 2000 or within 120 days after Buyer's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly (and in
any event no later than five (5) Business Days following receipt) deliver all
such payments with respect to accounts receivable from customers of the Business
received on and after the Closing Date (including but not limited to negotiable
instruments tendered in payment of accounts receivable assigned to Buyer
hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
56
<PAGE>
Indiana
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have participated
jointly in the negotiation and drafting of this Agreement and the Transaction
Documents. In the event any ambiguity or question of intent or interpretation
arises, this Agreement and the Transaction Documents shall be construed as if
drafted jointly by Parent, Buyer and the Seller Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
57
<PAGE>
Indiana
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Indiana-American Water Company, Inc.
491 Camby Court
P. O. Box 570
Greenwood, IN 46142-0570
Fax: (740) 383-0983
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
58
<PAGE>
Indiana
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto; provided that Seller
may assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the transactions contemplated hereby
as a like-kind exchange of property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Disclosure of any fact or item in any
Schedule referenced by a particular paragraph or Section in this Agreement
shall, should the existence of the fact or item or its contents be clearly
related to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any dispute,
controversy or claim between the parties relating to, arising out of or in
connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any
59
<PAGE>
Indiana
Dispute. The discussions shall be left to the discretion of the
representatives. Upon agreement, the representatives may utilize other
alternative dispute resolution procedures such as mediation to assist
in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement,
exempt from discovery and production, and without the concurrence of
both parties shall not be admissible in the arbitration described
below, or in any lawsuit. Documents identified in or provided with
such communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
(b) If negotiations between the representatives of the parties do
not resolve the Dispute within 60 days of the initial written request,
the Dispute shall be submitted to binding arbitration by a single
arbitrator pursuant to the Commercial Arbitration Rules, as then
amended and in effect, of the American Arbitration Association (the
"Rules"); provided, however, that at the election of either party, the
arbitration shall take place before three (3) arbitrators, one
arbitrator being selected by Parent, one arbitrator being selected by
Citizen, and the third arbitrator, knowledgeable in the general
subject matter of the dispute, controversy or claim, being selected by
the other two arbitrators. Either party may demand such arbitration in
accordance with the procedures set out in the Rules. The parties
hereto shall use reasonable efforts to coordinate any arbitration
commenced under any of the Related Purchase Agreements so that the
resolution of the arbitration under this Agreement and the similar
issues under the Related Purchase Agreements can be resolved as
expeditiously and efficiently as reasonably practicable. Reasonable
efforts shall include use of a common arbitrator or panel of
arbitrators where practicable. The arbitration shall take place in
Newark, New Jersey. The arbitration hearing shall be commenced within
60 days of such party's demand for arbitration. The arbitrator(s)
shall have the power to and will instruct each party to produce
evidence through discovery (i) that is reasonably requested by the
other party to the arbitration in order to prepare and substantiate
its case and (ii) the production of which will not materially delay
the expeditious resolution of the dispute being arbitrated; each party
hereto agrees to be bound by any such discovery order. The
arbitrator(s) shall control the scheduling (so as to process the
matter expeditiously) and any discovery. The parties may submit
written briefs. At the arbitration hearing, each party may make
written and oral presentations to the arbitrator(s), present testimony
and written evidence and examine witnesses. No party shall be eligible
to receive, and the arbitrator(s) shall not have the authority to
award, exemplary or punitive damages. The arbitrator(s) shall rule on
the Dispute by issuing a written opinion within 30 days after the
close of hearings. The arbitrators' majority decision shall be binding
and final. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in submitting
and presenting its position with respect to any Dispute to the
arbitrator(s); provided, however, that if the arbitrator(s) determines
that the position taken in the Dispute by the non-prevailing party
taken as a whole is unreasonable, the arbitrator(s) may order the
non-prevailing party to bear such fees and expenses, and reimburse the
prevailing party for all or such portion of its reasonable costs and
expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the
circumstances. Each party to the arbitration shall pay one-half of the
fees and expenses of the arbitrator(s) and the American Arbitration
Association.
60
<PAGE>
Indiana
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 8.6 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended or should be construed to confer upon or give to any Person other than
the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the other Transaction Documents, and the Confidentiality Agreement dated August
2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (i) extend the
time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in representations and warranties by the other party;
(iii) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
61
<PAGE>
Indiana
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF THE
SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR
REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR PREDICTIONS
OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS THAT HAVE
BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings under any
tax bulk sales provisions with respect to the transactions contemplated by this
Agreement.
[Signatures appear on following page.]
62
<PAGE>
Indiana
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
----------------------------------------
Robert J. DeSantis, Chief Financial
Officer, Vice President and Treasurer
FLOWING WELLS, INC.
By: Robert J. DeSantis
----------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett
-----------------------------------------
Joseph F. Hartnett, Jr., Treasurer
INDIANA-AMERICAN WATER COMPANY, INC.
By: John E. Eckart
------------------------------------------
John E. Eckart, President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by Indiana-American Water Company, an Indiana corporation ("Transferee"), in
favor of Citizens Utilities Company, a Delaware corporation ("citizens"), and
each of the wholly-owned subsidiaries of Citizens named on the signature page
hereof (collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
FLOWING WELLS, INC.
By:________________________________________________
Name:
Title:
TRANSFEREE:
INDIANA-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
Indiana-American Water Company, an Indiana corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
FLOWING WELLS, INC.
By:________________________________________________
Name:
Title:
TRANSFEREE:
INDIANA-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
<PAGE>
EXHIBIT 10(u)
Ohio
EXECUTION COPY
ASSET PURCHASE AGREEMENT
Among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
OHIO-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
<PAGE>
Ohio
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS................................................. 1
1.1 Certain Definitions......................................... 1
ARTICLE 2 THE TRANSACTION.............................................10
2.1 Sale and Purchase of Assets.................................10
2.2 Excluded Assets.............................................10
2.3 Assumption of Certain Liabilities...........................11
2.4 Consent of Third Parties....................................14
2.5 Closing.....................................................15
2.6 Purchase Price..............................................15
2.6.1 Purchase Price.....................................15
2.6.2 Payment of Initial Cash Payment....................15
2.6.3 Estimated Closing Statement........................16
2.6.4 Post-Closing Adjustment to Purchase Price..........16
2.6.5 Adjustment for Certain Liabilities.................18
2.6.6 Additional Adjustment to the Purchase Price........18
2.7 Deliveries and Proceedings at Closing.......................18
2.7.1 Deliveries to Buyer.........................................18
2.7.2 Deliveries By Buyer to the Seller Parties...................19
2.8 Allocation of Consideration.................................19
2.9 Prorations..................................................20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................20
3.1 Qualification; No Interest in Other Entities................21
3.2 Authorization and Enforceability............................21
3.3 No Violation of Laws or Agreements..........................21
3.4 Financial Statements........................................22
3.5 No Changes..................................................22
3.6 Contracts...................................................23
3.7 Permits and Compliance With Laws Generally..................23
3.8 Environmental Matters.......................................24
3.9 Consents....................................................26
3.10 Title.......................................................26
3.11 Real Estate.................................................27
3.12 Taxes.......................................................27
3.13 Patents and Intellectual Property Rights....................28
3.14 Accounts Receivable.........................................28
3.15 Labor Relations.............................................28
3.16 Employee Benefit Plans......................................28
3.17 Absence of Undisclosed Liabilities..........................30
3.18 No Pending Litigation or Proceedings........................30
3.19 Supply of Utilities.........................................31
<PAGE>
Ohio
3.20 Insurance...................................................31
3.21 Relationship with Customers.................................31
3.22 WARN Act....................................................31
3.23 Condition of Assets.........................................31
3.24 Brokerage...................................................32
3.25 All Assets..................................................32
3.26 Year 2000 Matters...........................................32
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..........32
4.1 Organization and Good Standing..............................33
4.2 Authorization and Enforceability............................33
4.3 No Violation of Laws or Agreements..........................33
4.4 Consents....................................................34
4.5 Financing...................................................34
4.6 Brokerage...................................................34
4.7 Insurance...................................................34
ARTICLE 5 ADDITIONAL COVENANTS........................................34
5.1 Conduct of Business.........................................34
5.2 Negotiations................................................37
5.3 Disclosure Schedules........................................37
5.4 Mutual Covenants............................................38
5.5 Filings and Authorizations..................................38
5.6 Public Announcement.........................................39
5.7 Further Assurances..........................................39
5.8 Cooperation.................................................39
5.9 Employees; Employee Benefits................................40
5.10 Employee Pension Plan.......................................43
5.11 Employee Savings Plan.......................................44
5.12 Welfare Benefits............................................45
5.13 Taxes.......................................................46
5.14 Intentionally Omitted.......................................46
5.15 Citizens' Guarantees and Surety Instruments.................46
5.16 Intentionally Omitted.......................................46
5.17 Schedule of Permits.........................................46
5.18 Title Information...........................................47
5.19 Transaction with Related Parties............................47
5.20 Approval by Citizens........................................47
5.21 Supplemental Information....................................47
5.22 Non-Competition.............................................47
5.23 Intentionally Omitted.......................................48
5.24 IDRB Obligations............................................48
5.25 Cooperation with Respect to Like-Kind Exchange..............48
5.26 Transition Plan.............................................49
ii
<PAGE>
Ohio
5.27 Procedures regarding Refunds of Advances....................49
5.28 Title Insurance.............................................50
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...........................50
6.1 Conditions Precedent to Obligations of Buyer and Parent.....50
6.1.1 Performance of Agreements; Representations and
Warranties.........................................50
6.1.2 Opinion of Counsel.................................51
6.1.3 HSR Act............................................51
6.1.4 Required PUC and Other Consents....................51
6.1.5 Injunction; Litigation.............................51
6.1.6 Documents..........................................51
6.1.7 Related Closings...................................52
6.2 Conditions Precedent to Obligations of Seller Parties.......52
6.2.1 Performance of Agreements; Representations and
Warranties.........................................52
6.2.2 Opinion of Counsel.................................52
6.2.3 HSR Act............................................52
6.2.4 Required PUC and Other Consents....................52
6.2.5 Injunction; Litigation.............................53
6.2.6 Documents..........................................53
6.2.7 Related Closings...................................53
6.3 Termination.................................................53
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS................................54
7.1 Certain Taxes and Expenses..................................54
7.2 Maintenance of Books and Records............................54
7.3 Survival....................................................54
7.4 Indemnification.............................................57
7.4.1 General Indemnification Obligations................57
7.4.2 General Indemnification Procedures.................58
7.4.3 Indemnification for Negligence.....................61
7.5 UCC Matters.................................................62
7.6 Financial Statements........................................62
7.7 Collection of Receivables...................................62
ARTICLE 8 MISCELLANEOUS...............................................62
8.1 Construction................................................62
8.2 Notices.....................................................63
8.3 Successors and Assigns......................................65
8.4 Exhibits and Schedules......................................65
8.5 Governing Law...............................................65
8.6 Dispute Resolution..........................................65
8.7 Severability................................................67
8.8 No Third Party Beneficiaries................................67
8.9 Entire Agreement............................................67
iii
<PAGE>
Ohio
8.10 Amendment and Waiver........................................67
8.11 Counterparts................................................67
8.12 Headings....................................................67
8.13 Definitions.................................................68
8.14 No Implied Representation...................................68
8.15 Construction of Certain Provisions..........................68
8.16 Bulk Sales..................................................68
iv
<PAGE>
Ohio
LIST OF SCHEDULES
Schedule 1.1.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . Real Estate
Schedule 1.1.52 . . . . . . . . . . . . . . . . . . . . . . . . IDRB Documents
Schedule 2.2.12 . . . . . . . . . . . . . . . . . . . . . . . . Excluded Assets
Schedule 3.3 . . . . . . . . . . . . . . . . .No Violation of Laws or Agreements
Schedule 3.4 . . . . . . . . . . . . . . . . . . . . . . . .Financial Statements
Schedule 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Changes
Schedule 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts
Schedule 3.7 . . . . . . . . . . . . Permits and Compliance with Laws Generally
Schedule 3.8 . . . . . . . . . . . . . . . . . Environmental Matters - Generally
Schedule 3.8.10 . . . . . . . . . . . . . . . . Compliance with Water Standards
Schedule 3.8.11 . . . . . . . . . . . . . . . . . . . . . . . Deed Restriction
Schedule 3.9 . . . . . . . . . . . . . . . . . . . . Seller Parties' Consents
Schedule 3.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title
Schedule 3.11 . . . . . . . . . . . . . . . . . . . . . Real Estate Proceedings
Schedule 3.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
Schedule 3.15 . . . . . . . . . . . . . . . . . . . . . . . . . Labor Relations
Schedule 3.16.1 . . . . . . . . . . . . . . . . . . . . Employee Benefit Plans
Schedule 3.16.4 . . . . . . . . . . . . . . Employee Benefit Plans - Compliance
Schedule 3.16.9 . . . . . . . . Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 . . . . . . . . . . . . . . . Absence of Undisclosed Liabilities
Schedule 3.18 . . . . . . . . . . . . . . No Pending Litigation or Proceedings
Schedule 3.19 . . . . . . . . . . . . . . . . . . . . . . . Supply of Utilities
Schedule 3.20 . . . . . . . . . . . . . . . . . . . . . . . . Seller's Insurance
Schedule 3.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WARN Act
Schedule 3.23 . . . . . . . . . . . . . . . . . . . . . . . Condition of Assets
Schedule 3.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Assets
Schedule 3.27 . . . . . . . . . . . . . . . . . . . . . . . . Product Liability
Schedule 4.7 . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Insurance
Schedule 5.1 . . . . . . . . . . . . . . . . . . . . . . . Conduct of Business
Schedule 5.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees
Schedule 5.9.2 . . . . . . . . . . . . . . . . Collective Bargaining Agreements
Schedule 5.12 . . . . . . . . . . . . . . . . . . . . . . . . . Former Employees
Schedule 5.15 . . . . . . . . . . . . . . . . . . . . . . . Citizens' Guarantees
Schedule 5.16 . . . . . . . . . . . . . . . . . . . . . . . Schedule of Permits
Schedule 6.1.7 . . . . . . . . . . . . . . . . . . Related Purchase Agreements
v
<PAGE>
Ohio
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
vi
<PAGE>
Ohio
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October
15, 1999, by and among Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Seller" or the "Seller
Parties"), and American Water Works Company, Inc., a Delaware corporation
("Parent"), and Ohio-American Water Company, an Ohio corporation ("Buyer").
Background
A. Citizens Utilities Company of Ohio is a public utility engaged, among
other things, in the business of storing, supplying, distributing and selling
water to the public, wastewater treatment, and related services and activities
in the State of Ohio (the "Business").
B. Parent is a holding company which desires to cause the Buyer to purchase
substantially all of the assets, properties and rights of the Seller Parties
relating to the Business, and Seller desires to sell, and to cause the sale of,
such assets, properties and rights, on the terms and subject to the conditions
set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each Seller
Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in the Business as a going concern of
every kind, nature and description existing on the Closing Date, wherever such
assets, properties and rights are located and whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, and whether or
not any of such assets, properties and rights have any value for accounting
purposes or are carried or reflected on or specifically referred to in Seller's
books or financial statements, including all of the assets, properties and
rights exclusively relating to the Business enumerated below:
1
<PAGE>
Ohio
(a) all real property described in Schedule 1.1.1(a), together with
all fixtures, fittings, buildings, structures and other improvements
erected thereon, and easements, rights of way, water lines, rights of use,
licenses, railroad crossing agreements, hereditaments, tenements,
privileges and other appurtenances thereto or otherwise exclusively related
to the Business (such as appurtenant rights in and to public streets) (the
"Real Estate");
(b) to the extent not included in clause (a) above, all water tanks,
reservoirs, water works, plant and systems, purification and filtration
systems, pumping stations, pumps, wells, mains, water pipes, hydrants,
equipment, machinery, vehicles, tools, dies, spare parts, materials, water
supplies, fixtures and improvements, construction in progress, jigs, molds,
patterns, gauges and production fixtures and other tangible personal
property, in transit or otherwise, used exclusively in the Business (the
"Equipment and Other Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to
Section 2.4, all of Seller's water appropriation and flowage rights to the
extent not transferred to Buyer upon assignment of the Contracts and
Permits to Buyer;
(d) all notes receivable, accounts receivable, accrued utility
revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all deferred capital costs and other deferred charges (excluding
deferred taxes collectable) attributable exclusively to the Business of
which recovery in future rates is probable;
(f) Intellectual Property and goodwill, licenses and sublicenses
granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments,
agreements and instruments relating to the sale of any assets, services,
properties, materials or products, including all customer contracts,
operating contracts and distribution contracts relating exclusively to the
conduct of the Business; (ii) orders, contracts, supply agreements and
other agreements relating exclusively to the purchase of any assets,
services, properties, materials, or products for the Business; (iii) all
leases of Real Estate exclusively related to the Business; (iv) all other
contracts, agreements and instruments related exclusively to the Business
(other than contracts, agreements and instruments included in the
definition of Real Estate or Permits); and (v) any such contracts,
agreements and other instruments referred to in clauses (i) - (iv)
inclusive, entered into between the date hereof and the Closing Date which
are consistent with the terms of this Agreement and are entered into in the
ordinary course of business consistent with past practice, and including in
the case of clauses (i) - (iv) all such contracts, agreements and
instruments more specifically listed or described in Schedule 3.6 (and
specifically including one Collective Bargaining Agreement to the extent
provided in Section 5.9.2, but specifically excluding any contract,
agreement and instrument listed or described on Schedule 2.2.12) (the
"Contracts");
2
<PAGE>
Ohio
(h) subject to Section 2.4 hereof, franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances,
and other similar permits or rights obtained from any Authority relating
exclusively to the conduct of the Business and all pending applications
therefor (the "Permits");
(i) books, records, ledgers, files, documents (including originally
executed copies of written Contracts, to the extent available, and copies
to the extent not available), correspondence, Tax returns relating
exclusively to the Business, memoranda, forms, lists, plats, architectural
plans, drawings, and specifications, new product development materials,
creative materials, advertising and promotional materials, studies,
reports, sales and purchase correspondence, books of account and records
relating to the Transferred Employees (to the extent such transfer is not
prohibited by law), photographs, records of plant operations and materials
used, quality control records and procedures, equipment maintenance
records, manuals and warranty information, research and development files,
data and laboratory books, inspection processes, in each case, whether in
hard copy or magnetic format, in each instance, to the extent exclusively
relating to the Business, the Acquired Assets or the Transferred Employees;
(j) all rights or choses in action arising out of occurrences before
or after the Closing Date and exclusively related to any of the Acquired
Assets, including third party warranties and guarantees and all related
claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Seller;
provided, however, that (notwithstanding the foregoing provisions of this
Section 1.1.1(j)), to the extent that Seller pays or discharges a liability
related to the Business or any of the Acquired Assets and related to such
right or chose in action (whether by reason of indemnification under this
Agreement or otherwise), Buyer will reassign or reconvey to Seller such
right or chose in action to the extent that such right or chose in action
relates to a recovery of amounts paid to Buyer; and
(k) all rights to insurance and condemnation proceeds (i) to the
extent relating to the damage, destruction, taking or other impairment of
the Acquired Assets which damage, destruction, taking or other impairment
occurs on or prior to the Closing but only to the extent that the proceeds
exceed the amount of the write-down of the net book value of such Acquired
Assets on the books and records of Seller as a result of such damage,
destruction, taking or other impairment; (ii) to the extent they relate to
amounts paid by Buyer for Damages to the extent Buyer does not receive
payment pursuant to Section 7.4.1(a), but only to the extent Buyer is
entitled to indemnification by Seller pursuant to Sections 7.3 and 7.4, and
(iii) as provided in Section 4 of the agreement attached as Exhibit D
hereto.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section 2.6.4(a)
hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section 5.11.1
hereof.
3
<PAGE>
Ohio
1.1.4 "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
1.1.6 "American Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5 hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in Section
3.16.6 hereof.
1.1.10 Intentionally Omitted.
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section 2.3.2
hereof.
1.1.13 "Authority" means any federal, state, local or foreign governmental
or regulatory entity (or any department, agency, authority or political
subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section 3.16.1 hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the Indentures of
Trust, the proceeds from the issuance of which were advanced to Seller pursuant
to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
4
<PAGE>
Ohio
1.1.19 Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the Commonwealth of Pennsylvania are authorized
or obligated by law or executive order to close.
1.1.20 "Buyer" has the meaning set forth in the introduction hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of Parent and Buyer
set forth in Section 5.24 (a) and in the instruments to be executed and
delivered by Parent and Buyer on or prior to the Closing Date in accordance with
Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP or any firm
of independent public accountants hereafter designated by Buyer for purposes of
this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
1.1.27 "Citizens" has the meaning set forth in the introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.32 "Collective Bargaining Agreement" means the agreement identified as
such on Schedule 3.6 hereto.
1.1.33 "Competing Transaction" has the meaning set forth in Section 5.2.
1.1.34 "Contracts" has the meaning set forth in Section 1.1.1(g) hereof.
1.1.35 "Control" with respect to any Person means the ownership, directly
or indirectly, of at least a majority of the voting power of each class of
capital stock of such Person entitled to vote in the election of directors of
such Person generally.
5
<PAGE>
Ohio
1.1.36 "Damages" has the meaning set forth in Section 7.4.1 hereof.
1.1.37 "Disclosure Schedules" means the Schedules referenced in Articles 3,
4 and 5 of this Agreement, as amended or supplemented pursuant to Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.40 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has the meaning set
forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included with any of the
Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section 2.2 hereof.
1.1.45 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.47 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9 hereof.
6
<PAGE>
Ohio
1.1.52 "IDRB Documents" shall mean the Loan Agreements, the Tax Regulatory
Agreements, the Project Tax Certificates, and the other Contracts related
thereto to which Citizens is a party and which are listed on Schedule 1.1.52.
1.1.53 "IDRB Financings" shall mean the indebtedness arising under the Loan
Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in Section 7.4.2(a)
hereof.
1.1.56 "Intellectual Property" means the trademarks, patents, trade names
and copyrights and applications therefor, inventions, trade secrets, and
confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical
data, designs, drawings, customer and supplier lists, and business and marketing
plans and proposals), all computer software (including data and related
documentation and object and source codes), whether in magnetic format or hard
copy, and tangible embodiments thereof (in whatever form or medium) of Seller,
in each case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens Water Resources
Statement of Net Assets - Ohio, June 30, 1999, which is attached hereto as
Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30, 1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other encumbrance (including the filing of,
or agreement to give, any financing statement under the Uniform Commercial Code
or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) solely with respect to matters arising prior to Closing,
to the extent that
7
<PAGE>
Ohio
either (i) Seller realizes the benefit of insurance maintained by Citizens on or
prior to the Closing Date and Buyer receives the cash proceeds of such insurance
to the extent required by Section 1.1.1(k), or (ii) Seller arranges for Buyer to
recover payments in respect of such occurrence or condition from any other
source (whether in a lump sum or stream of payments), it being understood and
agreed that a Material Adverse Effect may have occurred irrespective of such
insurance recovery if the occurrence or condition giving rise to such recovery
also causes a non-monetary material adverse change in or effect upon the
Business or the Acquired Assets, taken as a whole and taken together with the
businesses and assets being acquired by Buyer or Affiliates of Buyer pursuant to
the Related Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and Deed of Trust
between BNY Western Trust Company (successor in interest to Wells Fargo Bank,
N.A.) and First Interstate Bank of California (as successor trustee to Marine
Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.67 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from time to time
during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section 2.6.1 hereof.
1.1.72 "Real Estate" has the meaning set forth in Section 1.1.1(a) hereof.
1.1.73 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
8
<PAGE>
Ohio
1.1.74 "Related Purchase Agreements" as the meaning set forth in Section
6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section 3.8 hereof.
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of the Seller
owing to the issuers of the Bonds and arising under the Loan Agreements included
among the IDRB Documents but only to the extent not included in the Assumed
Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.79 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange Commission.
1.1.81 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.82 "Seller" and "Seller Parties" have the respective meaning set forth
in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in Section 5.10.1
hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in Section 5.11.1
hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign income, payroll,
withholding, excise, sales, use, personal property, use and occupancy, business
and occupation, mercantile, real estate, gross receipts, license, employment,
severance, stamp, premium, windfall profits, social security (or similar
unemployment), disability, transfer, registration, value added, alternative, or
add-on minimum, estimated, or capital stock and franchise and other tax of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
9
<PAGE>
Ohio
1.1.89 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
1.1.91 "Third Party Claim" has the meaning set forth in Section 7.4(b)(i)
hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in Section 5.11.2
hereof.
1.1.93 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.94 "Transferred Employees" has the meaning set forth in Section 5.9.2
hereof.
1.1.95 "Union Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing referred to in Section 2.5 below, Citizens shall,
and shall cause the other Seller Parties to, sell, assign, transfer, deliver and
convey to Buyer, and Parent shall cause Buyer to purchase, the Acquired Assets
for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be excluded from
the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens' gas,
electric or communications businesses, the material items of which are described
on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank accounts.
2.2.3 except as otherwise set forth herein, assets attributable or related
to any Benefit Plan;
10
<PAGE>
Ohio
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
2.2.6 except to the extent set forth in Sections 2.9, rights to refunds of
Taxes payable with respect to the Business, assets, properties or operations of
any of the Seller Parties or any member of any affiliated group of which any of
them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and accounts
receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to Buyer; and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or Seller or any
of their Affiliates, except that Buyer shall assume the following specific
liabilities and obligations:
(a) the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned or
transferred to Buyer pursuant to this Agreement in accordance with the
respective terms thereof, except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(c) the Buyer's IDRB Obligations;
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common law,
now or hereafter in effect, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising
11
<PAGE>
Ohio
from the presence or Release or threat of Release of Hazardous Substances
into the environment at the Real Estate or into or from any building,
structure, pipeline or other facility at the Real Estate, or from violation
of any law relating to the foregoing, including without limitation, any
CERCLA or similar liability under any federal or state law or regulation,
except to the extent Buyer has given written notice of a claim for
indemnification pursuant to Sections 7.3 and 7.4 hereof prior to the
expiration of the claims period set forth in Section 7.3.2(a) or (b) (and
if Buyer has given written notice prior to the expiration of such claims
period, to the extent that such claim is not entitled to indemnification
under Sections 7.3 and 7.4) (the foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to unperformed
service obligations, easement and right-of-way relocation obligations, and
construction work in progress, and all engineering and construction
required to complete scheduled construction and other capital projects for
the Business, in each case relating to the Business and outstanding on or
arising after the Closing Date except that Buyer shall not assume any
liabilities or obligations for any breach or default by, or payment
obligations of, Seller under such Contracts and Permits occurring or
arising or accruing on or prior to the Closing Date;
(f) liability for accrued but unused vacation pay for the Transferred
Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to customer
deposits held by Seller on the Closing Date and relating to the Business;
and
(h) all liabilities and obligations imposed on Buyer by any PUC in
connection with the operation of the Business or the ownership of the
Acquired Assets, including with respect to any liability of the types that
appear as "Accrued Liabilities" and "Non-Current Liabilities" on the
financial statements of Seller.
2.3.2 Any liabilities or obligations which are assumed by Buyer pursuant to
Section 2.3.1 above are hereinafter referred to as the "Assumed Liabilities." At
the Closing, Parent shall cause Buyer to execute and deliver to Seller an
assumption agreement, in substantially the form of the Assumption Agreement
attached hereto as Exhibit A (the "Assumption Agreement"), pursuant to which
Buyer shall assume the Assumed Liabilities. Each of Parent and Buyer hereby
irrevocably and unconditionally waives and releases the Seller Parties from all
Assumed Liabilities and all liabilities or obligations exclusively relating to
the Business or the Acquired Assets to the extent arising from events or
occurrences after the Closing or to the extent otherwise relating to the period
after the Closing, including any liabilities created or which arise by statute
or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or obligations
(contingent or absolute and whether or not determinable as of the Closing) of
any of the Seller Parties or any of their Affiliates except for the Assumed
Liabilities as specifically and expressly
12
<PAGE>
Ohio
provided for above, whether such liabilities or obligations relate to payment,
performance or otherwise, and all liabilities, commitments or obligations not
expressly transferred to Buyer hereunder as Assumed Liabilities are being
retained by the Seller Parties, (the "Retained Liabilities"). Each of the Seller
Parties hereby irrevocably and unconditionally waives and releases Buyer from
all Retained Liabilities including any liabilities created or which arise by
statute or common law, including CERCLA (it being understood that this shall not
constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury to
person or property, regardless of when made or asserted, to the extent that
it arises out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by any of the Seller Parties or any
of their Affiliates prior to Closing, or alleged to have been made by any
of such Persons, or to the extent that it is imposed or asserted to be
imposed by operation of law, in connection with any service performed or
product distributed or sold by or on behalf of any of the Seller Parties or
any of their Affiliates prior to Closing, including any claim referred to
above in this Section 2.3.3(a) relating to water quality standards, any
claim relating to any product delivered in connection with the performance
of services provided by Seller and any claim seeking recovery for
consequential damages, lost revenue or income;
(b) all refund obligations relating to the advances existing on the
Closing Date for construction of facilities relating to the Business;
(c) except to the extent set forth in Section 2.9, any federal, state,
foreign or local income or other Tax payable with respect to the business,
assets, properties or operations of any of the Seller Parties or any member
of any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in connection with
any common plant assets of Seller (other than the liabilities and
obligations exclusively related to any common plant assets included among
the Acquired Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any nature
owed to any employees, agents or independent contractors of any of the
Seller Parties or any of their Affiliates, whether or not employed by Buyer
after the Closing, that arises out of or relates to events or conditions to
the extent occurring before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any liability,
obligation or responsibility of any of the Seller Parties, or any of their
Affiliates or predecessors, whether based on statutory or common law, but
only as any such law is interpreted, amended and
13
<PAGE>
Ohio
in effect on the Closing Date, known or unknown, contingent or actual,
relating to or arising from pollution, contamination or protection of the
environment, human health or safety or natural resources or relating to or
arising from the presence or Release or threat of Release of Hazardous
Substances into the environment or into or from any building, structure,
pipeline or other facility or relating to or arising from the generation,
use, storage, treatment, disposal, transport or other handling of Hazardous
Substances or sale or product containing Hazardous Substances from
violation of any law relating to the foregoing (but only as such law is
interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state
law or regulation as interpreted, amended and in effect on the Closing Date
or (B) any such liability associated with businesses or assets of the
Seller Parties other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the extent
arising prior to Closing (unless otherwise constituting Assumed
Liabilities) arising by operation of law under any common law or statutory
doctrine (including successor liability or de facto merger);
(h) any obligation or liability arising under any contract,
commitment, instrument or agreement (1) except for Buyer's IDRB Obligations
and subject to the penultimate sentence of Section 2.4, that is not
transferred to Buyer as part of the Acquired Assets, or (2) that relates to
any breach or default (or to the extent that it relates to an event which
would, with the passing of time or the giving of notice, or both,
constitute a default) under any Contract, instrument or agreement or to any
services to be provided by Seller under any such Contract, instrument
or agreement to the extent that such services were performed or were
required to have been performed on or prior to the Closing Date;
(i) any liability or obligation in respect of the Excluded Assets;
(j) any liability or obligation of any of the Seller Parties or any of
their Affiliates existing as a result of any act, failure to act or other
state of facts or occurrence which constitutes a breach or violation of any
of Seller's representations, warranties, covenants or agreements contained
in this Agreement, except to the extent set forth in Section 7.4; or
(k) except for the Assumed Liabilities as specifically and expressly
set forth herein, any liability to the extent arising out of or relating to
the ownership or operation of the Acquired Assets or the Business prior to
the Closing Date (including any predecessor operations), any claims,
obligations or litigation to the extent arising out of or relating to
events or conditions occurring before the Closing Date, and any liability
associated with any business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall cause
Seller to assign to Buyer, and Parent shall cause Buyer to assume, the Contracts
and the Permits which are to be transferred to Buyer as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party,
14
<PAGE>
Ohio
and such consent shall not be obtained prior to Closing, this Agreement shall
not constitute an agreement to assign any such Contract or Permit included in
the Acquired Assets. In order, however, to provide Buyer the full realization
and value of every Contract of the character described in the immediately
preceding sentence, Seller agrees that on and after the Closing, it will, at the
request and under the direction of Buyer, in the name of Seller or otherwise as
Buyer shall specify, take all reasonable actions (including without limitation
the appointment of Buyer as attorney-in-fact for Seller to proceed at Buyer's
sole cost and expense) and do or cause to be done all such things as shall in
the reasonable opinion of Buyer be necessary (a) to assure that the rights of
Seller or its Affiliates under such Contracts shall be preserved for the benefit
of Buyer and (b) to facilitate receipt of the consideration to be received by
Seller or its Affiliates in and under every such Contract. To the extent that
Buyer does receive the benefits of any such Contract pursuant to the preceding
sentence, such Contract shall be a Contract "assigned or transferred to Buyer
pursuant to this Agreement" within the meaning of Section 2.3.1(b) hereof.
Nothing in this Section 2.4 shall in any way diminish the obligations of Seller
to obtain consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase of the Acquired Assets (the "Closing") shall
take place at 10 a.m., East Coast time, on a date mutually satisfactory to Buyer
and Seller which is no later than the fifth Business Day after satisfaction (or
waiver) of the conditions to Closing set forth in Sections 6.1 and 6.2 hereof
(other than those conditions which require the delivery of any documents or the
taking of other action, at the Closing) at the offices of Fleischman and Walsh,
LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036, or on such other date
and at such other time or place as may be mutually agreed upon by the parties
hereto (the "Closing Date"). Upon payment of the Initial Cash Payment by Buyer
and confirmed receipt thereof by Seller or the Escrow Agent pursuant to Section
2.6.2 below, Seller shall operate the Business at the direction of and under the
control of Buyer. Notwithstanding the foregoing, the Closing shall be deemed to
be effective as of 11:59 p.m. on the Closing Date for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price be paid by Buyer for the purchase of the
Acquired Assets (the "Purchase Price") shall be: (i) $35,140,000 in cash (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by Buyer of the
Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and conditions
of this Agreement, the Initial Cash Payment shall be paid by Buyer on the
Closing Date by federal other wire transfer of immediately available funds to
the account designated by Seller in writing at least two (2) Business Days prior
to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Buyer shall deliver the Initial
15
<PAGE>
Ohio
Cash Payment to Buyer's lead bank (the "Escrow Agent") in immediately available
funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Initial
Cash Payment in an interest-bearing account mutually agreed upon by Seller and
Buyer. At Closing, Parent shall sign and deliver to Citizens a statement which
confirms that the Closing has occurred and which instructs the Escrow Agent to
transfer to Citizens the funds representing the Initial Cash Payment, plus an
amount representing the interest earned after the Closing Date until the date
the funds are transferred, to an account that Citizens shall designate at least
two (2) business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business days prior to
the Closing Date, Citizens shall deliver to Parent and Buyer a statement of net
assets (the "Estimated Statement of Net Assets") reflecting its good faith
calculation of the Acquired Assets of the Business as of the last day of the
latest calendar month for which financial statements of Seller are available
(the "Estimated Adjusted Net Assets"). The Estimated Statement of Net Assets
shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than $19,807,252
(such increase or decrease, as the case may be, is referred to herein as the
"Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and
deliver to Parent and Buyer a Statement of Net Assets (the "Closing
Statement of Net Assets") which reflects the Acquired Assets, as of 11:59
p.m. on the Closing Date, based on actual financial performance and
calculated in the same manner, utilizing the same accounting principles,
policies and methods utilized in preparing the Interim Statement of Net
Assets (excluding for this purpose any change required by GAAP or any
Authority since June 30, 1999), together with (A) an audit report of
Seller's Accountants stating that the Closing Statement of Net Assets has
been prepared utilizing the same accounting principles, policies and
methods used in the preparation of the Interim Statement of Net Assets and
(B) a calculation of Citizens' determination of the amount of increase or
decrease in the amount of the Acquired Assets of the Business from the
Interim Statement of Net Assets Date to the Closing Date which is derived
from the Closing Statement of Net Assets ("Seller's Adjustment Amount").
The Closing Statement of Net Assets shall not give effect to any purchase
accounting treatment arising from Buyer's purchase of the Acquired Assets.
Buyer shall pay the fees and expenses of Seller's Accountants incurred in
connection with this Section 2.6.4. Buyer agrees to cooperate, and agrees
to cause Buyer's Accountants to cooperate, with Citizens and Seller's
Accountants in connection with the preparation of the Closing Statement of
Net Assets, and related information, and shall provide to Citizens and
Seller's Accountants such books, records and information as may be
reasonably requested from time to time, including the work papers of
Buyer's Accountants. Citizens will give Buyer and its representatives
access during the normal business hours of Citizens to the personnel, books
and records of Citizens and the work papers of Seller's
16
<PAGE>
Ohio
Accountants to assist Buyer in the review of the Closing Statement of Net
Assets and related matters. Buyer agrees that, following the Closing
through the date on which the Closing Statement of Net Assets is delivered,
it will not take any actions with respect to any accounting books, records,
policies or procedures on which the Closing Statement of Net Assets is to
be based that would make it impossible or impracticable to calculate the
Acquired Assets in the manner and utilizing the methods required hereby.
Without limiting the generality of the foregoing, no changes shall be made
in any reserve or other account existing as of the date of the Interim
Statement of Net Assets except in the ordinary course or as a result of
events occurring after the date of the Interim Statement of Net Assets and,
in such event, only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the
Statement of Certain Assumed Liabilities, provided, however, that Buyer
shall notify Citizens in writing of each disputed amount, and specify the
amount thereof in dispute and the basis of such dispute, within 30 days of
the Buyer's receipt of the Closing Statement of Net Assets and the Seller's
Adjustment Amount (such 30 day period hereinafter referred to as the
"Review Period"). In the event of a dispute with respect to the Closing
Statement of Net Assets, the Seller's Adjustment Amount or the Statement of
Certain Assumed Liabilities, Buyer and Seller shall attempt to reconcile
their differences and any resolution by them as to any disputed amounts
shall be final, binding and conclusive on the parties. If Buyer and Seller
are unable to reach a resolution of such differences within 30 days of
receipt of Buyer's written notice of dispute to Seller, Buyer and Seller
shall submit the amounts remaining in dispute (together with any amounts
remaining in dispute pursuant to Section 2.6.4(b) of each of the Related
Purchase Agreements) for resolution to an independent accountant firm of
national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third
Accounting Firm"), which shall be requested to determine and report to the
parties, within 30 days after such submission, upon such remaining disputed
amounts, and such report shall be final, binding and conclusive on the
parties hereto with respect to the amounts disputed. The fees and
disbursements of the Third Accounting Firm shall be allocated between Buyer
and the Seller Parties so that the Seller Parties' share of such fees and
disbursements shall be in the same proportion that the aggregate amount of
such remaining disputed amounts so submitted by Buyer to the Third
Accounting Firm that is unsuccessfully disputed by the Buyer (as finally
determined by the Third Accounting Firm) bears to the total amount of such
remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's
Accountants incurred in connection with this Section 2.6.4(b). Seller's
Adjustment Amount, if there are no disputes with respect thereto, or
Seller's Adjustment Amount as adjusted after the resolution of all disputes
with respect thereto in accordance herewith, shall be referred to as the
"Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the
Final Net Asset Adjustment exceeds the Initial Cash Payment, then within
five (5) business days after final determination thereof Buyer shall pay
Seller the amount of such excess together with interest thereon for the
period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check. If the
Initial Cash Payment exceeds the sum of the Base Cash
17
<PAGE>
Ohio
Purchase Price plus (or minus, if negative) the Final Net Asset Adjustment,
then within five (5) business days after final determination thereof Seller
shall pay Buyer the amount of such excess together with interest thereon
for the period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check.
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery of
the Estimated Statement of Net Assets, Citizens also shall deliver to Parent and
Buyer a statement reflecting (i) the customer and other deposits held by Seller
on the Closing Date and relating to the Business, (ii) the items specified in
Section 2.9 to the extent set forth therein, and (iii) without duplications of
any amount included in clause (i), above any payments received by Seller under
the Contracts and Permits for obligations not performed as of the Closing Date
(the "Statement of Certain Assumed Liabilities"). The Statement of Certain
Assumed Liabilities shall reflect Citizens' good faith calculation of such
liabilities as of the Closing Date. The Base Cash Purchase Price shall be
decreased by the net amount set forth in the Statement of Certain Assumed
Liabilities. Concurrent with the delivery of the Closing Statement of Net
Assets, Citizens also shall deliver to Parent a statement showing any
adjustments to the Statement of Certain Assumed Liabilities and the Base Cash
Purchase Price shall be further adjusted to give effect to any such adjustments
to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base Cash Purchase
Price shall be decreased by an amount equal to the proceeds of Seller's sale of
the property described in Item 7 of Schedule 3.5 (net of expenses) less the sum
of (i) the federal and state income taxes payable by Seller in respect of those
proceeds and (ii) the book value of such property, as of June 30, 1999, on
Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause Seller to
deliver to Buyer:
(a) bills of sale and instruments of assignment to the Acquired
Assets, duly executed by Seller, substantially in the form of Exhibit B
hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental
Permits), to the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the Acquired
Assets, duly executed by Seller (together with any other transfer forms
necessary to transfer title to such vehicles);
18
<PAGE>
Ohio
(d) special warranty deeds of conveyance with respect to the parcels
of Real Estate owned in fee simple by Seller (or, with respect to any such
parcel which was acquired by Seller (or its predecessor in interest, in
cases involving mergers) by deed without covenant or warranty of title, a
quit claim deed without covenant or warranty of title) to Buyer, duly
executed and acknowledged by Seller and in recordable form;
(e) the Foreign Investment in Real Property Tax Act Certification and
Affidavit for each parcel of Real Estate, duly executed by the Seller
Parties (the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and
certified resolutions evidencing the authority of the Seller Parties as set
forth in Section 3.2 hereof;
(g) all agreements and other documents required by this Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly
executed by Citizens; and
(i) all such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to transfer to
Buyer the Acquired Assets in accordance with this Agreement and where
necessary or desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall, and shall
cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount equal to
the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent and
Buyer to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the "Allocation") of the Purchase
Price, the Assumed Liabilities and other relevant items (including, for example,
adjustments to the Purchase Price) to the individual
19
<PAGE>
Ohio
assets or classes of assets within the meaning of Section 1060 of the Code. If
Buyer and Seller agree to such Allocation on or before ninety (90) days after
the Closing Date, Buyer and Seller covenant and agree that (i) the values
assigned to the assets by the parties' mutual agreement shall be conclusive and
final for all purposes, and (ii) neither Buyer nor Seller will take any position
before any Authority or in any proceeding that is in any way inconsistent with
such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation on or before ninety (90) days after the Closing Date, Buyer and
Seller covenant and agree to file and to cause their respective Affiliates to
file, all Tax returns and schedules thereto (including, for example, amended
returns, claims for refund, and those returns and forms required under Section
1060 of the Code and any Treasury regulations promulgated thereunder) consistent
with each of Buyer and Seller's good faith Allocations, unless otherwise
required because of a change in any legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses shall
be calculated and pro rated as of the Closing Date, with Seller responsible for
such expenses and to receive the benefit for the same for the period through and
including the Closing Date, and Buyer to be responsible for and to receive the
benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which the same were
assessed and paid) and sales, occupation and use taxes, in each case, to the
extent relating to the Business and except as otherwise provided in Section 7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in each
case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Buyer
pursuant to Section 2.3 (except to the extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other Contracts
(except to the extent provided in Section 2.3.3(h)), and fees under Permits to
be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and installments on
special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant to
Parent and Buyer as follows:
20
<PAGE>
Ohio
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to own, lease and operate the
Acquired Assets and the Business as presently being conducted. Each of the
Seller Parties is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions wherein the nature of the business conducted by
it or such Seller Party's ownership or use of assets and properties make such
qualification necessary, except such failures to be qualified or to be in good
standing, if any, which when taken together with all such other failures of the
Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has full
corporate power and authority to execute, deliver and perform this Agreement and
all other agreements and instruments to be executed by them in connection
herewith (such other agreements and instruments being hereinafter referred to
collectively as the "Transaction Documents"). The execution, delivery and
performance by each of the Seller Parties of this Agreement and the Transaction
Documents to which such Seller Party is a party have been duly authorized by all
necessary corporate action on the part of each of them. This Agreement has been
duly executed and delivered by each of the Seller Parties, and as of the Closing
Date the other Transaction Documents will be duly executed and delivered by the
Seller Parties. This Agreement is a legal, valid and binding obligation of each
Seller Party, enforceable against them in accordance with its terms except as
such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which each of the Seller Parties is a party will be
duly executed and delivered by each of the Seller Parties and will constitute
the legal, valid and binding obligations of each of the Seller Parties,
enforceable against them in accordance with its respective terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture,
21
<PAGE>
Ohio
mortgage, loan or credit agreement, license, instrument, lease, contract, plan,
permit or other agreement or commitment, oral or written, to which any of the
Seller Parties is a party, or by which the Business or any of the Acquired
Assets may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, Liens,
interests or rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior to the
Closing Date, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of
the Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer the
statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the date
hereof, except as disclosed in Schedule 3.5, the Seller Parties have conducted
the Business as presently operated only in the ordinary course of business
consistent with past practice. Since the Interim Statement of Net Assets Date,
except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries or
other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by the Collective Bargaining Agreement;
22
<PAGE>
Ohio
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to or
for the use of any Permit of the Business which individually or in the aggregate
would have a Material Adverse Effect;
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and is set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business, except
in the ordinary course of business consistent with past practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than (i) with respect to which the Business' total
annual liability or expense is less than (a) $250,000 per such Contract and (b)
$6,123,000 per all such Contracts (when taken together with similar contracts
omitted from Schedule 3.6 of the Related Purchase Agreements), and (ii)
Contracts that may be terminated by Seller, without penalty, on notice of 90
days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or
23
<PAGE>
Ohio
in the aggregate, have a Material Adverse Effect. Except as disclosed in
Schedule 3.7, the Business is conducted by Seller in compliance with all
applicable laws (including the Occupational Safety and Health Act and the rules
and regulations thereunder ("OSHA"), zoning, building and similar laws and
Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no proceedings pending or, to the Seller Parties' knowledge,
threatened that seek the revocation, cancellation, suspension or any adverse
modification of any such Permits presently possessed by Seller other than those
revocations, cancellations, suspensions or modifications which do not
individually or in the aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice, citation,
summons or order has been issued, no outstanding complaint has been filed, no
outstanding penalty has been assessed and no investigation or review is pending
or, to the knowledge of the Seller Parties, threatened, by any Authority or
other Person with respect to any alleged (i) violation by Seller or any
Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto, and
with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate, or, in connection with the Business or Acquired
Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request for information
with respect to, and to the best of the Seller Parties' knowledge, Seller has
not been designated a potentially liable party for Remedial Action, in
connection with any Real Estate, or, as of the date hereof, with respect to the
Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use or
storage of Hazardous Substances as is incidental to the conduct of the Business,
which use and storage is or has been in compliance with Environmental Laws, and
which use and storage has not caused any condition that requires Remedial
Action, no Real Estate has been used for the storage,
24
<PAGE>
Ohio
treatment, generation, processing, production or disposal of any Hazardous
Substances or as a landfill or other waste disposal site in violation of any
Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real Estate or, as of the date hereof, with
respect to the Business or the Acquired Assets or at any other facility,
location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous Substance
managed or generated by or on behalf of Seller at the Real Estate or in
connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real Estate, that are reasonably likely to result in any
material reduction in the quality or quantity of water available for supply to
the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the date hereof
provide Buyer with copies of all written environmental audits or investigations
of which they are aware (after due inquiry) prepared for the Real Estate or
operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual Report on
Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section 3.8.10(a)
and (b), Affiliates and predecessors of the Seller Parties) are and have
been for the past three years in full compliance with all federal and state
primary drinking water standards;
(b) The Seller Parties are and have been for the past three years in
full compliance with all federal and state secondary drinking water
standards; and
(c) As to all outstanding violations of state or federal drinking
water standards, as of the date hereof, the Seller Parties have completed
or are in the process of
25
<PAGE>
Ohio
completion in accordance with all applicable deadlines, all actions
required by Environmental Law or Authorities to correct or otherwise
respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller Parties
will be required to place any notice or restriction relating to the presence of
Hazardous Substances in the deed to any Real Estate, or in any written
instrument accompanying this Agreement, and no Real Estate has such a notice or
restriction in its deed or any other written instrument relating to the
purchase, lease or rental of such property.
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means
all actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger public or employee
health or welfare or the environment; or (z) perform studies, investigations or
monitoring necessary or required to investigate the foregoing; (B)
"Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment of the Contracts and Permits
contemplated hereby, except (i) as required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) as specified on Schedule 3.9,
(iii) as required by the IDRB Documents, and (iv) for such other consents,
approvals, authorizations, registrations or filings the failure of which to
obtain or make would not individually or in the aggregate have a Material
Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired Assets
constituting personal property, good and marketable title in fee simple to all
of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule
26
<PAGE>
Ohio
3.10 hereto, (b) Liens securing Taxes, assessments, governmental charges or
levies, or the claims of materialmen, mechanics, carriers and like persons, all
of which are not yet due and payable or which are being contested in good faith
or (c) such other Liens which, individually or in the aggregate, do not have a
Material Adverse Effect (it being understood that to the extent a Permitted
Exception relates to or arises from a Retained Liability, Seller shall still be
liable for such Retained Liability to the extent set forth herein).
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or oral
notice for assessments for public improvements against the Real Estate which
remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof, Seller
is not a lessee under any Contract relating to the use or occupancy of the Real
Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have a Material Adverse Effect. To Seller's
knowledge, no fact or condition exists which would result in the termination of
(a) the current access from each parcel of the Real Estate, and (b) continued
use, operation, maintenance, repair and replacement of all existing and
currently committed water lines used by Seller in connection with the Business,
except where such termination would not have a Material Adverse Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material returns
and reports for Taxes, including information returns, that are required to have
been filed in connection with, relating to, or arising out of, the Business, (b)
paid all Taxes that are shown to have come due pursuant to such returns or
reports and (c) paid all other material Taxes not required to be reported on
returns in connection with, relating to, or arising out of, or imposed on the
property of the Business for which a notice of assessment or demand for payment
has been received or which have otherwise become due. To the best of the Seller
Parties' knowledge, all such returns or reports have been prepared in accordance
with all applicable laws and requirements in all material respects. Except to
the extent disclosed on Schedule 3.12, none of the assets of the Business or
constituting any of the Acquired Assets (a) is property that is required to be
treated as owned by another Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code or (c) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
27
<PAGE>
Ohio
3.13 Patents and Intellectual Property Rights. To the best of the Seller
Parties' knowledge, the operations of Seller do not make any unauthorized use of
any Intellectual Property except for any such unauthorized uses which do not
have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this Agreement, except for any such rights or such
increased royalties the loss or payment of which would, individually or in the
aggregate, not have a Material Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising from
the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each "employee
benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer
plan" as defined in Section 3(37) of ERISA), bonus, incentive, deferred
compensation, excess benefit, employment contract, stock purchase, stock
ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
28
<PAGE>
Ohio
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's
current summary plan description and in the case of an unwritten Benefit Plan, a
written description thereof, has been furnished to Buyer. In addition, to the
extent applicable, Buyer has been provided a copy of the most recent Internal
Revenue Service ("IRS") determination letter issued to each Benefit Plan and a
copy of the most recent IRS Form 5500 together with all schedules and
accountants' statement filed, and actuarial reports prepared, on behalf of each
Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code (as designated on Schedule 3.16.1) is so qualified, and will
remain so qualified upon the timely making of certain amendments required by law
during the applicable remedial amendment period, and any trust forming a part of
such a Benefit Plan is tax exempt under Section 501(a) of the Code. Each such
Benefit Plan has been amended, as and when necessary, to comply with the Tax
Reform Act of 1986 and upon timely filing of an Application for Determination
with the Internal Revenue Service, will be eligible to make further such
amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under the
Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge of
the Seller Parties, no other Person, has taken any action or failed to take any
action with respect to any Benefit Plan that may subject Buyer or any Benefit
Plan under which liabilities may be assumed by Buyer under Sections 5.10, 5.11
or 5.12 ("Assumed Benefit Liabilities") to any material liability or Tax under
the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects to
incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably
be expected to give rise to a material liability to Buyer.
29
<PAGE>
Ohio
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law, or
(ii) death or retirement benefits under a Benefit Plan qualified under Section
401(a) of the Code. Seller's Retiree Medical Plan contains provisions permitting
Seller to modify or terminate retiree medical benefits at any time, without
prior notice to any covered individual. Except with respect to retirees,
"grandfathered" employees and collectively bargained employees, Seller knows of
no reason why its ability to effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
3.17, Seller has no liabilities with respect to the Business which would
constitute Assumed Liabilities, either direct or indirect, matured or unmatured
or absolute, contingent or otherwise, except:
3.17.1 the liabilities which would decrease the Base Cash Purchase Price
pursuant to Section 2.6.5 to the extent assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business practice,
in or as a result of the normal and ordinary course of business and reflected in
the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the aggregate,
would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in Schedule
3.18, there are no actions, suits, investigations or proceedings pending against
or, to the best of the Seller Parties' knowledge, threatened, against or
affecting, Seller, the Business or any of the Acquired Assets before any court
or arbitrator or Authority which individually or in the aggregate, would have a
Material Adverse Effect. Except as disclosed in Schedule 3.18, there are
currently no outstanding judgments, decrees or orders of any court or Authority
against any of the Seller Parties, which relate to or arise out of the conduct
of the Business or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs and similar
30
<PAGE>
Ohio
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the Real
Estate has adequate arrangements for supplies of electricity, gas, oil, coal
and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does not
have any current customer which accounted for more than 5% of the net sales of
the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set forth
in Schedule 3.22 hereto, within six months prior to the date hereof, (i) Seller
has not effectuated (a) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Business; or (b) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the
Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act).
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have made
any agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
31
<PAGE>
Ohio
3.25 All Assets. Except as set forth on Schedule 3.25 and for the Excluded
Assets, the Acquired Assets include all assets, rights, properties and contracts
the use of which is necessary to the continued conduct of the Business by Buyer
substantially in the manner as it was conducted prior to the Closing Date,
including the service of all utility customers in substantially the same manner
and at substantially the same service levels as provided by Seller on the date
hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and assessment
of all mission critical areas within the Business and related operations
(including those affected by suppliers and vendors) that it reasonably believes
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any Seller Party (or suppliers and vendors) may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem all as set forth in
Citizens' Annual report on Form 10-K for the fiscal year ended December 31, 1998
and Citizens' Quarterly reports on Form 10-Q for the periods ending March 31,
1999 and June 30, 1999, and (iii) to date, implemented that plan substantially
in accordance with that timetable. Seller has contingency plans that are
dedicated to ensuring that established and expected levels of customer service
are maintained without interruption, while core business functionality is
preserved during the millennium transition. With respect to its suppliers and
vendors, the foregoing representation and warranty is expressly limited to
matters known to Seller after making reasonable inquiries of such suppliers and
vendors. Seller makes no representation or warranty with respect to the receipt
or accuracy of any response received from any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except for
those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller as
follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
32
<PAGE>
Ohio
4.1.2 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate the Acquired Assets and
the Business. Buyer is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it or Buyer's
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of Buyer do not have a material
adverse effect on its ability to perform its obligations under this Agreement
and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by Buyer and Parent of this Agreement and
the Transaction Documents to which Buyer and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by Buyer and Parent, and as of
the Closing Date the other Transaction Documents will be duly executed and
delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and the consummation of the transactions contemplated hereby and
thereby will not, (a) contravene any provision of the Articles of Incorporation
or Bylaws of Buyer or the Certificate of Incorporation or Bylaws of Parent; or
(b) violate, conflict with, result in a breach of, or constitute a default (or
an event which would with the passage of time or the giving of notice, or both,
constitute a default) under, or result in or permit the termination,
modification, acceleration, or cancellation of (i) any indenture, mortgage, loan
or credit agreement, license, instrument, lease, contract, plan, permit,
authorization, proof of dedication or other agreement or commitment, oral or
written, to which Parent or Buyer is a party, or by which any of their assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, accelerations, cancellations, interests
or rights which, individually or in the aggregate do not have a material adverse
effect on their respective ability to perform their obligations under this
Agreement and the Transaction Documents, or (ii) any judgment, injunction, writ,
award, decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or regulation to
which Buyer or Parent is subject other than those violations and conflicts which
33
<PAGE>
Ohio
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Buyer and Parent of this Agreement,
the other Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by Buyer or Parent except (i) as required by the
HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such consents,
approvals, authorizations, registrations or filings, the failure to obtain or
make would not individually or in the aggregate have a material adverse effect
on their respective ability to performtheir obligations under this Agreement and
the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will have
sufficient resources to pay the Purchase Price, and Parent, Buyer or the other
Affiliates of Parent that are buyers of the assets and businesses being acquired
pursuant to the Related Purchase Agreements have, and at the Closing Date, will
have sufficient resources to pay the purchase prices set forth in the Related
Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect as
of the date hereof for casualty and property insurance covering Buyer's assets
and properties and the operation of Buyer's business, together with the risks
insured against, coverage limits and deductible amounts.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted by
this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the prior
written consent of Buyer, from and after the date of this Agreement and up to
and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only in
the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any specific event or
circumstance of which they are aware, or of which they receive notice, that has
or is likely to have, individually or in the aggregate, taken together with the
other events or circumstances, a Material Adverse Effect on the Acquired Assets
or the Assumed Liabilities.
34
<PAGE>
Ohio
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or enter
into any other transaction (except in the ordinary course of business)
which would have a Material Adverse Effect;
(c) except in the event of service interruption, emergency or casualty
loss, commit to acquire subsequent to the Closing Date on behalf of the
Business any capital asset or group of capital assets costing in excess of
$1,000,000 that is not included in the capital budget of Seller for fiscal
year 2000 and which, if so acquired, would be included in the Acquired
Assets; commencing December 1, 1999, accept or receive customer advances
for construction in excess of $9,000,000 (when combined with customer
advances relating to the businesses being acquired by Buyer or Affiliates
of Buyer pursuant to the Related Purchase Agreements) per each of the next
four consecutive three-month periods unless pursuant to an existing tariff,
Contract or Permit of Seller; or sell or lease or agree to sell or lease or
otherwise dispose of any assets included in the Acquired Assets except in
the ordinary course of the conduct of the Business, consistent with past
practice;
(d) except in the ordinary course of business, consistent with past
practice or as required under any of Seller's debt instruments or
indentures, mortgage, pledge or subject to any Lien (other than Permitted
Liens) any of the Acquired Assets;
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred
Employee except (i) as required by law, (ii) in the ordinary course,
consistent with past practice and (iii) as required by the Collective
Bargaining Agreement in existence on the date hereof; provided, however, no
individual Employee shall in any event receive a compensation increase in
excess of seven percent (7%) except as required by the Collective
Bargaining Agreement in existence on the date hereof;
(f) other than in the ordinary course of business consistent with past
practice, sell or otherwise transfer any assets necessary, or otherwise
material to the conduct of, the Business which would constitute Acquired
Assets;
(g) change the Seller's method of accounting or keeping its books of
account or accounting practices with respect to the Business, except as
required by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any action which
if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties set forth in Sections 3.1,
3.2, 3.3, 3.4, 3.7, 3.8, 3.10, 3.14, 3.16 and
35
<PAGE>
Ohio
3.25 hereof (it being understood that the failure to cure a breach shall
not, by itself, be an intentional and wilful omission to take action); or
(i) prepay, redeem, retire, refund or otherwise extinguish any of the
Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by Citizens or
under common control with Citizens (each such person being a "Section 5.2
Affiliate"), nor any officer, director, employee, representative or agent of
Citizens or any of their Section 5.2 Affiliates, shall, directly or indirectly,
solicit or initiate or participate in any way in discussions or negotiations
with, or provide any information or assistance to, or enter into an agreement
with any Person or group of Persons (other than Parent, Buyer or any Person
controlled by Parent or Buyer or under common control with Parent, Buyer or any
Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller Parties
will provide Buyer with a supplement or amendment to the Disclosure Schedules
with respect to any matter, condition or occurrence which is required to be set
forth or described in the Disclosure Schedules. For the avoidance of doubt, a
matter, condition or occurrence shall only be "required" to be set forth or
described in the Disclosure Schedules if the failure to be so disclosed would
result in a breach of the applicable representation or warranty (qualified by
Material Adverse Effect where applicable) on the date hereof or on the Closing
Date. In addition, Seller shall have the right at any time and from time to time
prior to the Closing to supplement or amend the Disclosure Schedules. Seller may
provide Disclosure Schedules with respect to any representation or warranty of
this Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written
36
<PAGE>
Ohio
communication regarding a specific Lien or title defect affecting a specifically
identified parcel of the Real Estate sent to the President, Treasurer or General
Counsel of Parent or the President or Corporate Counsel of any other Buyer
Party, and sent by a party other than the Seller Parties, their legal counsel,
financial advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this Agreement,
including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied in a
timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations applicable to it or its Affiliates as may be
required to consummate the terms of this Agreement, including all notifications
and information to be filed or supplied pursuant to the HSR Act and with the
applicable public utility commission (each, a "PUC"). Any such filings and
supplemental information will be in substantial compliance with the requirements
of the applicable law, rule or regulation. Each of Parent and Buyer, on the one
hand, and the Seller Parties, on the other, shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission to the PUC or which
is necessary under the HSR Act. The Seller Parties, on the one hand and Buyer
and Parent, on the other, shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
any Authority, including the PUC, the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division"), and shall comply promptly with any such inquiry or
request. Each of Citizens, Seller, Parent and Buyer will use its reasonable
efforts to obtain any clearance required under the HSR Act and from the PUC for
the purchase and sale of the Acquired Assets in accordance with the terms and
conditions hereof. Notwithstanding the foregoing, nothing contained in this
Agreement will require or obligate any party or their respective Affiliates: (i)
to initiate, pursue or defend any litigation (or threatened litigation) to which
any Authority (including the PUC, the Antitrust Division and the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business or the right of Seller or its
37
<PAGE>
Ohio
Affiliates effectively to control or operate Citizens' other businesses, (B) the
right of Buyer or its Affiliates to acquire or hold the Business or the right of
Seller or its Affiliates to hold the Excluded Assets or Citizens' other
businesses, or (C) the right of Buyer to exercise full rights of ownership of
the Business or all or any material portion of the Acquired Assets or the right
of Citizens to exercise full rights of ownership of Citizens' other businesses
or all or any material portion of the Excluded Assets; or (iii) to agree or
otherwise be required to sell or otherwise dispose of, hold separate (through
the establishment of a trust or otherwise), or divest itself of all or any
portion of the business, assets or operations of Citizens, Seller, Parent,
Buyer, any Affiliate of Buyer or the Business. The parties agree that no
representation, warranty or covenant of Buyer, Parent, or Citizens contained in
this Agreement shall be breached or deemed breached as a result of the failure
by Parent and Buyer on the one hand or the Seller Parties, on the other, to take
any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause to
be made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required
announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller, from
time to time after the Closing, at Buyer's or Seller's request, will execute,
acknowledge and deliver to the applicable person such other instruments of
conveyance and transfer and will take such other actions and execute such other
documents, certifications, and further assurances as Buyer or Seller, as the
case may be, may reasonably require in order to transfer, in accordance with the
terms and conditions of this Agreement, more effectively in Buyer or to put
Buyer more fully in possession of any of the Acquired Assets or better to enable
Buyer to complete, perform and discharge any of the Assumed Liabilities. Each
party shall cooperate and deliver such instruments and take such action as may
be reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement and the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and shall cause
their respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly transition of the Business from Seller to Buyer
and to minimize the disruption to the Business resulting from the transactions
contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and Buyer, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state securities laws ("Securities Filings") or
make any consent solicitations to holders of Assumed Indebtedness which include
any information about Seller, Buyer (or their respective Affiliates) or the
transactions contemplated hereby without consulting with the other party and
providing the other
38
<PAGE>
Ohio
party a reasonable opportunity to review and comment on such information, it
being understood and agreed that any party may so disclose such information in
its reasonable judgment to the extent such party's counsel advises it that such
disclosure is advisable under applicable law. Each of Parent, Buyer, Citizens
and Seller shall, and shall cause their respective Affiliates to, comply with
all applicable federal and state securities laws in connection with this
Agreement and the transactions contemplated hereby (including any solicitation
of consents of holders of Assumed Indebtedness), and all information supplied by
any party for inclusion in any Securities Filing or consent solicitation,
including, without limitation, any proxy or information statement, or any
registration statement on Form S-4 shall be true and correct in all material
respect and shall not contain any untrue statement of a material fact or omit to
state any material fact which is required to be stated therein or which is
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Buyer shall have the right to use all of the logos,
trademarks and trade identification of Seller as are located at the Real Estate
or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use of the
Trademarks shall be in accordance with such reasonable quality control standards
as may be promulgated by Seller and provided to Buyer. If Seller shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Seller shall have the right to terminate Buyer's right under this Section 5.8.3
to use the Trademarks.
5.8.4 Seller shall give Buyer and its representatives (including Buyer's
Accountants, consultants, counsel and employees), upon reasonable notice and
during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Buyer all documents, records and
information (and copies thereof), to the extent relating to the Business and the
Acquired Assets, as Buyer may reasonably request. Except to the extent disclosed
in the Disclosure Schedules in accordance with Sections 5.3 and 8.4, no
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller Parties under this Agreement
or the conditions to the obligations of Parent or Buyer under this Agreement.
All information provided to Buyer under this Agreement shall be held subject to
the terms and conditions of the Confidentiality Agreement dated August 2, 1999
between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. Schedule 5.9.1 lists job classifications and number of
employees in each job classification of those employees whose terms
39
<PAGE>
Ohio
and conditions of employment are subject to the Collective Bargaining Agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the "Employees." No later than March 1, 2000, Buyer and Seller
shall determine the number of Employees to whom Buyer will offer employment,
which number shall be at least equal to 250 (when combined with offers made by
Buyer or Affiliates of Buyer to employees of Affiliates of Seller in connection
with the Related Purchase Agreements) (the "Base Number"), and such additional
number of Employees, if any, whom Buyer also wishes to employ. Upon
determination of such Employees, Seller will supplement Schedule 5.9.1 with the
name, job title, unused vacation, current base salary or hourly wage, date of
hire and assigned location of each Transferred Employee (as that term is defined
below). At the Closing, Seller shall provide an updated Schedule 5.9.1 which
shall disclose all the information required under the preceding sentence as of
the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer employment to at least
the Base Number of those employees included on Schedule 5.9.1. All Employees to
whom Buyer offers employment and who accept such employment are herein referred
to as the "Transferred Employees." In the event any Employees do not accept
Buyer's offer of employment, Buyer shall offer employment to such additional
employees (the identity of whom shall be determined by Buyer and Seller) as are
necessary to bring the total number of Transferred Employees to the Base Number.
Subject to the provisions of this Section 5.9 and Section 5.12, Buyer shall
provide each Transferred Employee with base compensation at least equal to that
provided by Seller on the Closing Date, and employee benefits which are
substantially comparable to those provided by Buyer to its other similarly
situated employees. Except as otherwise provided under the terms of any assumed
collective bargaining agreement and under terms of Section 5.12, Buyer shall
provide each Union Transferred Employee with compensation at least equal to that
provided by Seller immediately prior to the Closing Date and with the benefits
provided to Buyer's similarly situated collectively bargained employees. On and
after the Closing Date, Buyer shall assume Seller's obligations under, and be
bound by the provisions of, the collective bargaining agreement between Citizens
Utilities Company of Ohio and the International Union of Operating Engineers,
Local Union 18S (the "Ohio Union"), dated March 12, 1997 (the "Ohio Agreement"),
to the extent of provisions covering Transferred Employees, as in effect on the
date of this Agreement. With respect to any amendment, extension, or
renegotiation of the Ohio Agreement, the contract as so amended, extended or
renegotiated will be assumed if, but only if, (i) in connection with such
amendment, extension or renegotiation, the Ohio Union agrees to substitute for
Seller's employee pension plan (to the extent required to be provided under the
Ohio Agreement) Parent's employee pension plan, and (ii) the other terms and
conditions of those collective bargaining agreements pertaining to the
Transferred Employees on the Closing Date are substantially identical to the
terms and conditions of such Collective Bargaining Agreement as in effect on the
date of this Agreement. Each collective bargaining agreement pertaining to
Transferred Employees shall be identified on a Schedule 5.9.2 to be prepared by
Seller and submitted to Buyer on or before the Closing Date. Seller shall
cooperate with Buyer in Buyer's efforts to contact the unions representing
Transferred Employees. Buyer agrees (i) to credit the service of each
Transferred Employee with Seller and its Affiliates before the Closing, for all
purposes under all employee benefit plans and arrangements maintained
40
<PAGE>
Ohio
by Buyer (and/or any of its Affiliates) for the benefit of any Transferred
Employee (including without limitation for purposes of attainment of retirement
dates and payment of optional forms of benefits), other than for purposes of
benefit accrual under any "defined benefit plan", within the meaning of Section
3(35) of ERISA, (ii) to provide accrued vacation to Transferred Employees in the
year in which the Closing occurs, equal to the excess, if any, of the accrued
vacation to which the Transferred Employee would otherwise be entitled under
Seller's vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of Buyer, with service credit as provided in (i) hereof,
(iii) to provide severance benefits to Transferred Employees terminated by Buyer
that are substantially comparable to those benefits provided by Buyer to
similarly situated employees, and (iv) to comply with all applicable legal
requirements with respect to Union Employees (including without limitation any
applicable duty to bargain with those employees' bargaining representative).
Buyer shall be responsible for providing to each Transferred Employee vacation
in an amount equal to the Transferred Employee's vacation entitlement for the
year of Closing reduced by the number of vacation days such Transferred Employee
has taken on or before Closing. Nothing in this Section 5.9 shall limit Buyer's
authority to terminate the employment of any Transferred Employee at any time
and for whatever reason. Until the second anniversary of the Closing Date,
neither Seller nor any of its Affiliates shall directly or indirectly solicit or
offer employment to any Transferred Employee then employed by Buyer or its
Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by Buyer as the result of any claims against Buyer or its Affiliates
that are made by any Employees or Former Employees (or the Beneficiary of any
Employee or Former Employee) who are not made offers to become employees of
Buyer or its Affiliates including, without limitation, claims asserted against
Buyer as a result of their termination by Seller or its Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
41
<PAGE>
Ohio
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, Buyer shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of Buyer incurred after Closing) owed to
any Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between Buyer or any of its
Affiliates and any Transferred Employee or (ii) any benefit claim or expense
(including medical expense) incurred after Closing under any employee benefit
plan sponsored or contributed to by Buyer or an ERISA Affiliate after Closing.
Notwithstanding the foregoing, Buyer shall not be responsible for the payment of
any employee benefits that become due to any Transferred Employees under any
Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) Buyer does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. Buyer will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The Buyer's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension Plan"). Seller shall retain
liability and related assets for benefits accrued through the Closing Date by
Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date except as may be required under the Ohio
Agreement, Transferred Employees shall be covered under the American Pension
Plan, and shall be
42
<PAGE>
Ohio
given credit for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, subsidized benefits, and
entitlement to optional forms of payment, but not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section 5.11.2,
subject to the terms and conditions of this Agreement, Parent shall cause the
Savings Plan for Employees of American Water Works Company, Inc. (the "American
Savings Plan") to assume the liability of the Seller's 401(k) Plan for the
account balances of those Transferred Employees participating in the Seller's
401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Buyer's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Buyer that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to Affected Participants to the trustee of the American
Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
43
<PAGE>
Ohio
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to transfer
to trusts established by Buyer under Section 501(c)(9) of the Code ("Buyer's
VEBAs") the amount held under any trust established by Seller under Section
501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health care and
life insurance benefits attributable to the Business, including Former Employees
identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Buyer under its corresponding welfare benefit plans (the "Buyer's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Buyer Welfare Plans shall be waived in Buyer's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective Beneficiaries shall receive credit under the Buyer
Welfare Plans for co-payments, payments under a deductible limit made by them,
and for out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in which the Closing Date occurs. As soon as practicable
after the Closing Date, Seller shall deliver to Buyer a list of the Transferred
Employees and retirees of the Water Sector and their respective Beneficiaries
who had credited service under a Seller Welfare Plan, together with each such
individual's service, copayment, deductible and out-of-pocket payment amounts
under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan any balances
standing to the credit of Transferred Employees under Seller's flexible benefits
plan as of the
44
<PAGE>
Ohio
Closing Date. Seller shall provide to Buyer prior to the Closing Date a list of
those Transferred Employees that have participated in the health or dependent
care reimbursement accounts of Seller, together with their elections made prior
to the Closing Date with respect to such Account, and balances standing to their
credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and Buyer, on
the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and Buyer
shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Contracts and the Permits on the terms set forth in this
Agreement; and (b) shall include an obligation on the part of Parent or Buyer to
provide a guarantee, letter of credit, bond or other required surety instrument
at Closing to the extent required by any Contract or Permit and in general to
provide an equivalent surety instrument to be substituted for any surety
instrument provided by Citizens to any beneficiary in connection with the
Business.
5.16 Intentionally Omitted.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens shall
deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets
forth all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits
45
<PAGE>
Ohio
listed on Schedule 5.17, which under applicable law must be filed prior
to the Closing Date to maintain the Permits listed on Schedule 5.17 in full
force and effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use its
reasonable efforts to deliver to Buyer true, correct and complete copies of all
existing title policies, surveys, leases, deeds, instruments and agreements
relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing Date,
except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24, 5.26,
5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and canceled
all contracts, commitments and agreements (including employment relationships)
relating to the Acquired Assets or the Business, between Seller, any Affiliate
of Seller (including Citizens), any officer or director of any Seller Party, or
any Affiliate of the foregoing. Seller shall be solely liable for any
contractual or other claims, express or implied arising out of the termination
and cancellation of any of the foregoing raised by any party thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of violation,
Citizens shall notify Buyer of any violations of state or federal drinking water
standards which, if such violations existed on the date hereof, would be
required to be disclosed pursuant to Section 3.8.10 hereof, and shall promptly
notify Buyer of the actions proposed to be taken by Seller to correct or
otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of fifteen
(15) years after the Closing Date no Seller Party nor any Affiliate of a Seller
Party shall directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of or be otherwise connected
in any substantial manner with any entity (other than Buyer and its successors
and assigns) engaged in the business of storing, supplying and distributing
water in
46
<PAGE>
Ohio
the States in which Buyer acquires any Acquired Assets, whether or not such
business is subject to regulation by a PUC (it being understood that the
individual directors of Seller and Citizens are not Affiliates of a Seller
Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x)
Citizens is and after the Closing Date shall continue to be and shall
remain the primary obligor with respect to the Retained IDRB Indebtedness
outstanding immediately after the Closing Date to the same extent as though
no sale of the Acquired Assets had been made and that Parent and Buyer
shall have no payment obligations with respect to such Retained IDRB
Indebtedness, and (y) the IDRB Documents require Citizens not to take or
permit to be taken any action which would have the effect, directly or
indirectly, of subjecting the interest on any of the Bonds to federal or
state (other than Illinois) income taxation. Accordingly, Parent and Buyer
covenant and agree at Closing to execute and deliver to Citizens an
agreement substantially in the form attached hereto as Exhibit D, with
respect to each issuer of Bonds relating to Retained IDRB Documents that
will be outstanding after the Closing Date, and (ii) so long as any such
Bonds are outstanding, to cause the Acquired Assets that were acquired,
constructed, improved or equipped with the proceeds of such Bonds to be
used as facilities for the furnishing of water (that is, (a) the water is
or will be made available to members of the general public (including
electric utility, industrial, agricultural, or commercial users) and (b)
either the facility is operated by a governmental unit or the rates for the
furnishing or sale of the water have been established or approved by a
State or political subdivision thereof, by an agency or instrumentality of
the United States, or by a public service or public utility commission or
other similar body of any State or political subdivision thereof) or sewage
facilities within the meaning of Section 103(b)(4)(E) of the 1954 Code, or
Section 142(a)(5) of the Code as the case may be.
(b) IDRB Construction Funds. Citizens hereby represents that there
will be no construction funds or unspent bond proceeds available after the
Closing Date that are held by the trustees of the Bonds relating to the
Retained IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their respective best
commercially reasonable efforts to obtain all consents and legal opinions
as may be required under the Retained IDRB Documents to enable Seller to
retain all Retained IDRB Indebtedness and to sell the Acquired Assets to
Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller may, at Seller's written election delivered to Buyer no later than five
(5) days prior to the Closing Date, direct that all or a portion of the Initial
Cash Payment be delivered to a "qualified intermediary" as defined in Treasury
Regulation "1.1031(k) - (g)(4) as to enable Seller's relinquishment of the
Acquired Assets to qualify as part of a like-kind exchange of property covered
by Section 1031 of the Code. If Seller so elects, Buyer shall reasonably
cooperate with Seller (but
47
<PAGE>
Ohio
without being required to incur any out-of-pocket costs in the course thereof)
in connection with Seller's efforts to effect such like-kind exchange, which
cooperation shall include, without limitation, taking such actions as Seller
reasonably requests in order to enable Seller to qualify such transfer as part
of a like-kind exchange of property covered by Section 1031 of the Code
(including any actions reasonably required to facilitate the use of a "qualified
intermediary"), and Buyer agrees that Seller may assign all or part of its
rights (but no obligations) under this Agreement to a person or entity acting as
a qualified intermediary to qualify the transfer of the Assets as part of a
like-kind exchange of property covered by Section 1031 of the Code. Buyer and
Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts shall, in no event,
result in any delay in the consummation of the transactions contemplated by this
Agreement. Seller shall indemnify and hold Buyer harmless from any cost, expense
or liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer
and use commercially reasonable efforts to assist Buyer if Buyer desires to
obtain ALTA title insurance commitments (collectively, the "Title Commitments,"
and each a "Title Commitment"), in final form, from one or more title insurance
companies (collectively, the "Title Company"), committing
48
<PAGE>
Ohio
the Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment) to issuing ALTA (or its local
equivalent) form of title insurance policies insuring good, valid, indefeasible
fee simple title to the Real Estate in Buyer, in all cases, at Buyer's sole
expense and in the respective amounts that Buyer requests prior to Closing,
subject to no Liens or other exceptions to title other than Permitted Exceptions
(collectively the "Title Policies"). On or prior to the Closing Date, Seller
shall execute and deliver, or cause to be executed and delivered, to the Title
Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and Buyers' request for Title Policies or Title
Commitments shall, in no event, result in any delay in the consummation of the
transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing Date if any Material Adverse Effect that may have arisen or occurred
between the execution date of this Agreement and the Closing Date shall have
been cured or remedied such that such Material Adverse Effect is not continuing
as of the Closing Date. Buyer shall have been furnished with a certificate of
the Chief Financial Officer or other Vice President of Citizens dated the
Closing Date, certifying to the foregoing.
49
<PAGE>
Ohio
6.1.2 Opinion of Counsel. Buyer shall have received from L. Russell Mitten
II, Vice President and General Counsel of Seller, an opinion dated the Closing
Date, in form and substance satisfactory to Buyer, to the effect set forth in
Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby, and such order shall not contain
any restrictions or conditions (other than those in effect on the date hereof or
requiring that the regulatory treatment with respect to the Business in
existence as of the date of this Agreement applicable to Seller be continued
following the transactions contemplated hereby) which would have a Material
Adverse Effect or a material adverse effect on any other regulated business of
Buyer in the state in which the PUC has jurisdiction, and such order shall be
final and unappealable; Seller shall have obtained all statutory, regulatory and
other consents and approvals which are required in order to consummate the
transactions contemplated hereby and to permit Buyer to conduct the Business in
the manner contemplated by Section 3.25 hereof other than those the failure of
which to obtain would not have a Material Adverse Effect. Seller shall have also
obtained (i) all consents and legal opinions required to enable Seller to sell
the Acquired Assets to Buyer at the Closing, free and clear of all Liens other
than Permitted Exceptions (and specifically free and clear of any Lien arising
under or pursuant to the Mortgage Indenture) and (ii) all consents required
under Contracts and Permits relating to Seller's water appropriation and flowage
rights to the extent reasonably sufficient to enable Buyer to service the
customers of the Business and to service future commitments under such
Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Buyer's ownership of all or any material portion of the
Acquired Assets, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and shall
have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as
promptly as practicable after the Closing such records (including customer and
employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied that the
consummation of each of the asset purchase and sale transactions contemplated by
those certain purchase agreements described on Schedule 6.1.7 (the "Related
Purchase Agreements") will occur concurrently with the Closing.
50
<PAGE>
Ohio
6.2 Conditions Precedent to Obligations of Seller Parties. The obligations
of the Seller Parties to cause the sale of the Acquired Assets and to consummate
the other transactions contemplated hereby are subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions (any one or
more of which may be waived in writing in whole or in part by the Seller Parties
in their sole discretion):
6.2.1 Performance of Agreements; Representations and Warranties. Parent and
Buyer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by Buyer and Parent shall be true and correct
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 4.2), such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a material adverse effect on the respective ability of Buyer and Parent
to perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and Buyer, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price &
Rhoads, counsel to Parent and Buyer, an opinion dated the Closing Date, in form
and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with respect
to the transactions contemplated hereby shall have expired or been terminated.
6.2.4 Required PUC and Other Consents. The PUC shall have issued an order
approving the transactions contemplated hereby and such order shall not contain
any restrictions or conditions which would have a material adverse effect on
Seller's business activities in the State in which the PUC has jurisdiction or
any significant adverse effect on Citizens' acquisition and divestiture
activities in that State (including divestiture of the Acquired Assets), and
such order shall be final and unappealable; Seller shall have obtained all
statutory and regulatory consents and approvals which are required in order to
consummate the transactions contemplated hereby, other than those the failure of
which to obtain would not have a material adverse effect on the Seller after the
Closing. Seller shall have obtained (i) all consents and legal opinions required
under the Retained IDRB Documents to enable Seller to retain the Retained IDRB
Indebtedness until maturity and to sell the Acquired Assets to Buyer at the
Closing (in each case without any change
51
<PAGE>
Ohio
in the tax-exempt status of the Retained IDRB Indebtedness and without any event
of taxability relating to the matters set forth in Section 7.4.1(a)(D)), free
and clear of all Liens other than Permitted Exceptions (and specifically free
and clear of any Lien arising under or pursuant to the Mortgage Indenture), and
(iii) all other consents required or advisable in order for Seller to transfer
Acquired Assets without incurring material liability under any Contract, Permit
or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order of
any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to the
Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer and Parent;
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no
52
<PAGE>
Ohio
further force and effect, except for the provisions of Section 5.6 relating to
publicity, Sections 3.24 and 4.6 relating to brokerage and Section 7.1 relating
to expenses. Nothing in this Section 6.3 shall be deemed to release either party
from any liability for any willful breach by such party of the terms and
provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible for
all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one hand,
and Buyer and Parent, on the other hand, shall cooperate fully with each other
after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No files, books or records existing at the
Closing Date and relating in any manner to the Acquired Assets or the conduct of
the Business shall be destroyed by any party for a period of six years after the
Closing Date without giving the other party at least 30 days prior written
notice, during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 7.2 shall be during normal business hours and upon not less than
two (2) business days prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section 7.4.2(j),
all representations, warranties, covenants and agreements contained in this
Agreement or the Transaction Documents shall survive (and not be affected in any
respect by) the Closing, any
53
<PAGE>
Ohio
investigation conducted by any party hereto and any information which any party
may receive. Notwithstanding the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the related indemnity
obligations contained in Section 7.4 shall terminate on, and no action or
claim with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in Sections 3.12 and
3.16 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
following the expiration of the applicable statute of limitations (or
extensions or waivers thereof);
(d) the representations and warranties contained in Section 3.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
(e) the representations and warranties contained in Section 3.10 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(f) the representations and warranties contained in Section 3.7 and
3.17 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3, 3.5,
3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto
may be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in Section 3.11 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
third anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2 and
the related indemnity obligations contained in Section 7.4 shall survive
for an unlimited period of time;
54
<PAGE>
Ohio
(j) the representations and warranties contained in Sections 4.3 and
4.4 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
after, the third anniversary of the Closing Date;
(k) the representations and warranties contained in Section 4.5 and
the related indemnity obligations contained in Section 7.4 shall terminate
on, and no action or claim with respect thereto may be brought after, the
Closing Date; and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section 7.4
shall terminate on and no further action or claim with respect thereto may
be brought after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the foregoing
clauses (c) through (k), and the covenants contained in Section 5.1, 5.2,
5.3, 5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party
with respect thereto, shall not terminate with respect to any claim,
whether or not fixed as to liability or liquidated as to amount, with
respect to which such party has been given written notice setting forth the
facts upon which the claim for indemnification is based and, if possible, a
reasonable estimate of the amount of the claims prior to the relevant
anniversary of the Closing Date or the 30th day after the expiration of the
applicable statute of limitations (or extensions or waivers thereof), as
the case may be. If any claim for indemnification is asserted or could be
asserted with respect to a breach or asserted breach of Section 3.17
(Undisclosed Liabilities) and the Buyer or Parent is also entitled to
indemnification in respect of that claim for breach or asserted breach of
any other representation or warranty in this Agreement for which there is a
shorter survival period, such shorter period will apply to such claim
except to the extent that such claim is a product liability, toxic tort or
similar claim (as described in Section 2.3.3(a)) brought by a private party
litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made by
Buyer or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing
Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any
locations other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any action or
claim with respect to any other Retained Liability;
55
<PAGE>
Ohio
Provided, however, that the foregoing time limitations shall not apply to
any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors, officers and other
Affiliates (including Parent) and hold Buyer and such other parties
harmless from and against any and all Damages arising out of or resulting
from (A) any breach of any representation, warranty, covenant or agreement
made by the Seller Parties in this Agreement or in any document or
certificate required to be furnished to Buyer by any of the Seller Parties
pursuant to this Agreement (including the Transaction Documents); (B)
subject to Section 7.3.2, any Excluded Assets or Retained Liabilities; (C)
subject to Section 7.3.2, the ownership, operation or use of any of the
businesses or assets of the Seller Parties or their Affiliates (other than
the Business and the Acquired Assets) whether before, on or after the
Closing Date; and (D) an event of taxability, as such term is customarily
used in municipal securities transactions, relating to the Retained IDRB
Indebtedness and arising from the sale of the Acquired Assets pursuant to
this Agreement.
(b) Buyer and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and such
other parties harmless from and against any and all Damages arising out of
or resulting from (A) any breach of any
56
<PAGE>
Ohio
representation, warranty, covenant or agreement made by Parent or Buyer in
this Agreement or in any document or certificate required to be furnished
to Seller by Parent or Buyer pursuant to this Agreement (including the
Transaction Documents), including the Buyer's IDRB Obligations; (B) any
Assumed Liabilities after the Closing Date; (C) the ownership, operation or
use of the Business or the Acquired Assets after the Closing Date (except
to the extent resulting from Retained Liabilities or to the extent
resulting from breaches by the Seller Parties of representations,
warranties, covenants or agreements hereunder or in the other Transaction
Documents); (D) any claim by a Transferred Employee or a Former Employee
referred to on Schedule 5.12 or the Beneficiary of any such employee or
former employee for post-retirement health care or life insurance benefits
"incurred" (within the meaning of Section 5.9.4) after the Closing; and (E)
any violation by Parent or Buyer, or any assignee, lessee or successor of
Parent or Buyer, of the covenants and agreements as provided by Section 5
of Exhibit D hereto.
(c) For purposes of this Agreement, "Damages" shall mean any and all
losses, liabilities, obligations, damages (including any governmental
penalty or punitive damages assessed or asserted against the party seeking
indemnification and including costs of investigation, clean-up and
remediation), deficiencies, interest, costs and expenses and any claims,
actions, demands, causes of action, judgments, costs and reasonable
expenses (including reasonable attorneys' fees and all other reasonable
expenses incurred in investigating, preparing or defending any litigation
or proceeding, commenced or threatened, incident to the successful
enforcement of this Agreement). For purposes of this Section 7.4, the
determination of whether any breach of any representation, covenant or
agreement has occurred, and the calculation of the amount of Damages
incurred by the Indemnified Party arising out of or resulting from any
breach of a representation, covenant or agreement by any party hereto, the
references to a "Material Adverse Effect" or materiality (or other
correlative terms) shall be disregarded, provided that no such breach shall
be found to have occurred due to facts or circumstances arising from an
occurrence or condition described in Section 1.1.61(a). Notwithstanding the
foregoing, Damages shall not include the loss of profits of the party
seeking indemnification, or punitive damages unless the party seeking
indemnification has had punitive damages assessed or asserted against it.
(d) Notwithstanding any language contained in any Transaction Document
(including deeds to Real Estate and instruments delivered by Seller to the
Title Company), representations and warranties as to Real Estate set forth
in Section 3.10 and 3.11 will not be merged into any Transaction Document
and the indemnification obligations of Seller, and the limitations on such
obligations, set forth in this Agreement, shall control. No provision set
forth in any Transaction Document shall be deemed to enlarge, alter or
amend the terms or provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4 (an
"Indemnified Party") shall give prompt written notice to the party from
whom such indemnification is sought (the "Indemnifying Party") of the
assertion of any claim, the incurrence
57
<PAGE>
Ohio
of any Damages, or the commencement of any action, suit or proceeding, of
which it has knowledge and in respect of which indemnity may be sought
hereunder, and will give the Indemnifying Party such information with
respect thereto as the Indemnifying Party may reasonably request, but
failure to give such required notice shall relieve the Indemnifying Party
of any liability hereunder only to the extent that the Indemnifying Party
has suffered actual prejudice thereby. The Indemnifying Party shall have
the right, exercisable by written notice to the Indemnified Party after
receipt of notice from the Indemnified Party of the commencement of or
assertion of any claim or action, suit or proceeding by a third party in
respect of which indemnity may be sought hereunder (a "Third Party Claim"),
to assume the defense of such Third Party Claim which involves (and
continues to involve) solely monetary damages; provided, that (A) the
Indemnifying Party expressly agrees in such notice that, as between the
Indemnifying Party and the Indemnified Party, solely the Indemnifying
Party shall be obligated to satisfy and discharge the Third Party Claim,
(B) such Third Party Claim does not include a request or demand for
injunctive or other equitable relief by an Authority and (C) the
Indemnifying Party makes reasonably adequate provision to assure the
Indemnified Party of the ability of the Indemnifying Party to satisfy the
full amount of any adverse monetary judgment that is reasonably likely to
result. The Indemnifying Party shall be deemed to have satisfied the
condition set forth in clause (C) of the proceeding sentence if it is a
regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party shall
settle any Third Party Claim without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed.
(c) The Indemnifying Party or the Indemnified Party, as the case may
be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third Party Claim which the other party is
defending as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither Parent
nor Buyer (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages incurred unless
the aggregate amount of Damages incurred by Parent or Buyer (or the other
Persons for which they can claim indemnification), together with all other
claims for Damages under Section 7.4.2(e) of each of the Related Purchase
Agreements, exceeds $6,123,000 in the aggregate (the "Threshold Amount"),
in which case Seller shall then be liable for Damages in excess of the
Threshold Amount. Subject to Section 7.4.2(f) and Section 7.4.2(i), the
cumulative aggregate indemnity obligation of Citizens and its Affiliates
under Section 7.4 of this Agreement and the Related Purchase Agreements
shall not exceed $60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that Parent
or Buyer (and the other Persons for which they can claim indemnity
hereunder) shall be entitled to indemnification for Damages in respect of
intentional and wilful breaches of covenants or agreements in this
Agreement or any of the Retained Liabilities other than the Specified
58
<PAGE>
Ohio
Liabilities irrespective of the Threshold Amount or the Ceiling (it being
understood that the failure to cure a breach shall not, by itself, be an
intentional and wilful breach). As used herein, the "Specified Liabilities"
shall mean the Retained Liabilities arising from claims made after the
Closing Date which (i) do not relate to matters within the scope of clauses
(u), (v), (w) and (x) of Section 7.3.2; (ii) were not known to the Seller
Parties on or prior to Closing; and (iii) relate exclusively to the
Acquired Assets or the Business prior to the Closing Date. Notwithstanding
anything to the contrary in this Section 7.4, Parent or Buyer (or the other
Persons for which they can claim indemnification) shall be entitled to
indemnification for Damages in respect of a breach of Section 3.2, 3.12 or
3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer under this
Section 7.4 are exclusive and in lieu of any and all other rights and
remedies which Seller, Parent and Buyer may have under this Agreement or
otherwise for monetary relief with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed
made) by Seller, Parent or Buyer in or pursuant to this Agreement or any of
the Transaction Documents or (y) any breach or failure to perform any
covenant or agreements set forth in this Agreement or any of the
Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j) below, no right
to indemnification under this Section 7.4 shall be limited by reason of any
investigation or audit conducted before or after the Closing of any party
hereto including, without limitation, the knowledge of such party of any
breach of any representation, warranty, agreement or covenant by the other
party at any time, or the decision by such party to complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such Damages
shall be included in determining the extent of Damages incurred by such
party for purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance proceeds covering
the Damages or otherwise recovers payments in respect of such Damages
from any other source (whether in a lump sum or stream of payments);
or
(B) the Indemnified Party's Tax liability is actually reduced as
a result of a tax benefit to which the Indemnified Party becomes
entitled in respect of the Damages.
(j) Seller shall have no liability or obligation under this Section
7.4 for any Damages resulting from the inaccuracy or breach of any
representation or warranty if such inaccuracy or breach is disclosed by
Seller pursuant to and in accordance with Sections 5.3 and 8.4 hereof;
59
<PAGE>
Ohio
(k) Buyer agrees to use its commercially reasonable efforts to give
timely and effective written notice to the appropriate insurance carrier(s)
of any occurrence or circumstances which, in the judgment of Buyer
consistent with its customary risk management practices, appear likely to
give rise to a claim against Buyer that is likely to involve one or more
insurance policies of Buyer. Any such notice shall be given in good faith
by Buyer without regard to the possibility of indemnification payments by
Seller under this Section 7.4, and shall be processed by Buyer in good
faith and in a manner consistent with its risk management practices
involving claims for which no third party contractual indemnification is
available. Buyer agrees that (i) if it is entitled to receive payment from
Seller for Damages arising under or pursuant to a breach of the
representation and warranty set forth in Section 3.10, and (ii) if Buyer
has obtained title insurance which may cover the claim or matter giving
rise to such Damages, then (iii) such title insurance shall be primary
coverage and Buyer will make a claim under the title insurance if such
claim can be made in good faith before enforcing its right to receive
payment from Seller. Buyer shall be under no obligation to obtain title
insurance or prosecute such claim (other than the initial filing of
such claim).
(l) If at any time subsequent to the receipt by an Indemnified Party
of an indemnity payment hereunder, such Indemnified Party (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with
respect to the Damages for which it received such indemnity payment
(including insurance proceeds and other payments pursuant to Section
7.4.2(i)(A) and a tax benefit pursuant to Section 7.4.2(i)(B)) (the
"Recovery"), such Indemnified Party shall promptly pay to the Indemnifying
Party an amount equal to the amount of such Recovery, less any expense
incurred by such Indemnified Party (or its Affiliates) in connection with
such Recovery, but in no event shall any such payment exceed the amount of
such indemnity payment;
(m) In the event of any indemnification claim under this Section 7.4
involving the claim of any third party, the Indemnified Party shall
cooperate fully (and shall cause its Affiliates to cooperate fully) with
the Indemnifying Party in the defense of any such claim under this Section
7.4. Without limiting the generality of the foregoing, the Indemnified
Party shall furnish the Indemnifying Party with such documentary or other
evidence as is then in its or any of its Affiliates' possession as may
reasonably be requested by the Indemnifying Party for the purpose of
defending against any such claim. Whether or not the Indemnifying Party
chooses to defend or prosecute any claim involving a third party, all the
parties hereto shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR
60
<PAGE>
Ohio
OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets or the
Business to Buyer. In addition, Seller will execute such documents and financing
statements as Buyer may reasonably request from time to time to evidence
transfer of the Acquired Assets to Buyer in accordance with this Agreement,
including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing of
any registration statement or periodic report of Buyer or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall provide
Buyer (a) by April 30, 2000 or within 120 days after Buyer's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited statements: (i) a statement of net assets of the Business as of the
end of the last fiscal quarter prior to Closing (but only if such quarter is
subsequent to the last fiscal year prior to Closing); and (ii) a statement of
income of the Business and a statement of cash flows or its equivalent of the
Business, for the period from the end of the last fiscal year through the end of
the last fiscal quarter prior to Closing (in each case combined with the
businesses being acquired by Buyer or Affiliates of Buyer pursuant to the
Related Purchase Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly (and in
any event no later than five (5) Business Days following receipt) deliver all
such payments with respect to accounts receivable from customers of the Business
received on and after the Closing Date (including but not limited to negotiable
instruments tendered in payment of accounts receivable assigned to Buyer
hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have participated
jointly in the negotiation and drafting of this Agreement and the Transaction
61
<PAGE>
Ohio
Documents. In the event any ambiguity or question of intent or interpretation
arises, this Agreement and the Transaction Documents shall be construed as if
drafted jointly by Parent, Buyer and the Seller Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" in this Agreement shall mean including without
limitation. Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph, Exhibit and Schedule references are to the Articles, Sections,
paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified.
The word "or" shall not be exclusive. Provisions of this Agreement shall apply,
when appropriate, to successive events and transactions. Section references
refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
62
<PAGE>
Ohio
If to Buyer:
Ohio-American Water Company
880 Kuhn Drive
Chula Vista, CA 91914
Fax: (619) 656-2406
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
63
<PAGE>
Ohio
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto; provided that Seller
may assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the transactions contemplated hereby
as a like-kind exchange of property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Disclosure of any fact or item in any
Schedule referenced by a particular paragraph or Section in this Agreement
shall, should the existence of the fact or item or its contents be clearly
related to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
8.6 Dispute Resolution. Except as otherwise provided herein, any dispute,
controversy or claim between the parties relating to, arising out of or in
connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in good
faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation
to assist in the negotiations. Discussions and correspondence among the
parties' representatives for purposes of these negotiations shall be
treated as confidential information developed for the purposes of
settlement, exempt from discovery and production, and without the
concurrence of both parties shall not be admissible in the arbitration
described below, or in any lawsuit. Documents identified in or
64
<PAGE>
Ohio
provided with such communications, which are not prepared for purposes of
the negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
(b) If negotiations between the representatives of the parties do not
resolve the Dispute within 60 days of the initial written request, the
Dispute shall be submitted to binding arbitration by a single arbitrator
pursuant to the Commercial Arbitration Rules, as then amended and in
effect, of the American Arbitration Association (the "Rules"); provided,
however, that at the election of either party, the arbitration shall take
place before three (3) arbitrators, one arbitrator being selected by
Parent, one arbitrator being selected by Citizen, and the third arbitrator,
knowledgeable in the general subject matter of the dispute, controversy or
claim, being selected by the other two arbitrators. Either party may demand
such arbitration in accordance with the procedures set out in the Rules.
The parties hereto shall use reasonable efforts to coordinate any
arbitration commenced under this Agreement with any arbitration on the same
or similar issues commenced under any of the Related Purchase Agreements so
that the resolution of the arbitration under this Agreement and the similar
issues under the Related Purchase Agreements can be resolved as
expeditiously and efficiently as reasonable practicable. Reasonable efforts
shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and will
instruct each party to produce evidence through discovery (i) that is
reasonably requested by the other party to the arbitration in order to
prepare and substantiate its case and (ii) the production of which will not
materially delay the expeditious resolution of the dispute being
arbitrated; each party hereto agrees to be bound by any such discovery
order. The arbitrator(s) shall control the scheduling (so as to process the
matter expeditiously) and any discovery. The parties may submit written
briefs. At the arbitration hearing, each party may make written and oral
presentations to the arbitrator(s), present testimony and written evidence
and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The arbitrator(s) shall rule on the Dispute by issuing a written
opinion within 30 days after the close of hearings. The arbitrators'
majority decision shall be binding and final. Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction.
(c) Each party will bear its own costs and expenses in submitting and
presenting its position with respect to any Dispute to the arbitrator(s);
provided, however, that if the arbitrator(s) determines that the position
taken in the Dispute by the non-prevailing party taken as a whole is
unreasonable, the arbitrator(s) may order the non-prevailing party to bear
such fees and expenses, and reimburse the prevailing party for all or such
portion of its reasonable costs and expenses in submitting and presenting
its position, as the arbitrator(s) shall reasonably determine to be fair
under the circumstances. Each party to the arbitration shall pay one-half
of the fees and expenses of the arbitrator(s) and the American Arbitration
Association.
(d) Notwithstanding any other provision of this Agreement, (i) either
party may commence an action to compel compliance with this Section 8.6 and
(ii) if any party, as party of a Dispute, seeks injunctive relief or any
other equitable remedy, including specific enforcement, then such party
shall be permitted to seek such injunctive or equitable relief in any
federal or state
65
<PAGE>
Ohio
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended or should be construed to confer upon or give to any Person other than
the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and
the other Transaction Documents, and the Confidentiality Agreement dated August
2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend this
Agreement in any respect, and any party, as to such party, may (i) extend the
time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in representations and warranties by the other party;
(iii) waive compliance by the other party with any of the covenants or
agreements contained herein and performance of any obligations by the other
party; and (iv) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment or waiver must be in writing and be signed by the
party providing such waiver or extension, as the case may be. The waiver by any
party hereto of any breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and
66
<PAGE>
Ohio
similar references) shall mean the actual knowledge possessed by any of the
following officers or employees of Citizens: Chief Financial Officer, Vice
President and Treasurer; President, Citizens Public Services; Vice President,
Corporate Human Resources; Secretary; Vice President, Water; and the general
manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF THE
SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED
OR REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR
PREDICTIONS OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS
THAT HAVE BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
8.15 Construction of Certain Provisions. It is understood and agreed that
neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings under any
tax bulk sales provisions with respect to the transactions contemplated by this
Agreement.
[Signatures appear on following page.]
67
<PAGE>
Ohio
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
------------------------------------------
Robert J. DeSantis, Chief Financial
Officer, Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF OHIO
By: Robert J. DeSantis
-------------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett, Jr.
------------------------------------------
Joseph F. Hartnett, Jr., Treasurer
OHIO-AMERICAN WATER COMPANY
By: Ramon G. Lee
------------------------------------------
Ramon G. Lee, President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by Ohio-American Water Company, an Ohio corporation ("Transferee"), in favor of
Citizens Utilities Company, a Delaware corporation ("citizens"), and each of the
wholly-owned subsidiaries of Citizens named on the signature page hereof
(collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF OHIO
By:________________________________________________
Name:
Title:
TRANSFEREE:
OHIO-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
Ohio-American Water Company, an Ohio corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES COMPANY OF OHIO
By:________________________________________________
Name:
Title:
TRANSFEREE:
OHIO-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT D
================================================================================
RETAINED IDRB OBLIGATIONS AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES,
as Seller
and
AMERICAN WATER WORKS COMPANY, INC.
AND
CERTAIN OF ITS AFFILIATES,
as Buyer
Dated as of ___________________, 2000
<PAGE>
RETAINED IDRB OBLIGATIONS AGREEMENT
THIS RETAINED IDRB OBLIGATIONS AGREEMENT (this "Agreement") is made as of
the ____ day of ____________________, 2000, by and between CITIZENS UTILITIES
COMPANY, a Delaware corporation, and each of the wholly-owned subsidiaries of
Citizens Utilities Company named on the signature page hereof (collectively,
"Seller"), and AMERICAN WATER WORKS COMPANY, INC., a Delaware corporation
("Parent"), and each of the subsidiaries of Parent named on the signature page
hereof (collectively with Parent, "Buyer"). Capitalized terms used herein shall
have the meanings ascribed to them in Article I, unless otherwise provided.
W I T N E S S E T H :
WHEREAS, Seller and Buyer have entered into that certain Asset Purchase
Agreement dated as of October , 1999 (the "Purchase Agreement"), pursuant to
which as of the date hereof Seller has sold and Buyer has purchased the Assets
(as hereinafter defined); and
WHEREAS, such Assets include assets financed through the issuance by
[ISSUER] (the "Issuer") of certain Retained IDRB Indebtedness (as hereinafter
defined and as identified by Schedule I attached hereto); and
WHEREAS, notwithstanding such sale of the Assets, Seller remains primarily
liable for the payment and other obligations arising under the respective
financing agreements identified by Schedule I attached hereto relating to the
Retained IDRB Indebtedness (collectively, the "Loan Agreements"); and
WHEREAS, Buyer henceforth will have legal title to and entire operational
control of the Assets and Seller will have no further rights to enter, possess
or otherwise operate, control or maintain the Assets; and
WHEREAS, Seller's primary liability will terminate upon the respective
termination of the Loan Agreements; and
WHEREAS, pursuant to Section 5.24(a)(ii) of the Purchase Agreement, Buyer
has agreed "at Closing to execute and deliver to Seller an agreement . . . with
respect to each issuer of Bonds relating to Retained IDRB Documents that will be
outstanding after the Closing Date;" and
WHEREAS, Seller and Buyer intend that this Agreement is and shall be that
agreement required to be delivered pursuant to Section 5.24(a)(ii) of the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1. Certain Defined Terms. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Assets" means, collectively, all of the assets, property and interests of
every type and description, real, personal or mixed, tangible and intangible,
owned by Seller (as defined in the Purchase Agreement) and relating to the
Business (as defined in the Purchase Agreement), other than the "Excluded
Assets" (as defined in the Purchase Agreement).
"IDRB Documents" means, collectively, the Loan Agreements, the Tax
Regulatory Agreements, Tax Representations and Project Certificates to which
Seller is a party or by which any of the Assets is bound, and relating to the
Retained IDRB Indebtedness.
"IRS" means the Internal Revenue Service or any successor agency.
"Retained IDRB Indebtedness" means, collectively, the indebtedness of
Seller owing to the Issuer of the Bonds (as defined by each Loan Agreement and
as described further on Schedule I attached hereto) and arising under the Loan
Agreements included among the IDRB Documents.
Section 2. Receipt and Review of IDRB Documents. Buyer hereby
acknowledges that it has received the IDRB Documents and has had the opportunity
to review the agreements, obligations and covenants of Seller set forth in such
IDRB Documents and related Indentures of Trust and certain No Arbitrage
Certificates, including, in particular, those agreements, obligations,
representations, warranties and covenants relating to the ownership, operation,
use and maintenance of the Assets, to the preservation of the tax-exempt status
of the Retained IDRB Indebtedness and to the indemnification by Seller of the
Issuer.
Section 3. Representations Regarding Assets. Seller hereby represents
that it has performed all duties and obligations of "Company" under the IDRB
Documents relating to the ownership, operation, use and maintenance of the
Assets financed with the proceeds of the Retained IDRB Indebtedness and that the
representations and warranties of "Company" relating to the ownership,
operation, use and maintenance of such Assets under the IDRB Documents remain
true and correct.
Section 4. Covenant Regarding Tax Exemption. Buyer represents, warrants,
covenants and agrees that it is in the business of providing water utility and
sewage services, and that, so long as any Retained IDRB Indebtedness is
outstanding, it will cause the Assets that were acquired, constructed, improved
or equipped with the proceeds of such Retained IDRB Indebtedness to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for
2
<PAGE>
the furnishing or sale of water have been established or approved by a State or
political subdivision thereof, by an agency or instrumentality of the United
States or by a public service or public utility commission or other similar body
of any State or political subdivision thereof) or sewage facilities within the
meaning of Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as
amended, or Section 142(a)(5) of the Internal Revenue Code of 1986, as amended,
as the case may be. Buyer further represents, warrants, covenants and agrees
that it will not violate or otherwise contravene any representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on October __, 1999, which are applicable to Buyer's ownership of the
Assets, other than (x) the sale pursuant to the Asset Purchase Agreement of the
Assets to Buyer, (y) subject to the two next succeeding sentences, any such
covenants relating to the application of the proceeds of any eminent domain
proceeding or casualty loss and (z) insofar as they are not integral to Buyer's
use and operation of the Assets, the representations, warranties, covenants or
other agreements or obligations relating to the tax-exempt status of the
interest on such Retained IDRB Indebtedness. Buyer shall notify Seller in
writing promptly upon Buyer receiving notice of any threatened or impending
eminent domain proceeding against the Assets or of any material casualty loss of
Assets financed with Retained IDRB Indebtedness, shall cooperate in good faith
with Seller in Seller's efforts to ascertain the consequences of any such
eminent domain proceeding or casualty loss for the tax exemption of the Retained
IDRB Indebtedness, and shall not take any action with respect to the proceeds of
an eminent domain proceeding or insurance claim without express written consent
of Seller, which consent will not be withheld if Buyer is in receipt of a "no
adverse effect" opinion of nationally recognized bond counsel. Notwithstanding
the next preceding sentence, as between Seller and Buyer, Seller, without
recourse to Buyer, shall be responsible for any payments with respect to the
Retained IDRB Indebtedness arising as a result of an eminent domain proceeding
or casualty loss occurring on or after the date of this Agreement, and Buyer
shall be entitled to retain any eminent domain or insurance proceeds. Buyer
acknowledges and agrees that Seller's bond counsel may rely on Buyer's
representations, warranties and covenants as hereinabove provided for the
purpose of rendering legal opinions, as required by the IDRB Documents as a
precondition to the sale by Seller of such Assets, to the effect that the sale
of such Assets will not have a material adverse effect on the exclusion from
gross income of the interest on the Retained IDRB Indebtedness. Nothing in this
Agreement is intended to nor shall it be interpreted as (i) an assignment to,
and assumption by, Buyer of any of the IDRB Documents, or (ii) as an undertaking
or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other
payment obligations pursuant to the IDRB Documents.
Seller represents, warrants, covenants and agrees that it will not refund
or otherwise refinance with the proceeds of any obligation the interest on which
is excluded from gross income for federal income tax purposes any of the
Retained IDRB Indebtedness without Buyer's express written consent, which
consent Buyer shall provide unless Buyer reasonably concludes that such
refunding or refinancing would affect Buyer's use and operation of the related
Assets.
Section 5. Indemnification of Seller by Buyer. Buyer shall and hereby
agrees to indemnify and save harmless Seller against and from all claims by or
on behalf of one or more of the Issuer, the trustee or trustees (collectively,
the "Trustees") identified in the IDRB Documents, any actual or beneficial owner
of Retained IDRB Indebtedness or any other person, firm, corporation or other
legal entity arising from the conduct or management of, or from any work or
3
<PAGE>
thing done on, the Assets for the period commencing on the date hereof and
thereafter during the remaining terms of the IDRB Documents, including, without
limitation, (i) any condition of the Assets financed with the proceeds of the
Retained IDRB Indebtedness, (ii) any breach or default on the part of Buyer in
the performance of any of its obligations under this Agreement, including the
obligation to preserve the exclusion from gross income of the interest on the
Bonds for federal or state (as applicable) income tax purposes, (iii) any act or
negligence of Buyer or of any of its agents, contractors, servants, employees or
licensees or (iv) any act or negligence of any assignee, lessee or successor of
Buyer, or of any agents, contractors, servants, employees or licensees of any
assignee, lessee or successor of Buyer. Buyer shall indemnify and save harmless
Seller from any such claim arising as aforesaid, or in connection with any
action or proceeding brought thereon, and, upon notice from Seller, Buyer shall
defend it in any such action or proceeding. Any claim for indemnity under this
Agreement shall follow the procedures outlined in Sections 7.4.2(a) through (c),
inclusive, of the Asset Purchase Agreement.
Section 6. Term of Agreement. This Agreement shall be coterminous with
the term of the IDRB Documents, provided that the obligations of Buyer under
Section 5 hereof shall survive the termination of this Agreement.
Section 7. Successor Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 8. Governing Law. The validity, performance, and enforcement of
this Agreement, unless expressly provided to the contrary, shall be governed by
the laws of the State of Delaware without giving effect to the principles of
conflicts of law of such state.
Section 9. Dispute Resolution. Except as otherwise provided in this
Section 9, any dispute, controversy or claim between the parties relating to,
arising out of or in connection with this Agreement (or any subsequent
agreements or amendments thereto), including as to its existence,
enforceability, validity, interpretation, performance or breach or as to
indemnification or damages, including claims in tort and audit, regulatory or
other actions initiated by or on behalf of the IRS with respect to the Retained
IDRB Indebtedness, whether arising before or after the termination of this
Agreement (any such dispute, controversy or claim being herein referred to as a
"Dispute"), shall be settled without litigation and only by use of the following
alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint
a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to
the discretion of the representatives. Upon agreement, the
representatives may utilize other alternative dispute resolution
procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for
purposes of these negotiations shall be treated as confidential
information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties
shall not be admissible in the arbitration described below, or in any
lawsuit. Documents identified in or provided with such
communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
4
<PAGE>
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration Rules, as
then amended and in effect, of the American Arbitration Association
(the "Rules"); provided, however, that at the election of either
party, the arbitration shall take place before three (3) arbitrators,
one arbitrator being selected by the Parent, one arbitrator being
selected by Citizens Utilities Company and the third arbitrator,
knowledgeable with respect to the general subject matter of the
dispute, controversy or claim, including, if applicable, the federal
income tax laws applicable to obligations the interest on which is
excluded from gross income for federal income tax purposes, being
selected by the other two arbitrators. Either party may demand such
arbitration in accordance with the procedures set out in the Rules.
The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and
will instruct each party to produce the discovery of documents (i)
that are reasonably requested by the other party to the arbitration in
order to prepare and substantiate its case and (ii) the production of
which will not materially delay the expeditious resolution of the
dispute being arbitrated; each party hereto agrees to be bound by any
such discovery order. The arbitrator(s) shall control the scheduling
(so as to process the matter expeditiously) and any discovery. The
parties may submit written briefs. At the arbitration hearing, each
party may make written and oral presentations to the arbitrator(s),
present testimony and written evidence and examine witnesses. No
party shall be eligible to receive, and the arbitrator(s) shall not
have the authority to award, exemplary or punitive damages. The
arbitrator(s) shall rule on the Dispute by issuing a written opinion
within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to
the arbitrator(s); provided, however, that if the arbitrator(s)
determines that the position taken in the Dispute by the nonprevailing
party taken as a whole is unreasonable, the arbitrator(s) may order
the nonprevailing party to bear such fees and expenses, and reimburse
the prevailing party for all or such portion of its reasonable costs
and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the
circumstances. Each party to the arbitration shall pay one-half of
the fees and expenses of the arbitrator(s) and the American
Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 9 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceeding under this Section 9.
Section 10. Cooperation. Each of the parties hereto agrees to use its
reasonable best efforts to take or cause to be taken all action, and to do or
cause to be done all things necessary,
5
<PAGE>
proper or advisable under applicable laws, regulations or otherwise, to
consummate and to make effective the transactions contemplated by this
Agreement, including, without limitation, the timely performance of all actions
and things contemplated by this Agreement to be taken or done by each of the
parties hereto.
Section 11. Construction of Agreement. The terms and provisions of this
Agreement represent the results of negotiations between Buyer and Seller, each
of which has been represented by counsel of its own choosing, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary meanings,
and Buyer and Seller hereby waive the application in connection with the
interpretation and construction of this Agreement of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
Section 12. Publicity. No party hereto shall issue, make or cause the
publication of any press release or other announcement with respect to this
Agreement or the transactions contemplated hereby, or otherwise make any
disclosures relating thereto, without the consent of the other party, such
consent not to be unreasonably withheld or delayed; provided, however, that such
consent shall not be required in the case of any notices or other information
provided to the Trustees and the Issuer or otherwise where such release or
announcement is required by applicable law or the rules or regulations of a
securities exchange, in which event the party so required to issue such release
or announcement shall endeavor, wherever possible, to furnish an advance copy of
the proposed release to the other party.
Section 13. Waiver. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of waiver of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
Section 14. Parties in Interest. This Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their successors and permitted assigns, any
rights or remedies hereunder.
Section 15 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 16. Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 17 Entire Agreement. This Agreement and schedules hereto and the
documents specifically referred to herein (including the Purchase Agreement)
constitute the entire agreement, understanding, representations and warranties
of the parties hereto, and supersede all prior agreements, both written and
oral, between Buyer and Seller.
6
<PAGE>
Section 18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 19. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CITIZENS UTILITIES COMPANY
By ___________________________________
Name _________________________________
Title ________________________________
AMERICAN WATER WORKS COMPANY, INC.
By ___________________________________
Name _________________________________
Title ________________________________
[AWW SUBSIDIARY]
By____________________________________
Name__________________________________
Title_________________________________
7
<PAGE>
[Signature page to Retained IDRB Obligations Agreement between
Citizens Utilities Company and American Water Works Company, Inc., dated as of
____________________, 2000.]
8
<PAGE>
SCHEDULE I
Retained IDRB Indebtedness Loan Agreements
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
<PAGE>
Exhibit 10.(v)
Pennsylvania
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES
AND
AMERICAN WATER WORKS COMPANY, INC. AND
PENNSYLVANIA-AMERICAN WATER COMPANY
Dated as of
October 15, 1999
<PAGE>
Pennsylvania
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS..................................................1
1.1 Certain Definitions..........................................1
ARTICLE 2 THE TRANSACTION.............................................10
2.1 Sale and Purchase of Assets.................................10
2.2 Excluded Assets.............................................10
2.3 Assumption of Certain Liabilities...........................11
2.4 Consent of Third Parties....................................14
2.5 Closing.....................................................15
2.6 Purchase Price..............................................15
2.6.1 Purchase Price.....................................15
2.6.2 Payment of Initial Cash Payment....................15
2.6.3 Estimated Closing Statement........................16
2.6.4 Post-Closing Adjustment to Purchase Price..........16
2.6.5 Adjustment for Certain Liabilities.................18
2.6.6 Additional Adjustment to the Purchase Price........18
2.7 Deliveries and Proceedings at Closing.......................18
2.7.1 Deliveries to Buyer................................18
2.7.2 Deliveries By Buyer to the Seller Parties..........19
2.8 Allocation of Consideration.................................20
2.9 Prorations..................................................20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................20
3.1 Qualification; No Interest in Other Entities................21
3.2 Authorization and Enforceability............................21
3.3 No Violation of Laws or Agreements..........................21
3.4 Financial Statements........................................22
3.5 No Changes..................................................22
3.6 Contracts...................................................23
3.7 Permits and Compliance With Laws Generally..................23
3.8 Environmental Matters.......................................24
3.9 Consents....................................................26
3.10 Title.......................................................26
3.11 Real Estate.................................................27
3.12 Taxes.......................................................27
3.13 Patents and Intellectual Property Rights....................28
3.14 Accounts Receivable.........................................28
3.15 Labor Relations.............................................28
3.16 Employee Benefit Plans......................................28
3.17 Absence of Undisclosed Liabilities..........................30
3.18 No Pending Litigation or Proceedings........................31
3.19 Supply of Utilities.........................................31
3.20 Insurance...................................................31
<PAGE>
Pennsylvania
3.21 Relationship with Customers.................................31
3.22 WARN Act....................................................31
3.23 Condition of Assets.........................................32
3.24 Brokerage...................................................32
3.25 All Assets..................................................32
3.26 Year 2000 Matters...........................................32
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER..........33
4.1 Organization and Good Standing..............................33
4.2 Authorization and Enforceability............................33
4.3 No Violation of Laws or Agreements..........................33
4.4 Consents....................................................34
4.5 Financing...................................................34
4.6 Brokerage...................................................34
4.7 Insurance...................................................34
ARTICLE 5 ADDITIONAL COVENANTS........................................35
5.1 Conduct of Business.........................................35
5.2 Negotiations................................................36
5.3 Disclosure Schedules........................................36
5.4 Mutual Covenants............................................37
5.5 Filings and Authorizations..................................37
5.6 Public Announcement.........................................38
5.7 Further Assurances..........................................38
5.8 Cooperation.................................................39
5.9 Employees; Employee Benefits................................40
5.10 Employee Pension Plan.......................................42
5.11 Employee Savings Plan.......................................43
5.12 Welfare Benefits............................................43
5.13 Taxes.......................................................45
5.14 Intentionally Omitted.......................................45
5.15 Citizens' Guarantees and Surety Instruments.................45
5.16 Assumption of Seller Debt...................................45
5.17 Schedule of Permits.........................................48
5.18 Title Information...........................................48
5.19 Transaction with Related Parties............................49
5.20 Approval by Citizens........................................49
5.21 Supplemental Information....................................49
5.22 Non-Competition.............................................49
5.23 Intentionally Omitted.......................................49
5.24 IDRB Obligations............................................50
5.25 Cooperation with Respect to Like-Kind Exchange..............50
5.26 Transition Plan.............................................51
5.27 Procedures regarding Refunds of Advances....................51
5.28 Title Insurance.............................................51
<PAGE>
Pennsylvania
ARTICLE 6 CONDITIONS PRECEDENT; TERMINATION...........................52
6.1 Conditions Precedent to Obligations of Buyer and Parent.....52
6.1.1 Performance of Agreements; Representations and
Warranties.........................................52
6.1.2 Opinion of Counsel.................................53
6.1.3 HSR Act............................................53
6.1.4 Required PUC and Other Consents....................53
6.1.5 Injunction; Litigation.............................53
6.1.6 Documents..........................................53
6.1.7 Related Closings...................................54
6.2 Conditions Precedent to Obligations of Seller Parties.......54
6.2.1 Performance of Agreements; Representations and
Warranties.........................................54
6.2.2 Opinion of Counsel.................................54
6.2.3 HSR Act............................................54
6.2.4 Required PUC and Other Consents....................54
6.2.5 Injunction; Litigation.............................55
6.2.6 Documents..........................................55
6.2.7 Related Closings...................................55
6.3 Termination.................................................55
ARTICLE 7 CERTAIN ADDITIONAL COVENANTS................................56
7.1 Certain Taxes and Expenses..................................56
7.2 Maintenance of Books and Records............................56
7.3 Survival....................................................57
7.4 Indemnification.............................................59
7.4.1 General Indemnification Obligations................59
7.4.2 General Indemnification Procedures.................61
7.4.3 Indemnification for Negligence.....................64
7.5 UCC Matters.................................................64
7.6 Financial Statements........................................64
7.7 Collection of Receivables...................................65
ARTICLE 8 MISCELLANEOUS...............................................65
8.1 Construction................................................65
8.2 Notices.....................................................65
8.3 Successors and Assigns......................................67
8.4 Exhibits and Schedules......................................67
8.5 Governing Law...............................................67
8.6 Dispute Resolution..........................................68
8.7 Severability................................................69
8.8 No Third Party Beneficiaries................................69
8.9 Entire Agreement............................................69
8.10 Amendment and Waiver........................................69
8.11 Counterparts................................................70
8.12 Headings....................................................70
8.13 Definitions.................................................70
8.14 No Implied Representation...................................70
<PAGE>
Pennsylvania
8.15 Construction of Certain Provisions..........................71
8.16 Bulk Sales..................................................71
<PAGE>
Pennsylvania
LIST OF SCHEDULES
Schedule 1.1.1(a) ...................................................Real Estate
Schedule 1.1.10 ............................................Assumed Indebtedness
Schedule 1.1.52 ..................................................IDRB Documents
Schedule 2.2.12 .................................................Excluded Assets
Schedule 3.3 .................................No Violation of Laws or Agreements
Schedule 3.4 ...............................................Financial Statements
Schedule 3.5 .........................................................No Changes
Schedule 3.6 ..........................................................Contracts
Schedule 3.7 .........................Permits and Compliance with Laws Generally
Schedule 3.8 ..................................Environmental Matters - Generally
Schedule 3.8.10 .................................Compliance with Water Standards
Schedule 3.8.11 ................................................Deed Restriction
Schedule 3.9 ...........................................Seller Parties' Consents
Schedule 3.10 .............................................................Title
Schedule 3.11 ...........................................Real Estate Proceedings
Schedule 3.12 .............................................................Taxes
Schedule 3.15 ...................................................Labor Relations
Schedule 3.16.1 ..........................................Employee Benefit Plans
Schedule 3.16.4 .............................Employee Benefit Plans - Compliance
Schedule 3.16.9 .................Employee Benefit Plans - Extraordinary Benefits
Schedule 3.17 ................................Absence of Undisclosed Liabilities
Schedule 3.18 ..............................No Pending Litigation or Proceedings
Schedule 3.19 ...............................................Supply of Utilities
Schedule 3.20 ................................................Seller's Insurance
Schedule 3.22 ..........................................................WARN Act
Schedule 3.23 ...............................................Condition of Assets
Schedule 3.25 ........................................................All Assets
Schedule 3.27 .................................................Product Liability
Schedule 4.7 ..................................................Buyer's Insurance
Schedule 5.1 ................................................Conduct of Business
Schedule 5.9.1.........................................................Employees
Schedule 5.9.2 .................................Collective Bargaining Agreements
Schedule 5.12 ..................................................Former Employees
Schedule 5.15 ..............................................Citizens' Guarantees
Schedule 5.16 ...............................................Schedule of Permits
Schedule 6.1.7.......................................Related Purchase Agreements
<PAGE>
Pennsylvania
TABLE OF EXHIBITS
Exhibit A - Form of Assumption Agreement
Exhibit B - Form of Assignment and Bill of Sale
Exhibit C - Intentionally Omitted
Exhibit D - Form of Retained IDRB Obligations Agreement
Exhibit E - Form of Seller's Opinion of Counsel
Exhibit F - Form of Buyer's Opinion of Counsel
<PAGE>
Pennsylvania
ASSET PURCHASE AGREEMENT
THIS IS AN ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
October 15, 1999, by and among Citizens Utilities Company, a Delaware
corporation ("Citizens"), and each of the wholly-owned subsidiaries of Citizens
named on the signature page hereof (collectively with Citizens, "Seller" or the
"Seller Parties"), and American Water Works Company, Inc., a Delaware
corporation ("Parent"), and Pennsylvania-American Water Company, a Pennsylvania
corporation ("Buyer").
Background
A. Citizens Utilities Water Company of Pennsylvania is a public utility
engaged, among other things, in the business of storing, supplying, distributing
and selling water to the public, wholesale water transmission and related
services and activities in the State of Pennsylvania (the "Business").
B. Parent is a holding company which desires to cause the Buyer to
purchase substantially all of the assets, properties and rights of the Seller
Parties relating to the Business, and Seller desires to sell, and to cause the
sale of, such assets, properties and rights, on the terms and subject to the
conditions set forth in this Agreement.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
1.1.1 "Acquired Assets" means, subject to Section 2.2, all of each
Seller Party's right, title, and interest in, under and to all of the assets,
properties and rights exclusively used in the Business as a going concern of
every kind, nature and description existing on the Closing Date, wherever such
assets, properties and rights are located and whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, and whether or
not any of such assets, properties and rights have any value for accounting
purposes or are carried or reflected on or specifically referred to in Seller's
books or financial statements, including all of the assets, properties and
rights exclusively relating to the Business enumerated below:
(a) all real property described in Schedule 1.1.1(a), together with all
fixtures, fittings, buildings, structures and other improvements erected
thereon, and easements, rights of way, water lines, rights of use, licenses,
railroad crossing agreements, hereditaments,
<PAGE>
Pennsylvania
tenements, privileges and other appurtenances thereto or otherwise exclusively
related to the Business (such as appurtenant rights in and to public streets)
(the "Real Estate");
(b) to the extent not included in clause (a) above, all water tanks,
reservoirs, water works, plant and systems, purification and filtration systems,
pumping stations, pumps, wells, mains, water pipes, hydrants, equipment,
machinery, vehicles, tools, dies, spare parts, materials, water supplies,
fixtures and improvements, construction in progress, jigs, molds, patterns,
gauges and production fixtures and other tangible personal property, in transit
or otherwise, used exclusively in the Business (the "Equipment and Other
Tangible Personal Property");
(c) notwithstanding the provisions of Section 2.2 but subject to
Section 2.4, all of Seller's water appropriation and flowage rights to the
extent not transferred to Buyer upon assignment of the Contracts and Permits to
Buyer;
(d) all notes receivable, accounts receivable, accrued utility
revenues, materials and supplies (at average cost net of reserve for
obsolescence) and prepayments attributable in each case exclusively to the
Business;
(e) all unamortized debt expense related to the Assumed Indebtedness,
deferred capital costs, and other deferred charges (excluding deferred taxes
collectable) attributable exclusively to the Business of which recovery in
future rates is probable;
(f) Intellectual Property and goodwill, licenses and sublicenses
granted and obtained with respect thereto;
(g) subject to Section 2.4 hereof, (i) contracts, commitments,
agreements and instruments relating to the sale of any assets, services,
properties, materials or products, including all customer contracts, operating
contracts and distribution contracts relating exclusively to the conduct of the
Business; (ii) orders, contracts, supply agreements and other agreements
relating exclusively to the purchase of any assets, services, properties,
materials, or products for the Business; (iii) all leases of Real Estate
exclusively related to the Business; (iv) all other contracts, agreements and
instruments related exclusively to the Business (other than contracts,
agreements and instruments included in the definition of Real Estate or
Permits); and (v) any such contracts, agreements and other instruments referred
to in clauses (i) - (iv) inclusive, entered into between the date hereof and the
Closing Date which are consistent with the terms of this Agreement and are
entered into in the ordinary course of business consistent with past practice,
and including in the case of clauses (i) - (iv) all such contracts, agreements
and instruments more specifically listed or described in Schedule 3.6 (but
specifically excluding any contract, agreement and instrument listed or
described on Schedule 2.2.12) (the "Contracts");
(h) subject to Section 2.4 hereof, franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances, and
other similar permits or rights obtained from any Authority relating exclusively
to the conduct of the Business and all pending applications therefor (the
"Permits");
2
<PAGE>
Pennsylvania
(i) books, records, ledgers, files, documents (including originally
executed copies of written Contracts, to the extent available, and copies to the
extent not available), correspondence, Tax returns relating exclusively to the
Business, memoranda, forms, lists, plats, architectural plans, drawings, and
specifications, new product development materials, creative materials,
advertising and promotional materials, studies, reports, sales and purchase
correspondence, books of account and records relating to the Transferred
Employees (to the extent such transfer is not prohibited by law), photographs,
records of plant operations and materials used, quality control records and
procedures, equipment maintenance records, manuals and warranty information,
research and development files, data and laboratory books, inspection processes,
in each case, whether in hard copy or magnetic format, in each instance, to the
extent exclusively relating to the Business, the Acquired Assets or the
Transferred Employees;
(j) all rights or choses in action arising out of occurrences before or
after the Closing Date and exclusively related to any of the Acquired Assets,
including third party warranties and guarantees and all related claims, credits,
rights of recovery and set-off and other similar contractual rights, as to third
parties held by or in favor of Seller; provided, however, that (notwithstanding
the foregoing provisions of this Section 1.1.1(j)), to the extent that Seller
pays or discharges a liability related to the Business or any of the Acquired
Assets and related to such right or chose in action (whether by reason of
indemnification under this Agreement or otherwise), Buyer will reassign or
reconvey to Seller such right or chose in action to the extent that such right
or chose in action relates to a recovery of amounts paid to Buyer; and
(k) all rights to insurance and condemnation proceeds (i) to the extent
relating to the damage, destruction, taking or other impairment of the
Acquired Assets which damage, destruction, taking or other impairment occurs on
or prior to the Closing but only to the extent that the proceeds exceed the
amount of the write-down of the net book value of such Acquired Assets on the
books and records of Seller as a result of such damage, destruction, taking or
other impairment, (ii) to the extent they relate to amounts paid by Buyer for
Damages to the extent Buyer does not receive payment pursuant to Section
7.4.1(a), but only to the extent Buyer is entitled to indemnification by Seller
pursuant to Sections 7.3 and 7.4, and (iii) as provided in Section 4 of the
agreement attached as Exhibit D hereto.
1.1.2 "Adjusted Net Assets" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.3 "Affected Participant" has the meaning set forth as Section
5.11.1 hereof.
1.1.4 "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person.
1.1.5 "Agreement" has the meaning set forth in the introduction hereof.
3
<PAGE>
Pennsylvania
1.1.6 "American Pension Plan" has the meaning set forth in Section
5.10.1 hereof.
1.1.7 "American Savings Plan" has the meaning set forth in Section
5.11.1 hereof.
1.1.8 "Antitrust Division" has the meaning set forth in Section 5.5
hereof
1.1.9 "Assumed Benefit Liabilities" has the meaning set forth in
Section 3.16.6 hereof.
1.1.10 "Assumed Indebtedness" means the liabilities and obligations
from and after the Closing Date (except as set forth below) with respect to the
IDRB Financings and IDRB Documents set forth on Schedule 1.1.10. For purposes of
clarity, except as set forth in the next sentence below, "Assumed Indebtedness"
shall not include any liability or obligation to the extent accrued prior to the
Closing Date or to the extent arising out of or relating to an event,
circumstance or occurrence prior to the Closing Date. "Assumed Indebtedness"
shall include the outstanding principal amount and the accrued but unpaid
interest owed by Seller on the debt obligations set forth in the first sentence
of this definition.
1.1.11 "Assumed Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.12 "Assumption Agreement" has the meaning set forth in Section
2.3.2 hereof.
1.1.13 "Authority" means any federal, state, local or foreign
governmental or regulatory entity (or any department, agency, authority or
political subdivision thereof).
1.1.14 "Base Cash Purchase Price" has the meaning set forth in Section
2.6.1 hereof.
1.1.15 "Beneficiary" means the Person(s) designated by an Employee, by
operation of law or otherwise, as entitled to compensation, benefits, insurance
coverage, payments or any other goods or services under a Benefit Plan.
1.1.16 "Benefit Plans" has the meaning set forth in Section 3.16.1
hereof.
1.1.17 "Bonds" means any of the bonds issued pursuant to the Indentures
of Trust, the proceeds from the issuance of which were advanced to Seller
pursuant to any of the IDRB Documents.
1.1.18 "Business" has the meaning set forth in the Background section
hereof.
4
<PAGE>
Pennsylvania
1.1.19 Business Day" means any day other than a Saturday, Sunday, or a
day on which banking institutions in the Commonwealth of Pennsylvania are
authorized or obligated by law or executive order to close.
1.1.20 "Buyer" shall have the meaning set forth in the introduction
hereof.
1.1.21 "Buyer's IDRB Obligations" means the obligations of Parent and
Buyer set forth in Section 5.24 (a) and in the instruments to be executed and
delivered by Parent and Buyer on or prior to the Closing Date in accordance with
Section 5.24 (a).
1.1.22 "Buyer's Accountants" means PricewaterhouseCoopers LLP or any
firm of independent public accountants hereafter designated by Buyer for
purposes of this Agreement.
1.1.23 Intentionally Omitted.
1.1.24 "Ceiling" has the meaning set forth in Section 7.4.2(e) hereof.
1.1.25 "CERCLA" has the meaning set forth in Section 3.8.2 hereof.
1.1.26 "CERCLIS" has the meaning set forth in Section 3.8.7 hereof.
1.1.27 "Citizens" has the meaning set forth in the introduction hereof.
1.1.28 "Closing" has the meaning set forth in Section 2.5 hereof.
1.1.29 "Closing Date" has the meaning set forth in Section 2.5 hereof.
1.1.30 "Closing Statement of Net Assets" has the meaning set forth in
Section 2.6.4(a) hereof.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.32 Intentionally Omitted.
1.1.33 "Competing Transaction" has the meaning set forth in Section
5.2.
1.1.34 "Contracts" has the meaning set forth in Section 1.1.1(g)
hereof.
1.1.35 "Control" with respect to any Person means the ownership,
directly or indirectly, of at least a majority of the voting power of each class
of capital stock of such Person entitled to vote in the election of directors of
such Person generally.
1.1.36 "Damages" has the meaning set forth in Section 7.4.1 hereof.
5
<PAGE>
Pennsylvania
1.1.37 "Disclosure Schedules" means the Schedules referenced in
Articles 3, 4 and 5 of this Agreement, as amended or supplemented pursuant to
Section 5.3.
1.1.38 "Dispute" has the meaning set forth in Section 8.6.
1.1.39 "Employees" has the meaning set forth in Section 5.9.1 hereof.
1.1.40 "Environmental Laws" has the meaning set forth in Section 3.8
hereof.
1.1.41 "Equipment and Other Tangible Personal Property" has the meaning
set forth in Section 1.1.1(b) hereof.
1.1.42 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.1.43 "ERISA Affiliate" means (a) any corporation included with any of
the Seller Parties in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (b) any trade or business (whether or not
incorporated) which is under common control with any of the Seller Parties
within the meaning of Section 414 of the Code; any member of an affiliated
service group of which any of the Seller Parties is a member within the meaning
of Section 414(m) of the Code; or (d) any other person or entity treated as an
affiliate of any of the Seller Parties under Section 414(o) of the Code.
1.1.44 "Excluded Assets" has the meaning set forth in Section 2.2
hereof.
1.1.45 "Financial Statements" has the meaning set forth in Section 3.4
hereof.
1.1.46 "FIRPTA Affidavit" has the meaning set forth in Section 2.7.1
hereof.
1.1.47 "Former Employees" means all salaried and hourly employees once
employed by Seller or any of its Affiliates, but who are no longer so employed
on the Closing Date.
1.1.48 "FTC" has the meaning set forth in Section 5.5 hereof.
1.1.49 "GAAP" has the meaning set forth in Section 3.4 hereof.
1.1.50 "Hazardous Substance" has the meaning set forth in Section 3.8
hereof.
1.1.51 "HSR Act" has the meaning set forth in Section 3.9 hereof.
1.1.52 "IDRB Documents" shall mean the Loan Agreements, the Tax
Regulatory Agreements, the Project Tax Certificates, and the other Contracts
related thereto to which Citizens is a party and which are listed on Schedule
1.1.52.
6
<PAGE>
Pennsylvania
1.1.53 "IDRB Financings" shall mean the indebtedness arising under the
Loan Agreements included among the IDRB Documents.
1.1.54 "Indemnified Party" has the meaning set forth in Section
7.4.2(a) hereof.
1.1.55 "Indemnifying Party" has the meaning set forth in Section
7.4.2(a) hereof.
7
<PAGE>
Pennsylvania
1.1.56 "Intellectual Property" means the trademarks, patents, trade
names and copyrights and applications therefor, inventions, trade secrets, and
confidential business information (including know-how, formulas, water
filtration, purification and pumping processes and techniques, technical data,
designs, drawings, customer and supplier lists, and business and marketing plans
and proposals), all computer software (including data and related documentation
and object and source codes), whether in magnetic format or hard copy, and
tangible embodiments thereof (in whatever form or medium) of Seller, in each
case, utilized exclusively in the Business.
1.1.57 "Interim Statement of Net Assets" means the Citizens Water
Resources Statement of Net Assets - Pennsylvania, June 30, 1999, which is
attached hereto as Schedule 3.4.
1.1.58 "Interim Statement of Net Assets Date" means June 30, 1999.
1.1.59 "IRS" has the meaning set forth in Section 3.16.2 hereof.
1.1.60 "Lien" means any lien, charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, right of way, easement or other encumbrance (including the filing of,
or agreement to give, any financing statement under the Uniform Commercial Code
or statute or law of any jurisdiction).
1.1.61 "Material Adverse Effect" means a change or effect (or series of
related changes or effects) which has or is reasonably likely to have a material
adverse change in or effect upon the business, assets, condition (financial or
otherwise), or results of operations of the Business or the Acquired Assets,
taken as a whole and taken together with the businesses and assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements. For purpose of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect (a) if it arises from general business,
economic or financial market conditions, from conditions generally effecting the
industries in which Seller competes, or from the transactions contemplated by
this Agreement, or (b) solely with respect to matters arising prior to Closing,
to the extent that either (i) Seller realizes the benefit of insurance
maintained by Citizens on or prior to the Closing Date and Buyer receives the
cash proceeds of such insurance to the extent required by Section 1.1.1(k), or
(ii) Seller arranges for Buyer to recover payments in respect of such occurrence
or condition from any other source (whether in a lump sum or stream of
payments), it being understood and agreed that a Material Adverse Effect may
have occurred irrespective of such insurance recovery
7
<PAGE>
Pennsylvania
if the occurrence or condition giving rise to such recovery also causes a
non-monetary material adverse change in or effect upon the Business or the
Acquired Assets, taken as a whole and taken together with the businesses and
assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related
Purchase Agreements.
1.1.62 "Mortgage Indenture" means Indenture of Mortgage and Deed of
Trust between BNY Western Trust Company (successor in interest to Wells Fargo
Bank, N.A.) and First Interstate Bank of California (as successor trustee to
Marine Midland, N.A., formerly the Marine Midland Trust Company of New York).
1.1.63 "OSHA" has the meaning set forth in Section 3.7.1 hereof.
1.1.64 "PCBs" has the meaning set forth in Section 3.8.6 hereof.
1.1.65 "Permits" has the meaning set forth in Section 1.1.1(h) hereof.
1.1.66 "Permitted Exceptions" has the meaning set forth in Section 3.10
hereof; provided, however, that from and after the Closing, Permitted Exceptions
shall not include any Lien arising under or resulting from the Mortgage
Indenture.
1.1.67 "Person" means an individual, a corporation, a partnership, an
association, an Authority, a trustor other entity or organization.
1.1.68 "Pre-Existing Conditions" has the meaning set forth in Section
2.3.1(d).
1.1.69 "Prime Rate" means the rate per annum announced from time to
time during the reference period by Citibank N.A. as its United States prime,
reference or base rate for commercial loans.
1.1.70 "PUC" has the meaning set forth in Section 5.5 hereof.
1.1.71 "Purchase Price" has the meaning set forth in Section 2.6.1
hereof.
1.1.72 "Real Estate" has the meaning set forth in Section 1.1.1(a)
hereof.
1.1.73 "Recovery" has the meaning set forth in Section 7.4.2(l) hereof.
1.1.74 "Related Purchase Agreements" as the meaning set forth in
Section 6.1.7 hereof.
1.1.75 "Release" or "Released" has the meaning set forth in Section 3.8
hereof.
1.1.76 "Remedial Action" has the meaning set forth in Section 3.8
hereof.
8
<PAGE>
Pennsylvania
1.1.77 "Retained IDRB Indebtedness" means the indebtedness of the
Seller owing to the issuers of the Bonds and arising under the Loan Agreements
included among the IDRB Documents but only to the extent not included in the
Assumed Indebtedness.
1.1.78 "Retained Liabilities" has the meaning set forth in Section 2.3
hereof.
1.1.79 "Review Period" has the meaning set forth in Section 2.6.4(b)
hereof.
1.1.80 "SEC" means the U.S. Securities and Exchange Commission.
1.1.81 "Securities Filings" has the meaning set forth in Section 5.8.2
hereof.
1.1.82 "Seller" and "Seller Parties" have the respective meaning set
forth in the introduction hereof.
1.1.83 "Seller's Accountants" means KPMG LLP or any other firm of
independent public accountants hereafter designated by Seller for purposes of
this Agreement.
1.1.84 "Seller's Adjusted Amount" has the meaning set forth in Section
2.6.4(a) hereof.
1.1.85 "Seller's Pension Plan" has the meaning set forth in Section
5.10.1 hereof.
1.1.86 "Seller's 401(k) Plan" has the meaning set forth in Section
5.11.1 hereof.
1.1.87 "Specified Liabilities" has the meaning set forth in Section
7.4.2(f) hereof.
1.1.88 "Taxes" means any federal, state, local and foreign income,
payroll, withholding, excise, sales, use, personal property, use and occupancy,
business and occupation, mercantile, real estate, gross receipts, license,
employment, severance, stamp, premium, windfall profits, social security (or
similar unemployment), disability, transfer, registration, value added,
alternative, or add-on minimum, estimated, or capital stock and franchise and
other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
1.1.89 "Third Accounting Firm" has the meaning set forth in Section
2.6.4(b) hereof.
1.1.90 "Threshold Amount" has the meaning set forth in Section 7.4.2(e)
hereof.
9
<PAGE>
Pennsylvania
1.1.91 "Third Party Claim" has the meaning set forth in Section
7.4(b)(i) hereof.
1.1.92 "Transferred Accounts" has the meaning set forth in Section
5.11.2 hereof.
1.1.93 "Transaction Documents" has the meaning set forth in Section 3.2
hereof.
1.1.94 "Transferred Employees" has the meaning set forth in Section
5.9.2 hereof.
1.1.95 "Union Employees" has the meaning set forth in Section 5.9.1
hereof.
1.1.96 "VEBAs" has the meaning set forth in Section 5.12 hereof.
1.1.97 "WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. section 2102- 2109, as amended.
ARTICLE 2
THE TRANSACTION
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing referred to in Section 2.5 below, Citizens shall,
and shall cause the other Seller Parties to, sell, assign, transfer, deliver and
convey to Buyer, and Parent shall cause Buyer to purchase, the Acquired Assets
for the Purchase Price specified in Section 2.6.
2.2 Excluded Assets. The following assets of Seller shall be excluded
from the Acquired Assets (the "Excluded Assets"):
2.2.1 assets of the Seller used in both the Business and in Citizens'
gas, electric or communications businesses, the material items of which are
described on Schedule 2.2.12;
2.2.2 cash and cash equivalents in transit, in hand or in bank
accounts.
2.2.3 except as otherwise set forth herein, assets attributable or
related to any Benefit Plan;
2.2.4 the stock record and minute books of Seller;
2.2.5 Acquired Assets disposed of by Seller after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement;
10
<PAGE>
Pennsylvania
2.2.6 except to the extent set forth in Sections 2.9, rights to refunds
of Taxes payable with respect to the Business, assets, properties or operations
of any of the Seller Parties or any member of any affiliated group of which any
of them is a member, and which are treated as Retained Liabilities under Section
2.3.3(b) below.
2.2.7 customer and other deposits held in Seller's accounts;
2.2.8 accounts owing by and among Seller and its Affiliates;
2.2.9 notes receivable and other receivables (other than note and
accounts receivable attributable exclusively to the Business);
2.2.10 all deferred tax assets or collectibles;
2.2.11 duplicate copies of all books and records transferred to Buyer;
and
2.2.12 those certain items listed on Schedule 2.2.12.
2.3 Assumption of Certain Liabilities.
2.3.1 Buyer shall not assume any liabilities of Citizens or Seller or
any of their Affiliates, except that Buyer shall assume the following specific
liabilities and obligations:
(a) the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof;
(b) except as set forth in Section 2.3.3(b), all liabilities and
obligations of Seller in respect of the Contracts and Permits assigned or
transferred to Buyer pursuant to this Agreement in accordance with the
respective terms thereof, except that Buyer shall not assume any liabilities or
obligations for any breach or default by, or payment obligations of, Seller
under such Contracts and Permits occurring or arising or accruing on or prior to
the Closing Date;
(c) the Assumed Indebtedness and the Buyer's IDRB Obligations;
(d) any liability, obligation or responsibility of Seller for
conditions at the Real Estate, whether based on statutory or common law, now or
hereafter in effect, known or unknown, contingent or actual, relating to or
arising from pollution, contamination or protection of the environment, human
health or safety or natural resources or relating to or arising from the
presence or Release or threat of Release of Hazardous Substances into the
environment at the Real Estate or into or from any building, structure, pipeline
or other facility at the Real Estate, or from violation of any law relating to
the foregoing, including without limitation, any CERCLA or similar liability
under any federal or state law or regulation, except to the extent Buyer has
given written notice of a claim for indemnification pursuant to Sections 7.3 and
7.4 hereof prior to the
11
<PAGE>
Pennsylvania
expiration of the claims period set forth in Section 7.3.2(a) or (b) (and if
Buyer has given written notice prior to the expiration of such claims period, to
the extent that such claim is not entitled to indemnification under Sections 7.3
and 7.4) (the foregoing, the "Pre-Existing Conditions");
(e) all liabilities and obligations of Seller related to unperformed
service obligations, easement and right-of-way relocation obligations, and
construction work in progress, and all engineering and construction required to
complete scheduled construction and other capital projects for the Business, in
each case relating to the Business and outstanding on or arising after the
Closing Date except that Buyer shall not assume any liabilities or obligations
for any breach or default by, or payment obligations of, Seller under such
Contracts and Permits occurring or arising or accruing on or prior to the
Closing Date;
(f) liability for accrued but unused vacation pay for the Transferred
Employees to the extent provided in Section 5.9.2;
(g) any liability, obligation or responsibility relating to customer
deposits held by Seller on the Closing Date and relating to the Business; and
(h) all liabilities and obligations imposed on Buyer by any PUC in
connection with the operation of the Business or the ownership of the Acquired
Assets, including with respect to any liability of the types that appear as
"Accrued Liabilities" and "Non-Current Liabilities" on the financial statements
of Seller.
2.3.2 Any liabilities or obligations which are assumed by Buyer
pursuant to Section 2.3.1 above are hereinafter referred to as the "Assumed
Liabilities." At the Closing, Parent shall cause Buyer to execute and deliver to
Seller an assumption agreement, in substantially the form of the Assumption
Agreement attached hereto as Exhibit A (the "Assumption Agreement"), pursuant to
which Buyer shall assume the Assumed Liabilities. Each of Parent and Buyer
hereby irrevocably and unconditionally waives and releases the Seller Parties
from all Assumed Liabilities and all liabilities or obligations exclusively
relating to the Business or the Acquired Assets to the extent arising from
events or occurrences after the Closing or to the extent otherwise relating to
the period after the Closing, including any liabilities created or which arise
by statute or common law, including CERCLA (it being understood that this shall
not constitute a waiver and release of any claims arising out of the contractual
relationships and indemnification arrangements between Buyer and Seller).
2.3.3 Buyer shall not assume any liabilities, commitments or
obligations (contingent or absolute and whether or not determinable as of the
Closing) of any of the Seller Parties or any of their Affiliates except for the
Assumed Liabilities as specifically and expressly provided for above, whether
such liabilities or obligations relate to payment, performance or otherwise, and
all liabilities, commitments or obligations not expressly transferred to Buyer
hereunder as Assumed Liabilities are being retained by the Seller Parties, (the
"Retained Liabilities"). Each of the Seller Parties hereby irrevocably and
unconditionally waives and releases Buyer from all Retained Liabilities
including any liabilities created or which arise by statute or
12
<PAGE>
Pennsylvania
common law, including CERCLA (it being understood that this shall not constitute
a waiver and release of any claims arising out of the contractual relationships
and indemnification arrangements between Buyer and Seller).
Without limitation to the foregoing, all of the following shall be
considered Retained Liabilities and not Assumed Liabilities (except as specified
below) for the purposes of this Agreement:
(a) any product liability, toxic tort or similar claim for injury to
person or property, regardless of when made or asserted, to the extent that it
arises out of or is based upon any express or implied representation, warranty,
agreement or guarantee made by any of the Seller Parties or any of their
Affiliates prior to Closing, or alleged to have been made by any of such
Persons, or to the extent that it is imposed or asserted to be imposed by
operation of law, in connection with any service performed or product
distributed or sold by or on behalf of any of the Seller Parties or any of their
Affiliates prior to Closing, including any claim referred to above in this
Section 2.3.3(a) relating to water quality standards, any claim relating to any
product delivered in connection with the performance of services provided by
Seller and any claim seeking recovery for consequential damages, lost revenue or
income;
(b) all refund obligations relating to the advances existing on the
Closing Date for construction of facilities relating to the Business;
(c) except to the extent set forth in Section 2.9, any federal, state,
foreign or local income or other Tax payable with respect to the business,
assets, properties or operations of any of the Seller Parties or any member of
any affiliated group of which any of them is a member.
(d) any liability or obligation associated with or in connection with
any common plant assets of Seller (other than the liabilities and obligations
exclusively related to any common plant assets included among the Acquired
Assets);
(e) except as provided in Section 2.3.1 above, any liability or
obligation with respect to compensation or employee benefits of any nature owed
to any employees, agents or independent contractors of any of the Seller Parties
or any of their Affiliates, whether or not employed by Buyer after the Closing,
that arises out of or relates to events or conditions to the extent occurring
before the Closing Date;
(f) except to the extent set forth in Section 2.3.1(d), any liability,
obligation or responsibility of any of the Seller Parties, or any of their
Affiliates or predecessors, whether based on statutory or common law, but only
as any such law is interpreted, amended and in effect on the Closing Date, known
or unknown, contingent or actual, relating to or arising from pollution,
contamination or protection of the environment, human health or safety or
natural resources or relating to or arising from the presence or Release or
threat of Release of Hazardous Substances into the environment or into or from
any building, structure, pipeline or other facility or relating to or arising
from the generation, use, storage, treatment, disposal, transport or other
13
<PAGE>
Pennsylvania
handling of Hazardous Substances or sale or product containing Hazardous
Substances from violation of any law relating to the foregoing (but only as such
law is interpreted, amended and in effect on the Closing Date) including without
limitation, any (A) CERCLA or similar liability under any federal or state law
or regulation as interpreted, amended and in effect on the Closing Date or (B)
any such liability associated with businesses or assets of the Seller Parties
other than the Business or the Acquired Assets;
(g) liabilities and obligations relating to the Business to the extent
arising prior to Closing (unless otherwise constituting Assumed Liabilities)
arising by operation of law under any common law or statutory doctrine
(including successor liability or de facto merger);
(h) any obligation or liability arising under any contract, commitment,
instrument or agreement (1) except for Buyer's IDRB Obligations and subject to
the penultimate sentence of Section 2.4, that is not transferred to Buyer as
part of the Acquired Assets, or (2) that relates to any breach or default (or to
the extent that it relates to an event which would, with the passing of time or
the giving of notice, or both, constitute a default) under any Contract,
instrument or agreement or to any services to be provided by Seller under any
such Contract, instrument or agreement to the extent that such services were
performed or were required to have been performed on or prior to the Closing
Date;
(i) any liability or obligation in respect of the Excluded Assets;
(j) any liability or obligation of any of the Seller Parties or any of
their Affiliates existing as a result of any act, failure to act or other state
of facts or occurrence which constitutes a breach or violation of any of
Seller's representations, warranties, covenants or agreements contained in this
Agreement, except to the extent set forth in Section 7.4; or
(k) except for the Assumed Liabilities as specifically and expressly
set forth herein, any liability to the extent arising out of or relating to the
ownership or operation of the Acquired Assets or the Business prior to the
Closing Date (including any predecessor operations), any claims, obligations or
litigation to the extent arising out of or relating to events or conditions
occurring before the Closing Date, and any liability associated with any
business other than the Business.
2.4 Consent of Third Parties. On the Closing Date, Citizens shall cause
Seller to assign to Buyer, and Parent shall cause Buyer to assume, the Contracts
and the Permits which are to be transferred to Buyer as provided in this
Agreement by means of the Assumption Agreement. To the extent that the
assignment of all or any portion of any Contract or Permit shall require the
consent (or result in a breach or violation thereof) of the other party thereto
or any other third party, and such consent shall not be obtained prior to
Closing, this Agreement shall not constitute an agreement to assign any such
Contract or Permit included in the Acquired Assets. In order, however, to
provide Buyer the full realization and value of every Contract of the character
described in the immediately preceding sentence, Seller agrees that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Seller or otherwise as Buyer shall specify, take all
14
<PAGE>
Pennsylvania
reasonable actions (including without limitation the appointment of Buyer as
attorney-in-fact for Seller to proceed at Buyer's sole cost and expense) and do
or cause to be done all such things as shall in the reasonable opinion of Buyer
be necessary (a) to assure that the rights of Seller or its Affiliates under
such Contracts shall be preserved for the benefit of Buyer and (b) to
facilitate receipt of the consideration to be received by Seller or its
Affiliates in and under every such Contract. To the extent that Buyer does
receive the benefits of any such Contract pursuant to the preceding sentence,
such Contract shall be a Contract "assigned or transferred to Buyer pursuant to
this Agreement" within the meaning of Section 2.3.1(b) hereof. Nothing in this
Section 2.4 shall in any way diminish the obligations of Seller to obtain
consents and approvals under this Agreement.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the sale and purchase of the Acquired Assets (the "Closing") shall
take place at 10 a.m., East Coast time, on a date mutually satisfactory to Buyer
and Seller which is no later than the fifth Business Day after satisfaction (or
waiver) of the conditions to Closing set forth in Sections 6.1 and 6.2 hereof
(other than those conditions which require the delivery of any documents or the
taking of other action, at the Closing) at the offices of Fleischman and Walsh,
LLP, 1400 Sixteenth Street, N.W., Washington, D.C. 20036, or on such other date
and at such other time or place as may be mutually agreed upon by the parties
hereto (the "Closing Date"). Upon payment of the Initial Cash Payment by Buyer
and confirmed receipt thereof by Seller or the Escrow Agent pursuant to Section
2.6.2 below, Seller shall operate the Business at the direction of and under the
control of Buyer. Notwithstanding the foregoing, the Closing shall be deemed to
be effective as of 11:59 p.m. on the Closing Date for all purposes.
2.6 Purchase Price.
2.6.1 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price be paid by Buyer for the purchase of the
Acquired Assets (the "Purchase Price") shall be: (i) $152,280,000 in cash (the
"Base Cash Purchase Price," the Base Cash Purchase Price as adjusted in
accordance with Section 2.6.3, Section 2.6.5 and Section 2.6.6 is referred to as
the "Initial Cash Payment"), subject to adjustment pursuant to the provisions of
this Agreement (including Section 2.6.3, Section 2.6.4, Section 2.6.5, Section
2.6.6 and Section 2.9 of this Agreement) and (ii) the assumption by Buyer of the
Assumed Liabilities.
2.6.2 Payment of Initial Cash Payment. Subject to the terms and
conditions of this Agreement, the Initial Cash Payment shall be paid by Buyer on
the Closing Date by federal other wire transfer of immediately available funds
to the account designated by Seller in writing at least two (2) Business Days
prior to the Closing Date. If the Closing Date is not a business day on which
financial institutions are open and operating, then on or before the last
business day on which financial institutions are open and operating before the
Closing Date, Buyer shall deliver the Initial Cash Payment to Buyer's lead bank
(the "Escrow Agent") in immediately available funds in U.S. dollars. Upon
receipt, the Escrow Agent shall invest the Initial Cash Payment in an interest-
bearing account mutually agreed upon by Seller and Buyer. At Closing, Parent
shall sign and deliver to Citizens a statement which confirms that the Closing
has occurred and which instructs the Escrow Agent to transfer to Citizens the
funds representing the Initial Cash Payment, plus an amount
15
<PAGE>
Pennsylvania
representing the interest earned after the Closing Date until the date the funds
are transferred, to an account that Citizens shall designate at least two (2)
business days prior to the date the funds are required to be transferred
hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and
expenses of Escrow Agent shall be paid by Buyer.
2.6.3 Estimated Closing Statement. At least five (5) business days
prior to the Closing Date, Citizens shall deliver to Parent and Buyer a
statement of net assets (the "Estimated Statement of Net Assets") reflecting its
good faith calculation of the Acquired Assets of the Business as of the last day
of the latest calendar month for which financial statements of Seller are
available (the "Estimated Adjusted Net Assets"). The Estimated Statement of Net
Assets shall be prepared in the same manner and utilizing the same accounting
principles, policies and methods used in the preparation of the Interim
Statement of Net Assets (excluding for this purpose any change required by GAAP
or any Authority since June 30, 1999). The Base Cash Purchase Price shall be
increased or decreased on a dollar for dollar basis by the amount, if any, by
which the Estimated Adjusted Net Assets is greater than or less than
$106,248,178 (such increase or decrease, as the case may be, is referred to
herein as the "Estimated Net Asset Adjustment").
2.6.4 Post-Closing Adjustment to Purchase Price.
(a) Within 90 days after the Closing, Citizens shall prepare and
deliver to Parent and Buyer a Statement of Net Assets (the "Closing Statement of
Net Assets") which reflects the Acquired Assets, as of 11:59 p.m. on the Closing
Date, based on actual financial performance and calculated in the same manner,
utilizing the same accounting principles, policies and methods utilized in
preparing the Interim Statement of Net Assets (excluding for this purpose any
change required by GAAP or any Authority since June 30, 1999), together with (A)
an audit report of Seller's Accountants stating that the Closing Statement of
Net Assets has been prepared utilizing the same accounting principles, policies
and methods used in the preparation of the Interim Statement of Net Assets and
(B) a calculation of Citizens' determination of the amount of increase or
decrease in the amount of the Acquired Assets of the Business from the Interim
Statement of Net Assets Date to the Closing Date which is derived from the
Closing Statement of Net Assets ("Seller's Adjustment Amount"). The Closing
Statement of Net Assets shall not give effect to any purchase accounting
treatment arising from Buyer's purchase of the Acquired Assets. Buyer shall pay
the fees and expenses of Seller's Accountants incurred in connection with this
Section 2.6.4. Buyer agrees to cooperate, and agrees to cause Buyer's
Accountants to cooperate, with Citizens and Seller's Accountants in connection
with the preparation of the Closing Statement of Net Assets, and related
information, and shall provide to Citizens and Seller's Accountants such books,
records and information as may be reasonably requested from time to time,
including the work papers of Buyer's Accountants. Citizens will give Buyer and
its representatives access during the normal business hours of Citizens to the
personnel, books and records of Citizens and the work papers of Seller's
Accountants to assist Buyer in the review of the Closing Statement of Net Assets
and related matters. Buyer agrees that, following the Closing through the date
on which the Closing Statement of Net Assets is delivered, it will not take any
actions with respect to any accounting books, records, policies or procedures on
which the Closing Statement of Net Assets is to be based that would make it
impossible or impracticable to calculate the Acquired Assets in the manner and
utilizing the
16
<PAGE>
Pennsylvania
methods required hereby. Without limiting the generality of the foregoing, no
changes shall be made in any reserve or other account existing as of the date of
the Interim Statement of Net Assets except in the ordinary course or as a result
of events occurring after the date of the Interim Statement of Net Assets and,
in such event, only in a manner consistent with past practices of Seller.
(b) Parent or Buyer may dispute any amounts reflected on the Closing
Statement of Net Assets, in the Seller's Adjustment Amount or in the Statement
of Certain Assumed Liabilities, provided, however, that Buyer shall notify
Citizens in writing of each disputed amount, and specify the amount thereof in
dispute and the basis of such dispute, within 30 days of the Buyer's receipt of
the Closing Statement of Net Assets and the Seller's Adjustment Amount (such 30
day period hereinafter referred to as the "Review Period"). In the event of a
dispute with respect to the Closing Statement of Net Assets, the Seller's
Adjustment Amount or the Statement of Certain Assumed Liabilities, Buyer and
Seller shall attempt to reconcile their differences and any resolution by them
as to any disputed amounts shall be final, binding and conclusive on the
parties. If Buyer and Seller are unable to reach a resolution of such
differences within 30 days of receipt of Buyer's written notice of dispute to
Seller, Buyer and Seller shall submit the amounts remaining in dispute (together
with any amounts remaining in dispute pursuant to Section 2.6.4(b) of each of
the Related Purchase Agreements) for resolution to an independent accountant
firm of national reputation mutually appointed by Seller and Buyer (such
independent accounting firm being herein referred to as the "Third Accounting
Firm"), which shall be requested to determine and report to the parties, within
30 days after such submission, upon such remaining disputed amounts, and such
report shall be final, binding and conclusive on the parties hereto with respect
to the amounts disputed. The fees and disbursements of the Third Accounting Firm
shall be allocated between Buyer and the Seller Parties so that the Seller
Parties' share of such fees and disbursements shall be in the same proportion
that the aggregate amount of such remaining disputed amounts so submitted by
Buyer to the Third Accounting Firm that is unsuccessfully disputed by the Buyer
(as finally determined by the Third Accounting Firm) bears to the total amount
of such remaining disputed amounts so submitted by the Buyer to the Third
Accounting Firm. Buyer shall pay the fees and expenses of Buyer's Accountants
incurred in connection with this Section 2.6.4(b). Seller's Adjustment Amount,
if there are no disputes with respect thereto, or Seller's Adjustment Amount as
adjusted after the resolution of all disputes with respect thereto in accordance
herewith, shall be referred to as the "Final Net Asset Adjustment."
(c) If the Base Cash Purchase Price plus (or minus, if negative) the
Final Net Asset Adjustment exceeds the Initial Cash Payment, then within five
(5) business days after final determination thereof Buyer shall pay Seller the
amount of such excess together with interest thereon for the period commencing
on the Closing Date through the date of payment calculated at the Prime Rate in
cash by federal or other wire transfer of immediately available funds, or
certified or bank cashier's check. If the Initial Cash Payment exceeds the sum
of the Base Cash Purchase Price plus (or minus, if negative) the Final Net Asset
Adjustment, then within five (5) business days after final determination thereof
Seller shall pay Buyer the amount of such excess together with interest thereon
for the period commencing on the Closing Date through the date of payment
calculated at the Prime Rate in cash by federal or other wire transfer of
immediately available funds, or certified or bank cashier's check.
17
<PAGE>
Pennsylvania
2.6.5 Adjustment for Certain Liabilities. Concurrent with the delivery
of the Estimated Statement of Net Assets, Citizens also shall deliver to Parent
and Buyer a statement reflecting (i) the customer and other deposits held by
Seller on the Closing Date and relating to the Business, (ii) the total amount
of the Assumed Indebtedness that will be outstanding immediately after the
Closing Date, (iii) the items specified in Section 2.9 to the extent set forth
therein, and (iv) without duplications of any amount included in clause (i)
above any payments received by Seller under the Contracts and Permits for
obligations not performed as of the Closing Date (the "Statement of Certain
Assumed Liabilities"). The Statement of Certain Assumed Liabilities shall
reflect Citizens' good faith calculation of such liabilities as of the Closing
Date. The Base Cash Purchase Price shall be decreased by the net amount set
forth in the Statement of Certain Assumed Liabilities. Concurrent with the
delivery of the Closing Statement of Net Assets, Citizens also shall deliver to
Parent a statement showing any adjustments to the Statement of Certain Assumed
Liabilities and the Base Cash Purchase Price shall be further adjusted to give
effect to any such adjustments to the Statement of Certain Assumed Liabilities.
2.6.6 Additional Adjustment to the Purchase Price. The Base Cash
Purchase Price shall be decreased by an amount equal to the proceeds of Seller's
sale of the property described in Item 7 of Schedule 3.5 (net of expenses) less
the sum of (i) the federal and state income taxes payable by Seller in respect
of those proceeds and (ii) the book value of such property, as of June 30, 1999,
on Seller's books.
2.7 Deliveries and Proceedings at Closing. Subject to the terms and
conditions of this Agreement, at the Closing:
2.7.1 Deliveries to Buyer. Citizens shall, and shall cause Seller to
deliver to Buyer:
(a) bills of sale and instruments of assignment to the Acquired Assets,
duly executed by Seller, substantially in the form of Exhibit B hereto and;
(b) the consents to transfer, of all transferable or assignable
Contracts, Intellectual Property, Permits (including Environmental Permits), to
the extent specifically required hereunder;
(c) title certificates to any motor vehicles included in the Acquired
Assets, duly executed by Seller (together with any other transfer forms
necessary to transfer title to such vehicles);
(d) special warranty deeds of conveyance with respect to the parcels of
Real Estate owned in fee simple by Seller (or, with respect to any such parcel
which was acquired by Seller (or its predecessor in interest, in cases involving
mergers) by deed without covenant or warranty of title, a quit claim deed
without covenant or warranty of title) to Buyer, duly executed and acknowledged
by Seller and in recordable form;
18
<PAGE>
Pennsylvania
(e) the Foreign Investment in Real Property Tax Act Certification and
Affidavit for each parcel of Real Estate, duly executed by the Seller Parties
(the "FIRPTA Affidavit");
(f) the certificates, opinions and other documents required to be
delivered by the Seller Parties pursuant to Section 6.1 hereof and certified
resolutions evidencing the authority of the Seller Parties as set forth in
Section 3.2 hereof;
(g) all agreements and other documents required by this Agreement;
(h) a receipt for the payment of the Initial Cash Payment duly executed
by Citizens; and
(i) all such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to transfer to Buyer
the Acquired Assets in accordance with this Agreement and where necessary or
desirable, in recordable form.
2.7.2 Deliveries By Buyer to the Seller Parties. Parent shall, and
shall cause Buyer to deliver to the Seller Parties:
(a) wire transfer of immediately available funds in an amount equal to
the Initial Cash Payment;
(b) the Assumption Agreement, duly executed by Buyer;
(c) the certificates, opinions and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof;
(d) all of the instruments contemplated by Section 5.24(a) to the
extent not previously executed and delivered by Parent; and
(e) all such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Parent and Buyer
to assume the Assumed Liabilities in accordance with this Agreement.
2.8 Allocation of Consideration. Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the "Allocation") of the Purchase
Price, the Assumed Liabilities and other relevant items (including, for example,
adjustments to the Purchase Price) to the individual assets or classes of assets
within the meaning of Section 1060 of the Code. If Buyer and Seller agree to
such Allocation on or before ninety (90) days after the Closing Date, Buyer and
Seller covenant and agree that (i) the values assigned to the assets by the
parties' mutual agreement shall be conclusive and final for all purposes, and
(ii) neither Buyer nor Seller will take any position before any Authority or in
any proceeding that is in any way inconsistent with such Allocation.
Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation
on or before ninety
19
<PAGE>
Pennsylvania
(90) days after the Closing Date, Buyer and Seller covenant and agree to file
and to cause their respective Affiliates to file, all Tax returns and schedules
thereto (including, for example, amended returns, claims for refund, and those
returns and forms required under Section 1060 of the Code and any Treasury
regulations promulgated thereunder) consistent with each of Buyer and Seller's
good faith Allocations, unless otherwise required because of a change in any
legal requirement.
2.9 Prorations. The parties hereto agree that the following expenses
shall be calculated and pro rated as of the Closing Date, with Seller
responsible for such expenses and to receive the benefit for the same for
the period through and including the Closing Date, and Buyer to be responsible
for and to receive the benefit of the same after the Closing Date:
2.9.1 personal and real property taxes (on the basis on which the same
were assessed and paid) and sales, occupation and use taxes, in each case, to
the extent relating to the Business and except as otherwise provided in Section
7.1;
2.9.2 electric, fuel, gas, telephone, sewer and utility charges, in
each case, to the extent relating to the Business;
2.9.3 rentals and other charges under Contracts to be assumed by Buyer
pursuant to Section 2.3 (except to the extent provided in Section 2.3.3(h)); and
2.9.4 charges under maintenance and service contracts and other
Contracts (except to the extent provided in Section 2.3.3(h)), and fees under
Permits to be transferred to Buyer as part of the Acquired Assets;
2.9.5 water, sewer and other similar types of taxes, and installments
on special benefit assessments; and
2.9.6 payroll expenses, payroll taxes, reimbursable employee business
expenses and the financial cost of the accrued vacation of each Transferred
Employee.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of the Seller Parties jointly and severally represent and warrant
to Parent and Buyer as follows:
3.1 Qualification; No Interest in Other Entities.
3.1.1 Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate the Acquired Assets and the Business as presently being conducted.
Each of the Seller Parties is qualified to do business and is in good
20
<PAGE>
Pennsylvania
standing as a foreign corporation in all jurisdictions wherein the nature of the
business conducted by it or such Seller Party's ownership or use of assets and
properties make such qualification necessary, except such failures to be
qualified or to be in good standing, if any, which when taken together with all
such other failures of the Seller Parties do not have a Material Adverse Effect.
3.1.2 No shares of any corporation or any ownership or other investment
interest, either of record, beneficially or equitably, in any Person are
included in the Acquired Assets.
3.2 Authorization and Enforceability. Each of the Seller Parties has
full corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by them in
connection herewith (such other agreements and instruments being hereinafter
referred to collectively as the "Transaction Documents"). The execution,
delivery and performance by each of the Seller Parties of this Agreement and the
Transaction Documents to which such Seller Party is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by each of the Seller Parties,
and as of the Closing Date the other Transaction Documents will be duly executed
and delivered by the Seller Parties. This Agreement is a legal, valid and
binding obligation of each Seller Party, enforceable against them in accordance
with its terms except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, fraudulent conveyance, reorganization or
affecting creditors' rights generally and except to the extent that injunctive
or other equitable relief is within the discretion of a court. As of the Closing
Date, each of the other Transaction Documents to which each of the Seller
Parties is a party will be duly executed and delivered by each of the Seller
Parties and will constitute the legal, valid and binding obligations of each of
the Seller Parties, enforceable against them in accordance with its respective
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
3.3 No Violation of Laws or Agreements. The execution, delivery, and
performance of this Agreement and the Transaction Documents by each of the
Seller Parties do not, and the consummation of the transactions contemplated by
this Agreement and the Transaction Documents by the Seller Parties, will not:
(a) contravene any provision of the Restated Articles of Incorporation or Bylaws
of Citizens or the Articles of Incorporation or Bylaws of the other Seller
Parties; or (b) except as set forth on Schedule 3.3, violate, conflict with,
result in a breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the Acquired Assets or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which any of the Seller Parties is a
party, or by which the Business or any of the Acquired Assets may be bound or
affected, except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or rights which,
individually and in the aggregate, do not have a Material Adverse Effect or will
be cured, waived or terminated prior to the Closing Date, or (ii) any judgment,
injunction, writ, award, decree,
21
<PAGE>
Pennsylvania
restriction, ruling, or order of any court, arbitrator or Authority or any
applicable constitution, law, ordinance, rule or regulation, to which any of the
Seller Parties is subject, other than those violations or conflicts which
individually and in the aggregate would not have a Material Adverse Effect.
3.4 Financial Statements. Citizens has previously delivered to Buyer
the statement of income of the Business (the "Income Statement") and the Interim
Statement of Net Assets contained in Schedule 3.4 (collectively, the "Financial
Statements"). The Income Statement (a) fairly presents in all material respects
the results of operations of the Business in accordance with generally accepted
accounting principles ("GAAP") consistently applied except for the omission of
full footnotes to the Income Statement and (b) has in all material respects been
derived from the books and records of Seller and reflects the separation of the
operation associated with the Business from other operations of Citizens. The
Interim Statement of Net Assets (a) has in all material respects been derived
from the books and records of Seller and reflects the separation of the
operations associated with the Business from other operations of Citizens; (b)
fairly presents in all material respects the Acquired Assets as of the Interim
Statement of Net Assets Date; and (c) has in all material respects been prepared
in accordance with GAAP consistently applied except for the omission of full
footnotes to such Interim Statement of Net Assets. The financial statements
included in the Annual Report to each PUC for the year ended December 31, 1998,
were prepared in all material respects in accordance with the rules and
regulations of such PUC.
3.5 No Changes. Since the Interim Statement of Net Assets Date to the
date hereof, except as disclosed in Schedule 3.5, the Seller Parties have
conducted the Business as presently operated only in the ordinary course of
business consistent with past practice. Since the Interim Statement of Net
Assets Date, except as disclosed in Schedule 3.5, there has not been:
3.5.1 any Material Adverse Effect;
3.5.2 prior to the date of this Agreement, any change in the salaries
or other compensation payable or to become payable to, or any advance (excluding
advances for ordinary business expenses) or loan to, any Transferred Employee,
or material change or material addition to, or material modification of, other
benefits (including any bonus, profit-sharing, pension or other plan in which
any of the Transferred Employees participate) to which any of the Transferred
Employees may be entitled, or any payments to any pension, retirement,
profit-sharing, bonus or similar plan other than in any such case (i) in the
ordinary course consistent with past practice, (ii) as required by law, or (iii)
as required by any collective bargaining agreement, if any;
3.5.3 any alteration in any material respect of the customary practices
with respect to the collection of accounts receivable of the Business or the
provision of discounts, rebates or allowances;
3.5.4 any disposition of or failure to keep in effect any rights in, to
or for the use of any Permit of the Business which individually or in the
aggregate would have a Material Adverse Effect;
22
<PAGE>
Pennsylvania
3.5.5 any damage, destruction or loss affecting the Business which
individually or in the aggregate would have a Material Adverse Effect whether or
not covered by insurance;
3.5.6 prior to the date of this Agreement, any change by Seller in its
method of accounting or keeping its books of account or accounting practices
with respect to the Business except as required by GAAP and is set forth on
Schedule 3.5; or
3.5.7 prior to the date of this Agreement, any sale, transfer or other
disposition of any material assets, properties or rights of the Business, except
in the ordinary course of business consistent with past practice.
3.6 Contracts. As of the date of this Agreement, Schedule 3.6 contains
a list of all Contracts (other than (i) with respect to which the Business'
total annual liability or expense is less than (a) $250,000 per such Contract
and (b) $6,123,000 per all such Contracts (when taken together with similar
contracts omitted from Schedule 3.6 of the Related Purchase Agreements), and
(ii) Contracts that may be terminated by Seller, without penalty, on notice of
90 days or less) except line extension agreements and similar agreements and
construction and design contracts. Seller has furnished to Buyer a correct and
complete copy of each written agreement listed in Schedule 3.6. Except as
disclosed on Schedule 3.6, with respect to each Contract, neither Seller nor, to
the Seller Parties' knowledge, any other party thereto, is in breach or default,
and to the Seller Parties' knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, except in each case where
such breaches, terminations, modifications, accelerations or defaults,
individually or in the aggregate, do not have a Material Adverse Effect. Except
as set forth in Schedule 3.6, there are no disputes pending or to the best of
the Seller Parties' knowledge, threatened, under or in respect of any of the
Contracts, other than those that individually and in the aggregate do not have a
Material Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
3.7.1 Except as disclosed on Schedule 3.7, Seller possesses and is in
compliance with all Permits required to operate the Business as presently
operated and to own, lease or otherwise hold the Acquired Assets under all
applicable laws, rules, regulations, ordinances and codes, including
Environmental Laws (as defined below), except to the extent that any failure to
possess, or to comply with, any Permit, laws, rules, regulations or orders would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 3.7, the Business is conducted by Seller in compliance
with all applicable laws (including the Occupational Safety and Health Act and
the rules and regulations thereunder ("OSHA"), zoning, building and similar laws
and Environmental Laws), rules, regulations, ordinances, codes, judgments and
orders, except for such failures to comply which do not individually or in the
aggregate have a Material Adverse Effect. Except as disclosed on Schedule 3.7,
all Permits of Seller relating to the operation of the Business are in full
force and effect, other than those the failure of which to be in full force and
effect would not individually or in the aggregate have a Material Adverse
Effect. There are no
23
<PAGE>
Pennsylvania
proceedings pending or, to the Seller Parties' knowledge, threatened that seek
the revocation, cancellation, suspension or any adverse modification of any such
Permits presently possessed by Seller other than those revocations,
cancellations, suspensions or modifications which do not individually or in the
aggregate have a Material Adverse Effect.
3.7.2 Except as set forth on Schedule 3.7, no outstanding notice,
citation, summons or order has been issued, no outstanding complaint has been
filed, no outstanding penalty has been assessed and no investigation or review
is pending or, to the knowledge of the Seller Parties, threatened, by any
Authority or other Person with respect to any alleged (i) violation by Seller or
any Affiliate of Seller relating to the Business of any law, ordinance, rule,
regulation, code or order of any Authority; or (ii) failure by Seller or any
Affiliate to have any Permit required in connection with the conduct of the
Business or otherwise applicable to the Business (including the Acquired
Assets), except, in each case, where such violations or failures, individually
or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters. Except as set forth on Schedule 3.8 hereto,
and with such exceptions as are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect:
3.8.1 Seller has not disposed of or arranged for the disposal of or
Released any Hazardous Substances, other than in conformity with Environmental
Laws, at any Real Estate, or, in connection with the Business or Acquired
Assets, at any other facility, location, or other site.
3.8.2 Seller has not received any written notice or request for
information with respect to, and to the best of the Seller Parties' knowledge,
Seller has not been designated a potentially liable party for Remedial Action,
in connection with any Real Estate, or, as of the date hereof, with respect to
the Business or Acquired Assets, at any other facility, location, or other site
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or comparable state statutes.
3.8.3 To the best of the Seller Parties' knowledge, except for such use
or storage of Hazardous Substances as is incidental to the conduct of the
Business, which use and storage is or has been in compliance with Environmental
Laws, and which use and storage has not caused any condition that requires
Remedial Action, no Real Estate has been used for the storage, treatment,
generation, processing, production or disposal of any Hazardous Substances or as
a landfill or other waste disposal site in violation of any Environmental Law.
3.8.4 To the best of the Seller Parties' knowledge, underground storage
tanks are not, and have not in the past been, located on or under any Real
Estate.
3.8.5 There are no pending or unresolved claims against Seller or the
Business for investigatory costs, cleanup, removal, remedial or response costs,
or natural resource damages arising out of any Releases or threat of Release of
any Hazardous Substances at any Real
24
<PAGE>
Pennsylvania
Estate or, as of the date hereof, with respect to the Business or the Acquired
Assets or at any other facility, location, or other site.
3.8.6 To the best of the Seller Parties' knowledge, no polychlorinated
biphenyls ("PCBs") or asbestos-containing materials are located at or in any
Real Estate in violation of Environmental Laws or which require Remedial Action.
3.8.7 To the best of the Seller Parties' knowledge, no Hazardous
Substance managed or generated by or on behalf of Seller at the Real Estate or
in connection with the Business or Acquired Assets has come to be located at any
site that is listed or formally proposed for listing under CERCLA, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any similar state list or that is the subject of federal,
state, or local enforcement actions or investigations.
3.8.8 The Seller Parties know of no facts or circumstances related to
environmental matters (i) in connection with the operation of the Business or
(ii) concerning the Real Estate, that are reasonably likely to result in any
material reduction in the quality or quantity of water available for supply to
the Seller Parties' customers.
3.8.9 The Seller Parties will within thirty (30) days of the date
hereof provide Buyer with copies of all written environmental audits or
investigations of which they are aware (after due inquiry) prepared for the Real
Estate or operations of the Business.
3.8.10 Except as set forth in Schedule 3.8.10 or Citizens' Annual
Report on Form 10-K for the year ended December 31, 1998:
(a) The Seller Parties (including for purposes of Section 3.8.10(a) and
(b), Affiliates and predecessors of the Seller Parties) are and have been for
the past three years in full compliance with all federal and state primary
drinking water standards;
(b) The Seller Parties are and have been for the past three years in
full compliance with all federal and state secondary drinking water standards;
and
(c) As to all outstanding violations of state or federal drinking water
standards, as of the date hereof, the Seller Parties have completed or are in
the process of completion in accordance with all applicable deadlines, all
actions required by Environmental Law or Authorities to correct or otherwise
respond to such violations.
3.8.11 Except as set forth in Schedule 3.8.11, none of the Seller
Parties will be required to place any notice or restriction relating to the
presence of Hazardous Substances in the deed to any Real Estate, or in any
written instrument accompanying this Agreement, and no Real Estate has such a
notice or restriction in its deed or any other written instrument relating to
the purchase, lease or rental of such property.
25
<PAGE>
Pennsylvania
For the purposes of these Sections 3.7 and 3.8: (A) "Remedial Action" means all
actions to (x) clean up, remove, treat or in any other way respond to any
presence, Release or threat of Release of Hazardous Substances; (y) prevent
the Release or threat of Release, or minimize the further Release of any
Hazardous Substances so it does not endanger or threaten to endanger public or
employee health or welfare or the environment; or (z) perform studies,
investigations or monitoring necessary or required to investigate the foregoing;
(B) "Environmental Laws" means any common law or federal, state or local law,
statutes, rule, regulation, ordinance, code, judgment or order relating to the
protection of the environment or human health and safety and includes, but is
not limited to, CERCLA (42 U.S.C. section 9601, et seq.), the Clean Water Act
(33 U.S.C. section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
section 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. section 300f et
seq.) and the Oil Pollution Act of 1990 (33 U.S.C. section 2701 et seq.), each
as has been or may be interpreted or amended as of the Closing Date and the
regulations promulgated pursuant thereto and in effect as of the Closing Date;
(C) "Released" means released, spilled, leaked, discharged, disposed of, pumped,
poured, emitted, emptied, injected, leached, dumped or allowed to escape; and
(D) "Hazardous Substances" means hazardous or toxic or polluting substance or
waste or contaminant under or pursuant to any Environmental Law, including
petroleum products, PCBs and radioactive materials.
3.9 Consents. No consent, approval or authorization of, or registration
or filing with, any Person (governmental or private) is required in connection
with the execution, delivery and performance by the Selling Parties of this
Agreement, the Transaction Documents, or the consummation of the transactions
contemplated hereby or thereby by the Seller Parties, including without
limitation in connection with the assignment of the Contracts and Permits
contemplated hereby, except (i) as required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) as specified on Schedule 3.9,
(iii) as required by the IDRB Documents, and (iv) for such other consents,
approvals, authorizations, registrations or filings the failure of which to
obtain or make would not individually or in the aggregate have a Material
Adverse Effect or which are obtained by the Closing Date.
3.10 Title. Seller has good and valid title to all of the Acquired
Assets constituting personal property, good and marketable title in fee simple
to all of the owned Acquired Assets constituting Real Estate and good and valid
leasehold title to all of the leased Acquired Assets constituting Real Estate,
in each case, free and clear of Liens subject only to the Permitted Exceptions.
"Permitted Exceptions" as used herein shall mean (a) the Liens set forth in
Schedule 3.10 hereto, (b) Liens securing Taxes, assessments, governmental
charges or levies, or the claims of materialmen, mechanics, carriers and like
persons, all of which are not yet due and payable or which are being contested
in good faith or (c) such other Liens which, individually or in the aggregate,
do not have a Material Adverse Effect (it being understood that to the extent a
Permitted Exception relates to or arises from a Retained Liability, Seller shall
still be liable for such Retained Liability to the extent set forth herein).
26
<PAGE>
Pennsylvania
3.11 Real Estate.
3.11.1 As of the date hereof, Seller has not received any written or
oral notice for assessments for public improvements against the Real Estate
which remains unpaid, and to the best knowledge of the Seller Parties, no such
assessment has been proposed. Except as set forth on Schedule 3.11, as of the
date hereof, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of the Real Estate and to
the best knowledge of the Seller Parties no such proceeding is threatened.
3.11.2 Except as disclosed on Schedule 3.6, as of the date hereof,
Seller is not a lessee under any Contract relating to the use or occupancy of
the Real Estate involving annual payments in excess of $100,000.
3.11.3 Each parcel of the Real Estate has physical and, to Seller's
knowledge, legal vehicular and pedestrian access to and from public roadways as
may be reasonably necessary to the operation of the Business except where the
failure to have such access does not have a Material Adverse Effect. To Seller's
knowledge, no fact or condition exists which would result in the termination of
(a) the current access from each parcel of the Real Estate, and (b) continued
use, operation, maintenance, repair and replacement of all existing and
currently committed water lines used by Seller in connection with the Business,
except where such termination would not have a Material Adverse Effect.
3.12 Taxes. The Seller Parties have (a) timely filed all material
returns and reports for Taxes, including information returns, that are required
to have been filed in connection with, relating to, or arising out of, the
Business, (b) paid all Taxes that are shown to have come due pursuant to such
returns or reports and (c) paid all other material Taxes not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on the property of the Business for which a notice of assessment or
demand for payment has been received or which have otherwise become due. To the
best of the Seller Parties' knowledge, all such returns or reports have been
prepared in accordance with all applicable laws and requirements in all material
respects. Except to the extent disclosed on Schedule 3.12, none of the assets of
the Business or constituting any of the Acquired Assets (a) is property that is
required to be treated as owned by another Person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (b) is "tax-exempt
use property" within the meaning of Section 168(h) of the Code or (c) directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
3.13 Patents and Intellectual Property Rights. To the best of the
Seller Parties' knowledge, the operations of Seller do not make any unauthorized
use of any Intellectual Property except for any such unauthorized uses which do
not have a Material Adverse Effect. Assuming the consents listed as item XII on
Schedule 3.9 are obtained, Buyer will not lose any of Seller's rights to, or be
required to pay increased royalties for, any Intellectual Property included in
the Acquired Assets as a result of the Closing and the consummation of the
transactions contemplated by this
27
<PAGE>
Pennsylvania
Agreement, except for any such rights or such increased royalties the loss or
payment of which would, individually or in the aggregate, not have a Material
Adverse Effect.
3.14 Accounts Receivable. The accounts receivable of Seller arising
from the Business as set forth on the Interim Statement of Net Assets or arising
since the date thereof have arisen out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; the allowance for collection
losses on the Interim Statement of Net Assets has been determined in accordance
with GAAP consistent with past practice.
3.15 Labor Relations. As of the date hereof, except as set forth in
Schedule 3.15, to best of the knowledge of the Seller Parties, there has been no
union organizing efforts with respect to the Business conducted within the last
three (3) years and there are none now being conducted with respect to the
Business. Except as set forth in Schedule 3.15, Seller has not at any time
during the three (3) years prior to the date of this Agreement had, nor, to the
best of the Seller Parties' knowledge, is there now threatened, a strike, work
stoppage or work slow down with respect to or affecting the Business which had
or could reasonably be expected to have a Material Adverse Effect. As of the
date hereof, except as set forth in Schedule 3.15, (i) no Employee is
represented by any union or other labor organization and (ii) there is no unfair
labor practice charge pending or, to the best knowledge of the Seller Parties,
threatened against Seller relating to any of the Employees as related to the
Business which could reasonably be expected to have a Material Adverse Effect.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16.1 contains a true and complete list of each
"employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA), bonus, incentive,
deferred compensation, excess benefit, employment contract, stock purchase,
stock ownership, stock option, supplemental unemployment, vacation, sabbatical,
sick-day, severance or other material employee benefit plan, program or
arrangement (other than those required to be maintained by law), whether written
or unwritten, qualified or nonqualified, funded or unfunded, foreign or
domestic, (i) maintained by, or contributed to by Citizens or any of its
Affiliates, in respect of any Employee or Former Employee, or (ii) with respect
to which Citizens or any of its Affiliates has any liability in respect of any
Employee or Former Employee (the"Benefit Plans"). Except as disclosed on
Schedule 3.16.1, neither Citizens nor any of its Affiliates maintains any bonus,
pension or welfare benefit plan, program or arrangement, including any deferred
compensation arrangement, for directors, consultants or independent contractors
of the Business.
3.16.2 A true and complete copy of each Benefit Plan and related trust
agreements and (to the extent applicable) a copy of each Benefit Plan's current
summary plan description and in the case of an unwritten Benefit Plan, a written
description thereof, has been furnished to Buyer. In addition, to the extent
applicable, Buyer has been provided a copy of the most
28
<PAGE>
Pennsylvania
recent Internal Revenue Service ("IRS") determination letter issued to each
Benefit Plan and a copy of the most recent IRS Form 5500 together with all
schedules and accountants' statement filed, and actuarial reports prepared, on
behalf of each Benefit Plan.
3.16.3 Each Benefit Plan which is intended to be qualified under
Section 401(a) of the Code (as designated on Schedule 3.16.1) is so qualified,
and will remain so qualified upon the timely making of certain amendments
required by law during the applicable remedial amendment period, and any trust
forming a part of such a Benefit Plan is tax exempt under Section 501(a) of the
Code. Each such Benefit Plan has been amended, as and when necessary, to comply
with the Tax Reform Act of 1986 and upon timely filing of an Application for
Determination with the Internal Revenue Service, will be eligible to make
further such amendments under the"remedial amendment period."
3.16.4 Except as disclosed in Schedule 3.16.4, each Benefit Plan has
been operated and administered in all material respects in accordance with its
terms and all applicable laws, including ERISA and the Code.
3.16.5 None of the Acquired Assets is subject to a Lien or Tax under
the Code or ERISA.
3.16.6 Neither Citizens nor any ERISA Affiliate and, to the knowledge
of the Seller Parties, no other Person, has taken any action or failed to take
any action with respect to any Benefit Plan that may subject Buyer or any
Benefit Plan under which liabilities may be assumed by Buyer under Sections
5.10, 5.11 or 5.12 ("Assumed Benefit Liabilities") to any material liability or
Tax under the Code or ERISA.
3.16.7 Neither Citizens nor any ERISA Affiliate has incurred or expects
to incur any withdrawal liability with respect to any Benefit Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
including any contingent liability under Section 4204 of ERISA or withdrawal
liability arising from the actions of Citizens or any ERISA Affiliate
contemplated by this Agreement. All contributions that Citizens or any ERISA
Affiliate have been obliged to make to any Benefit Plan, including any
multiemployer plan, have been duly and timely made.
3.16.8 There are no pending or, to the knowledge of the Seller Parties,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind in any court or
governmental agency with respect to any Benefit Plan which could reasonably be
expected to give rise to a material liability to Buyer.
3.16.9 Except as disclosed on Schedule 3.16.9, no Benefit Plan provides
benefits, including without limitation, death or medical benefits, beyond
termination of service or retirement other than (i) coverage mandated by law, or
(ii) death or retirement benefits under a
29
<PAGE>
Pennsylvania
Benefit Plan qualified under Section 401(a) of the Code. Seller's Retiree
Medical Plan contains provisions permitting Seller to modify or terminate
retiree medical benefits at any time, without prior notice to any covered
individual. Except with respect to retirees, "grandfathered" employees and
collectively bargained employees, Seller knows of no reason why its ability to
effect those provisions would be limited.
3.16.10 With respect to each Benefit Plan that is a "group health plan"
within the meaning of Section 607 of ERISA and that is subject to Section 4980B
of the Code, Citizens and each ERISA Affiliate have complied in all material
respects with the continuation coverage requirements of the Code and ERISA.
3.17 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.17, Seller has no liabilities with respect to the Business which
would constitute Assumed Liabilities, either direct or indirect, matured or
unmatured or absolute, contingent or otherwise, except:
3.17.1 the Assumed Indebtedness and those other liabilities which would
decrease the Base Cash Purchase Price pursuant to Section 2.6.5 to the extent
assumed by Buyer at Closing;
3.17.2 liabilities arising in the ordinary course of business under any
Contract or Permit or with respect to any agreement or instrument included
within the definition of Real Estate; and
3.17.3 those liabilities incurred, consistent with past business
practice, in or as a result of the normal and ordinary course of business and
reflected in the books and records related to the Business;
3.17.4 the obligations and liabilities set forth in Sections 5.9, 5.10,
5.11 and 5.12 hereof; and
3.17.5 those other liabilities, which individually and in the
aggregate, would not have a Material Adverse Effect.
3.18 No Pending Litigation or Proceedings. Except as disclosed in
Schedule 3.18, there are no actions, suits, investigations or proceedings
pending against or, to the best of the Seller Parties' knowledge, threatened,
against or affecting, Seller, the Business or any of the Acquired Assets before
any court or arbitrator or Authority which individually or in the aggregate,
would have a Material Adverse Effect. Except as disclosed in Schedule 3.18,
there are currently no outstanding judgments, decrees or orders of any court or
Authority against any of the Seller Parties, which relate to or arise out of the
conduct of the Business or the ownership, condition or operation of the Business
or the Acquired Assets (other than any PUC order relating to rates, tariffs and
similar
30
<PAGE>
Pennsylvania
matters arising in the ordinary course of business) which individually or in the
aggregate would have a Material Adverse Effect.
3.19 Supply of Utilities. Except as set forth on Schedule 3.19, the
Real Estate has adequate arrangements for supplies of electricity, gas, oil,
coal and/or sewer for all operations at the 1998 or current operating levels,
whichever is greater. Except as set forth on Schedule 3.19, there are no actions
or proceedings pending or, to the best of the Seller Parties' knowledge,
threatened, that would adversely affect the supply of electricity, gas, coal or
sewer to the Real Estate except for those which individually and in the
aggregate would not have a Material Adverse Effect.
3.20 Insurance. Schedule 3.20 lists the Seller Parties' policies and
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by Seller, together with the risks insured against,
coverage limits and deductible amounts.
3.21 Relationship with Customers. As of the date hereof, Seller does
not have any current customer which accounted for more than 5% of the net sales
of the Business (taken together with the businesses being acquired by Buyer or
Affiliates of Buyer pursuant to the Related Purchase Agreements) for the
immediately preceding 12-month period.
3.22 WARN Act. Except as contemplated by Section 5.9 hereby or as set
forth in Schedule 3.22 hereto, within six months prior to the date hereof, (i)
Seller has not effectuated (a) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of the Business; or (b) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Business; (ii) Seller has not been affected by any transaction or engaged in
layoffs or employment terminations with respect to the Business sufficient in
number to trigger application of any similar state or local law; and (iii) none
of Seller's employees who are employed in connection with the Business has
suffered an "employment loss" (as defined in the WARN Act) .
3.23 Condition of Assets. Except as set forth on Schedule 3.23, the
buildings, machinery, equipment, tools, furniture, improvements and other fixed
tangible assets of the Business included in the Acquired Assets, taken as a
whole and taken together with the similar assets included among the assets being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements, are in good operating condition and repair, reasonable wear and tear
excepted.
3.24 Brokerage. None of the Seller Parties or their Affiliates have
made any agreement or taken any other action which might cause any Person to
become entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to Buyer or
its Affiliates.
31
<PAGE>
Pennsylvania
3.25 All Assets. Except as set forth on Schedule 3.25 and for the
Excluded Assets, the Acquired Assets include all assets, rights, properties and
contracts the use of which is necessary to the continued conduct of the Business
by Buyer substantially in the manner as it was conducted prior to the Closing
Date, including the service of all utility customers in substantially the same
manner and at substantially the same service levels as provided by Seller on the
date hereof.
3.26 Year 2000 Matters. Citizens has (1) initiated a review and
assessment of all mission critical areas within the Business and related
operations (including those affected by suppliers and vendors) that it
reasonably believes could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by any Seller Party (or suppliers
and vendors) may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
all as set forth in Citizens' Annual report on Form 10-K for the fiscal year
ended December 31, 1998 and Citizens' Quarterly reports on Form 10-Q for the
periods ending March 31, 1999 and June 30, 1999, and (iii) to date, implemented
that plan substantially in accordance with that timetable. Seller has
contingency plans that are dedicated to ensuring that established and expected
levels of customer service are maintained without interruption, while core
business functionality is preserved during the millennium transition. With
respect to its suppliers and vendors, the foregoing representation and warranty
is expressly limited to matters known to Seller after making reasonable
inquiries of such suppliers and vendors. Seller makes no representation or
warranty with respect to the receipt or accuracy of any response received from
any vendor or supplier.
3.27 Product Liability. Except as disclosed in Schedule 3.27 and except
for those liabilities which individually or in the aggregate would not have a
Material Adverse Effect, there are no (a) liabilities of the Seller Parties or
their Affiliates, fixed or contingent, asserted or, to the knowledge of the
Seller Parties, unasserted, with respect to any product liability or similar
claim that relates to any product or service sold by Seller or the Business to
others or (b) liabilities of the Seller Parties or their Affiliates, fixed or
contingent, asserted or, to the knowledge of the Seller Parties unasserted, with
respect to any claim for the breach of any express or implied product warranty
or a similar claim with respect to any product or service sold by Seller or the
Business to others.
32
<PAGE>
Pennsylvania
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer jointly and severally represent and warrant to Seller
as follows:
4.1 Organization and Good Standing.
4.1.1 Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.1.2 Buyer is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate the Acquired Assets and
the Business. Buyer is qualified to do business and is in good standing in all
jurisdictions wherein the nature of the business conducted by it or Buyer's
ownership or use of assets and properties make such qualification necessary,
except such failures to be qualified or to be in good standing, if any, which
when taken together with all such failures of Buyer do not have a material
adverse effect on its ability to perform its obligations under this Agreement
and the Transaction Documents.
4.2 Authorization and Enforceability. Each of Buyer and Parent has full
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which either of them is a party. The
execution, delivery and performance by Buyer and Parent of this Agreement and
the Transaction Documents to which Buyer and/or Parent is a party have been duly
authorized by all necessary corporate action on the part of each of them. This
Agreement has been duly executed and delivered by Buyer and Parent, and as of
the Closing Date the other Transaction Documents will be duly executed and
delivered by Buyer and Parent. This Agreement is a legal, valid and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable laws relating
to bankruptcy, insolvency, fraudulent conveyance, reorganization or affecting
creditors' rights generally and except to the extent that injunctive or other
equitable relief is within the discretion of a court. As of the Closing Date,
each of the other Transaction Documents to which Buyer and Parent is a party
will be duly executed and delivered by Buyer and Parent and will constitute the
legal, valid and binding obligations of Buyer and Parent, enforceable against
them in accordance with its respective terms, except as such enforceability may
be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court.
4.3 No Violation of Laws or Agreements. The execution, delivery and
performance of this Agreement and the Transaction Documents by Buyer and/or
Parent do not, and
33
<PAGE>
Pennsylvania
the consummation of the transactions contemplated hereby and thereby will not,
(a) contravene any provision of the Articles of Incorporation or Bylaws of Buyer
or the Certificate of Incorporation or Bylaws of Parent; or (b) violate,
conflict with, result in a breach of, or constitute a default (or an event which
would with the passage of time or the giving of notice, or both, constitute a
default) under, or result in or permit the termination, modification,
acceleration, or cancellation of (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit, authorization,
proof of dedication or other agreement or commitment, oral or written, to which
Parent or Buyer is a party, or by which any of their assets or properties may be
bound or affected, except for such violations, conflicts, breaches,
terminations, modifications, accelerations, cancellations, interests or rights
which, individually or in the aggregate do not have a material adverse effect on
their respective ability to perform their obligations under this Agreement and
the Transaction Documents, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or Authority or
any applicable constitution, law, ordinance, rule or regulation to which Buyer
or Parent is subject other than those violations and conflicts which
individually or in the aggregate do not have a material adverse effect on their
respective ability to perform their obligations under this Agreement and the
Transaction Documents.
4.4 Consents. No consent, approval or authorization of, or registration
or filing with, any Person (governmental or private) is required in connection
with the execution, delivery and performance by Buyer and Parent of this
Agreement, the other Transaction Documents, or the consummation of the
transactions contemplated hereby or thereby by Buyer or Parent except (i) as
required by the HSR Act, (ii) as specified on Schedule 3.9 and (iii) for such
consents, approvals, authorizations, registrations or filings, the failure to
obtain or make would not individually or in the aggregate have a material
adverse effect on their respective ability to perform their obligations under
this Agreement and the Transaction Documents.
4.5 Financing. Buyer and Parent have, and at the Closing Date, will
have sufficient resources to pay the Purchase Price, and Parent, Buyer or the
other Affiliates of Parent that are buyers of the assets and businesses being
acquired pursuant to the Related Purchase Agreements have, and at the Closing
Date, will have sufficient resources to pay the purchase prices set forth in the
Related Purchase Agreements.
4.6 Brokerage. None of Parent, Buyer or their Affiliates have made any
agreement or taken any other action which might cause any Person to become
entitled to a broker's or finder's fee or commission as a result of the
transactions contemplated hereunder which could result in liability to the
Seller Parties.
4.7 Insurance. Schedule 4.7 lists the policies and contracts in effect
as of the date hereof for casualty and property insurance covering Buyer's
assets and properties and the operation of Buyer's business, together with the
risks insured against, coverage limits and deductible amounts.
34
<PAGE>
Pennsylvania
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Conduct of Business. Except (i) as otherwise specifically permitted
by this Agreement, (ii) as set forth in Schedule 5.1 hereto or (iii) with the
prior written consent of Buyer, from and after the date of this Agreement and up
to and including the Closing Date, each of the Seller Parties agree that:
5.1.1 Seller shall conduct the Business as presently operated and only
in the ordinary course of business consistent with past practice.
5.1.2 They shall promptly inform Buyer in writing of any specific event
or circumstance of which they are aware, or of which they receive notice, that
has or is likely to have, individually or in the aggregate, taken together with
the other events or circumstances, a Material Adverse Effect on the Acquired
Assets or the Assumed Liabilities.
5.1.3 Seller shall not:
(a) change or modify in any material respect existing credit and
collection policies, procedures and practices with respect to accounts
receivable;
(b) enter into any contract or commitment, waive any right or enter
into any other transaction (except in the ordinary course of business) which
would have a Material Adverse Effect;
(c) except in the event of service interruption, emergency or casualty
loss, commit to acquire subsequent to the Closing Date on behalf of the Business
any capital asset or group of capital assets costing in excess of $1,000,000
that is not included in the capital budget of Seller for fiscal year 2000 and
which, if so acquired, would be included in the Acquired Assets; commencing
December 1, 1999, accept or receive customer advances for construction in excess
of $9,000,000 (when combined with customer advances relating to the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements) per each of the next four consecutive three-month periods unless
pursuant to an existing tariff, Contract or Permit of Seller; or sell or lease
or agree to sell or lease or otherwise dispose of any assets included in the
Acquired Assets except in the ordinary course of the conduct of the Business,
consistent with past practice;
(d) except in the ordinary course of business, consistent with past
practice or as required under any of Seller's debt instruments or indentures,
mortgage, pledge or subject to any Lien (other than Permitted Liens) any of the
Acquired Assets;
35
<PAGE>
Pennsylvania
(e) change any compensation or benefits or grant any material new
compensation or benefits payable to or in respect of any Transferred Employee
except (i) as required by law, and (ii) in the ordinary course, consistent with
past practice; provided, however, no individual Employee shall in any event
receive a compensation increase in excess of seven percent (7%);
(f) other than in the ordinary course of business consistent with past
practice, sell or otherwise transfer any assets necessary, or otherwise material
to the conduct of, the Business which would constitute Acquired Assets;
(g) change the Seller's method of accounting or keeping its books of
account or accounting practices with respect to the Business, except as required
by GAAP or any Authority;
(h) intentionally and wilfully take or omit to take any action which if
taken or omitted prior to the date hereof would constitute or result in a breach
of any representations or warranties set forth in Sections 3.1, 3.2, 3.3, 3.4,
3.7, 3.8, 3.10, 3.14, 3.16 and 3.25 hereof (it being understood that the failure
to cure a breach shall not, by itself, be an intentional and wilful omission to
take action); or
(i) prepay, redeem, retire, refund or otherwise extinguish any of the
Assumed Indebtedness.
5.2 Negotiations. Neither Citizens nor any Person controlled by
Citizens or under common control with Citizens (each such person being a
"Section 5.2 Affiliate"), nor any officer, director, employee, representative or
agent of Citizens or any of their Section 5.2 Affiliates, shall, directly or
indirectly, solicit or initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Parent, Buyer or any
Person controlled by Parent or Buyer or under common control with Parent, Buyer
or any Persons providing financing to the parties hereto in connection with
facilitating the consummation of the transactions contemplated by this
Agreement) concerning any acquisition, merger, consolidation, liquidation,
dissolution, disposition or other transaction (or series of such transactions)
that would result in the transfer to any such Person or group of Persons of ten
percent (10%) of the Acquired Assets (as measured by net book value of such
assets on the date of each such transaction) or the acquisition, merger,
consolidation, liquidation, dissolution, disposition or other transaction (or
series of such transactions) involving the Seller Parties, if such acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction (or series of such transactions) would be inconsistent, in any
respect, with the obligations of the Seller Parties hereunder (any of the
foregoing transactions, a "Competing Transaction").
5.3 Disclosure Schedules. As promptly as practicable, the Seller
Parties will provide Buyer with a supplement or amendment to the Disclosure
Schedules with respect to any
36
<PAGE>
Pennsylvania
matter, condition or occurrence which is required to be set forth or described
in the Disclosure Schedules. For the avoidance of doubt, a matter, condition or
occurrence shall only be "required" to be set forth or described in the
Disclosure Schedules if the failure to be so disclosed would result in a breach
of the applicable representation or warranty (qualified by Material Adverse
Effect where applicable) on the date hereof or on the Closing Date. In addition,
Seller shall have the right at any time and from time to time prior to the
Closing to supplement or amend the Disclosure Schedules. Seller may provide
Disclosure Schedules with respect to any representation or warranty of this
Agreement whether or not a specific schedule is referred to therein. In the
event that any supplement or amendment of such Disclosure Schedules shall be
provided later than five (5) business days prior to the Closing Date, the Buyer
shall have the right to delay the Closing for a period of five (5) business days
in order for Buyer to review such supplement or amendment. No such supplement or
amendment shall be deemed to cure any breach of or alter any representation or
warranty made in this Agreement so as to permit the Closing to occur unless
Buyer specifically agrees thereto in writing. The Seller Parties shall promptly
inform Buyer, and Buyer will promptly inform the Seller Parties of any fact or
event which comes to their attention, the existence of which constitutes or
likely will constitute a breach in any material respects of any representation
or warranty in this Agreement. In addition, Parent will, within five (5) days of
receipt thereof, forward to Seller (i) any title report Buyer receives from a
title company with respect to the Real Estate and (ii) any written communication
regarding a specific Lien or title defect affecting a specifically identified
parcel of the Real Estate sent to the President, Treasurer or General Counsel of
Parent or the President or Corporate Counsel of any other Buyer Party, and sent
by a party other than the Seller Parties, their legal counsel, financial
advisors or representatives.
5.4 Mutual Covenants. The parties mutually covenant from the date of
this Agreement to the Closing Date (and subject to the other terms of this
Agreement, including Section 5.8 hereof):
5.4.1 to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction in
connection with the consummation of the transactions contemplated by this
Agreement and in making or causing to be made any such filings promptly and in
seeking to obtain timely any such consents;
5.4.2 to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein (each party hereto shall furnish to the other and to the
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing action); and
5.4.3 to advise the other parties promptly if such party determines
that any condition precedent to its obligations hereunder will not be satisfied
in a timely manner.
5.5 Filings and Authorizations. The parties hereto will as promptly as
practicable, make or cause to be made all such filings and submissions under
laws, rules and regulations
37
<PAGE>
Pennsylvania
applicable to it or its Affiliates as may be required to consummate the terms of
this Agreement, including all notifications and information to be filed or
supplied pursuant to the HSR Act and with the applicable public utility
commission (each, a "PUC"). Any such filings and supplemental information will
be in substantial compliance with the requirements of the applicable law, rule
or regulation. Each of Parent and Buyer, on the one hand, and the Seller
Parties, on the other, shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission to the PUC or which is necessary under
the HSR Act. The Seller Parties, on the one hand and Buyer and Parent, on the
other, shall keep each other apprised of the status of any communications with,
and inquiries or requests for additional information from, any Authority,
including the PUC, the United States Federal Trade Commission ("FTC") and the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division"), and shall comply promptly with any such inquiry or request. Each of
Citizens, Seller, Parent and Buyer will use its reasonable efforts to obtain any
clearance required under the HSR Act and from the PUC for the purchase and sale
of the Acquired Assets in accordance with the terms and conditions hereof.
Notwithstanding the foregoing, nothing contained in this Agreement will require
or obligate any party or their respective Affiliates: (i) to initiate, pursue or
defend any litigation (or threatened litigation) to which any Authority
(including the PUC, the Antitrust Division and the FTC) is a party; (ii) to
agree or otherwise become subject to any material limitations on (A) the right
of Buyer or its Affiliates effectively to control or operate the Business or the
right of Seller or its Affiliates effectively to control or operate Citizens'
other businesses, (B) the right of Buyer or its Affiliates to acquire or hold
the Business or the right of Seller or its Affiliates to hold the Excluded
Assets or Citizens' other businesses, or (C) the right of Buyer to exercise full
rights of ownership of the Business or all or any material portion of the
Acquired Assets or the right of Citizens to exercise full rights of ownership of
Citizens' other businesses or all or any material portion of the Excluded
Assets; or (iii) to agree or otherwise be required to sell or otherwise dispose
of, hold separate (through the establishment of a trust or otherwise), or divest
itself of all or any portion of the business, assets or operations of Citizens,
Seller, Parent, Buyer, any Affiliate of Buyer or the Business. The parties agree
that no representation, warranty or covenant of Buyer, Parent, or Citizens
contained in this Agreement shall be breached or deemed breached as a result of
the failure by Parent and Buyer on the one hand or the Seller Parties, on the
other, to take any of the actions specified in the preceding sentence.
5.6 Public Announcement. No party hereto shall make or issue, or cause
to be made or issued, any public announcement or written statement concerning
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which will not be unreasonably withheld or delayed),
unless counsel to such party advises that such announcement or statement is
required by law (in which case the parties shall make reasonable efforts to
consult with each other prior to such required announcement).
5.7 Further Assurances. Each of Citizens, Parent, Buyer and Seller,
from time to time after the Closing, at Buyer's or Seller's request, will
execute, acknowledge and deliver to the applicable person such other instruments
of conveyance and transfer and will take such other actions
38
<PAGE>
Pennsylvania
and execute such other documents, certifications, and further assurances as
Buyer or Seller, as the case may be, may reasonably require in order to
transfer, in accordance with the terms and conditions of this Agreement, more
effectively in Buyer or to put Buyer more fully in possession of any of the
Acquired Assets or better to enable Buyer to complete, perform and discharge any
of the Assumed Liabilities. Each party shall cooperate and deliver such
instruments and take such action as may be reasonably requested by the other
party in order to carry out the provisions and purposes of this Agreement and
the transactions contemplated hereby.
5.8 Cooperation.
5.8.1 Parent, Buyer, Citizens and Seller shall cooperate and shall
cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Seller to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
5.8.2 Without limiting the foregoing, neither Parent and Buyer, nor
Citizens and Seller (nor any of their respective Affiliates) shall make any
filings pursuant to federal or state securities laws ("Securities Filings") or
make any consent solicitations to holders of Assumed Indebtedness which include
any information about Seller, Buyer (or their respective Affiliates) or the
transactions contemplated hereby without consulting with the other party and
providing the other party a reasonable opportunity to review and comment on such
information, it being understood and agreed that any party may so disclose such
information in its reasonable judgment to the extent such party's counsel
advises it that such disclosure is advisable under applicable law. Each of
Parent, Buyer, Citizens and Seller shall, and shall cause their respective
Affiliates to, comply with all applicable federal and state securities laws in
connection with this Agreement and the transactions contemplated hereby
(including any solicitation of consents of holders of Assumed Indebtedness), and
all information supplied by any party for inclusion in any Securities Filing or
consent solicitation, including, without limitation, any proxy or information
statement, or any registration statement on Form S-4 shall be true and correct
in all material respect and shall not contain any untrue statement of a material
fact or omit to state any material fact which is required to be stated therein
or which is necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
5.8.3 During the first 90 days after the Closing Date (180 days for
Trademarks on tanks), Buyer shall have the right to use all of the logos,
trademarks and trade identification of Seller as are located at the Real Estate
or on the Acquired Assets (collectively, the "Trademarks"). Buyer's use of the
Trademarks shall be in accordance with such reasonable quality control standards
as may be promulgated by Seller and provided to Buyer. If Seller shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Seller shall have the right to terminate Buyer's right under this Section 5.8.3
to use the Trademarks.
39
<PAGE>
Pennsylvania
5.8.4 Seller shall give Buyer and its representatives (including
Buyer's Accountants, consultants, counsel and employees), upon reasonable notice
and during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of Seller to the extent relating to the
Business and the Acquired Assets, and shall cause its officers, employees,
agents and representatives to furnish to Buyer all documents, records and
information (and copies thereof), to the extent relating to the Business and the
Acquired Assets, as Buyer may reasonably request. Except to the extent disclosed
in the Disclosure Schedules in accordance with Sections 5.3 and 8.4, no
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller Parties under this Agreement
or the conditions to the obligations of Parent or Buyer under this Agreement.
All information provided to Buyer under this Agreement shall be held subject to
the terms and conditions of the Confidentiality Agreement dated August 2, 1999
between Citizens and Parent.
5.9 Employees; Employee Benefits.
5.9.1 Schedule 5.9.1 lists divisions and the number of all salaried and
hourly employees actively employed (as of the date of this Agreement) in each
division by Seller or any of its Affiliates whose primary responsibilities
relate to the Business. Schedule 5.9.1 lists job classifications and number of
employees in each job classification of those employees whose terms and
conditions of employment are subject to a collective bargaining agreement
("Union Employees"). All individuals referred to on Schedule 5.9.1 are herein
referred to as the "Employees." No later than March 1, 2000, Buyer and Seller
shall determine the number of Employees to whom Buyer will offer employment,
which number shall be at least equal to 250 (when combined with offers made by
Buyer or Affiliates of Buyer to employees of Affiliates of Seller in connection
with the Related Purchase Agreements) (the "Base Number"), and such additional
number of Employees, if any, whom Buyer also wishes to employ. Upon
determination of such Employees, Seller will supplement Schedule 5.9.1 with the
name, job title, unused vacation, current base salary or hourly wage, date of
hire and assigned location of each Transferred Employee (as that term is defined
below). At the Closing, Seller shall provide an updated Schedule 5.9.1 which
shall disclose all the information required under the preceding sentence as of
the most recent practicable date prior to Closing.
5.9.2 Effective as of the Closing, Buyer shall offer employment to at
least the Base Number of those employees included on Schedule 5.9.1. All
Employees to whom Buyer offers employment and who accept such employment are
herein referred to as the "Transferred Employees." In the event any Employees do
not accept Buyer's offer of employment, Buyer shall offer employment to such
additional employees (the identity of whom shall be determined by Buyer and
Seller) as are necessary to bring the total number of Transferred Employees to
the Base Number. Subject to the provisions of this Section 5.9 and Section 5.12,
Buyer shall provide each Transferred Employee with base compensation at least
equal to that provided by Seller on the Closing Date, and employee benefits
which are substantially comparable to those provided by Buyer to its other
40
<PAGE>
Pennsylvania
similarly situated employees. Buyer agrees (i) to credit the service of each
Transferred Employee with Seller and its Affiliates before the Closing, for all
purposes under all employee benefit plans and arrangements maintained by Buyer
(and/or any of its Affiliates) for the benefit of any Transferred Employee
(including without limitation for purposes of attainment of retirement dates and
payment of optional forms of benefits), other than for purposes of benefit
accrual under any "defined benefit plan", within the meaning of Section 3(35) of
ERISA, (ii) to provide accrued vacation to Transferred Employees in the year in
which the Closing occurs, equal to the excess, if any, of the accrued vacation
to which the Transferred Employee would otherwise be entitled under Seller's
vacation plan during that year over the amount of accrued vacation the
Transferred Employee had taken during that year, and, thereafter, to provide
vacation to Transferred Employees on the same basis as provided to similarly
situated employees of Buyer, with service credit as provided in (i) hereof,
(iii) to provide severance benefits to Transferred Employees terminated by Buyer
that are substantially comparable to those benefits provided by Buyer to
similarly situated employees, and (iv) to comply with all applicable legal
requirements with respect to Union Employees (including without limitation any
applicable duty to bargain with those employees' bargaining representative).
Buyer shall be responsible for providing to each Transferred Employee vacation
in an amount equal to the Transferred Employee's vacation entitlement for the
year of Closing reduced by the number of vacation days such Transferred Employee
has taken on or before Closing. Nothing in this Section 5.9 shall limit Buyer's
authority to terminate the employment of any Transferred Employee at any time
and for whatever reason. Until the second anniversary of the Closing Date,
neither Seller nor any of its Affiliates shall directly or indirectly solicit or
offer employment to any Transferred Employee then employed by Buyer or its
Affiliates.
5.9.3 Except as specifically provided in Sections 5.9 and 5.12, Seller
shall be solely responsible for any liability, claim or expense (including
reasonable attorneys' fees) related to compensation or employee benefits
incurred by Buyer as the result of any claims against Buyer or its Affiliates
that are made by any Employees or Former Employees (or the Beneficiary of any
Employee or Former Employee) who are not made offers to become employees of
Buyer or its Affiliates including, without limitation, claims asserted against
Buyer as a result of their termination by Seller or its Affiliates.
5.9.4 Seller shall be solely responsible for any liability, claim or
expense with respect to compensation or employee benefits of any nature
(including, but not limited to, workers compensation claims or the benefits
provided under the Benefit Plans, whether paid before or after the Closing) owed
to any Transferred Employee or the Beneficiary of any Transferred Employee or
any Water Sector Retiree or the Beneficiary of any Water Sector Retiree that
arises out of or relates to (i) the employment relationship between Seller or
any of its Affiliates and such Transferred Employee or Beneficiary or (ii) any
benefit claim or expense (including medical expenses) incurred before Closing
under any Benefit Plan. For purposes of this Agreement, a medical expense shall
be deemed to be incurred when the services giving rise to a claim are rendered,
regardless of when billed or paid. Without limiting the foregoing, Seller shall
be
41
<PAGE>
Pennsylvania
responsible for the payment of any employee benefits that become due to any
Transferred Employees as a result of their termination by Seller.
5.9.5 Except as otherwise specifically provided in Section 5.9, 5.11 or
5.12, Buyer shall be solely responsible for any liability, claim or expense with
respect to compensation or employee benefits of any nature (including, but not
limited to, workers compensation, claims or the benefits provided under any
employee benefit plan or arrangement of Buyer incurred after Closing) owed to
any Transferred Employee or Beneficiary of any Transferred Employee or any Water
Sector Retiree or Beneficiary of any Water Sector Retiree that arises out of or
relates to (i) the employment relationship between Buyer or any of its
Affiliates and any Transferred Employee or (ii) any benefit claim or expense
(including medical expense) incurred after Closing under any employee benefit
plan sponsored or contributed to by Buyer or an ERISA Affiliate after Closing.
Notwithstanding the foregoing, Buyer shall not be responsible for the payment of
any employee benefits that become due to any Transferred Employees under any
Benefit Plan (other than the Assumed Benefit Liabilities).
5.9.6 Buyer agrees to reimburse Seller for its proportionate share (as
defined below) of any amount in excess of $1,000,000 paid by Seller as severance
under Citizens' severance plan as in effect on the date hereof to any Employees
(when such amount paid by Seller is aggregated with amounts paid by Citizens to
other employees as referenced in Section 5.9.6 of the Related Purchase
Agreements) provided (i) Buyer does not hire such Employees in accordance with
the provisions of Sections 5.9, 5.11 and 5.12 and (ii) Seller provides notice to
those Employees on or before the Closing Date to the effect that their
employment will be terminated on or shortly after the Closing Date. Buyer will
pay such reimbursement to Citizens within 5 days after receipt of a list of the
Employees showing which are entitled to severance pay, the amounts of that
severance pay and certifying that those amounts have been paid. The Buyer's
"proportionate share" means the amount obtained by multiplying the amount in
excess of $1,000,000 by a fraction, the numerator of which is the amount of
severance paid by Seller to Employees under Section 5.9.6 of this Agreement and
the denominator of which is the sum of (i) the amount paid by Seller to
Employees under Section 5.9.6 of this Agreement and (ii) the aggregate amount
paid by Citizens under Section 5.9.6 of each of the Related Purchase Agreements.
5.9.7 Until the second anniversary of the Closing Date, Buyer shall not
directly or indirectly solicit or offer employment to any active employee of
Seller, other than the Transferred Employees.
5.10 Employee Pension Plan.
5.10.1 At least fifteen days prior to the Closing Date, Seller shall
take any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their accrued benefits under the Citizens Pension Plan
("Seller's Pension Plan" or "Citizens Pension
42
<PAGE>
Pennsylvania
Plan"). Seller shall retain liability and related assets for benefits accrued
through the Closing Date by Transferred Employees under Seller's Pension Plan.
5.10.2 As of the Closing Date, Transferred Employees shall be covered
under the American Pension Plan, and shall be given credit for service with
Seller and its Affiliates for eligibility, vesting, attainment of retirement
dates, subsidized benefits, and entitlement to optional forms of payment, but
not for accrual of benefits.
5.11 Employee Savings Plan.
5.11.1 Effective upon the date of the transfer described in Section
5.11.2, subject to the terms and conditions of this Agreement, Parent shall
cause the Savings Plan for Employees of American Water Works Company, Inc. (the
"American Savings Plan") to assume the liability of the Seller's 401(k) Plan for
the account balances of those Transferred Employees participating in the
Seller's 401(k) Plan on the Closing Date (the "Affected Participants") that are
transferred to the American Savings Plan. As of the Closing Date, Affected
Participants shall be 100% vested in their account balances under the Seller's
401(k) Plan. Transferred Employees shall be given credit under the American
Savings Plan for service with Seller and its Affiliates for eligibility,
vesting, attainment of retirement dates, contribution levels and optional forms
of benefit payment, to the same extent that credit for such service has been
given by Seller and its Affiliates.
5.11.2 Buyer shall deliver to Seller as soon as practicable, but in no
event later than ninety (90) days after Closing (i) a certified copy of the
American Savings Plan and any amendment necessary to effectuate the transfer of
assets and the assumption of account balances in accordance with this Section
5.11, (ii) a certified copy of the trust agreement for the American Savings
Plan; (iii) the most recent favorable determination letter from the IRS with
respect to the American Savings Plan; and (iv) an opinion from Buyer's legal
counsel acceptable to Seller that the American Savings Plan, as so amended,
complies or will comply on a timely basis with the applicable provisions of the
Code relating to the qualification of, and the transfer of assets and assumption
of benefit liabilities by, the American Savings Plan. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
Closing, an opinion from Seller's legal counsel acceptable to Buyer that the
Seller's 401(k) Plan complies or will comply on a timely basis with the
applicable provisions of the Code relating to the qualification of the Seller's
401(k) Plan, and the transfer of assets to, and assumptions of benefit
limitations by, the American Savings Plan. As soon as practicable, but in any
event within 120 days after Closing, Seller shall cause the trustee of the
Seller's 401(k) Plan to transfer in cash and promissory notes representing
outstanding loans to Affected Participants to the trustee of the American
Savings Plan an amount equal to the sum of the account balances of the
Transferred Employees (the "Transferred Accounts") calculated as of the most
recent valuation date under the Seller's 401(k) Plan (which shall, in any event,
be within thirty (30) days of the transfer). Both the Seller Parties and Buyer
will file any IRS Form 5310A that is required with respect to the transfer
contemplated by this Section 5.11 date at least 30 days prior to the transfer.
Upon the transfer described in this Section 5.11, Buyer and the American Savings
43
<PAGE>
Pennsylvania
Plan shall be responsible for all benefits attributable to the Transferred
Accounts to which Transferred Employees were entitled under the Seller's 401(k)
Plan as of such date, and Seller and the Seller's 401(k) Plan shall cease to
have any liability, contingent or otherwise, for such benefits.
5.12 Welfare Benefits.
5.12.1 Within sixty (60) days after the Closing, Seller agrees to
transfer to trusts established by Buyer under Section 501(c)(9) of the Code
("Buyer's VEBAs") the amount held under any trust established by Seller under
Section 501(c)(9) of the Code ("Seller's VEBAs") to fund post-retirement health
care and life insurance benefits attributable to the Business, including Former
Employees identified on Schedule 5.12 (the "Water Sector Retirees") and any
"grandfathered" Transferred Employees as set forth on Schedule 5.12. Buyer
agrees to provide post-retirement health care and life insurance benefits to the
Water Sector Retirees and, as applicable, Transferred Employees who become
eligible for such benefits after Closing and further agrees that Buyer's VEBAs
will apply an amount at least equal to the sum of the assets (and earnings
thereon calculated at the rate of return generated by Buyer's VEBAs) transferred
from Seller's VEBAs to provide post-retirement health care and life insurance
benefits for such employees. Upon Closing, Buyer shall be responsible for all
obligations of the Seller Parties to provide post-retirement health care and
life insurance benefits "incurred" (within the meaning of Section 5.9.4) after
the Closing and the Seller Parties shall cease to have any liability, contingent
or otherwise, for such benefits. In consideration of such transfer, Buyer agrees
not to terminate or materially modify those post-retirement health and life
benefit provisions applicable to such grandfathered Transferred Employees and
Water Sector Retirees as such provisions are in effect immediately prior to the
Closing Date.
5.12.2 Buyer shall take all action necessary and appropriate to ensure
that, as of the Closing Date, Buyer provides medical, health, dental, flexible
spending account, accident, life, short-term disability, long-term disability
and other employee welfare benefits (including retiree medical benefits) to
Transferred Employees that, in the case of Non-Union Transferred Employees and
Union Transferred Employees are substantially similar to those benefits provided
by Buyer under its corresponding welfare benefit plans (the "Buyer's Welfare
Plans"). For purposes of determining eligibility to participate, and entitlement
to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be
credited with service, determined under the terms of the corresponding welfare
plans maintained by Seller on the Closing Date (hereinafter referred to
collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing conditions, waiting periods, and requirements for evidence of
insurability under the Buyer Welfare Plans shall be waived in Buyer's Welfare
Plans for Transferred Employees and retirees of the Water Sector and their
respective Beneficiaries, and Transferred Employees and retirees of the Water
Sector and their respective Beneficiaries shall receive credit under the Buyer
Welfare Plans for co-payments, payments under a deductible limit made by them,
and for out-of-pocket maximums applicable to them during the plan year of the
Seller Welfare Plan in which the Closing Date occurs. As soon as practicable
after the Closing Date, Seller shall deliver to Buyer a list of the Transferred
Employees and retirees of the Water Sector and their respective Beneficiaries
who had credited service under
44
<PAGE>
Pennsylvania
a Seller Welfare Plan, together with each such individual's service, copayment,
deductible and out-of-pocket payment amounts under such plan.
5.12.3 Seller shall transfer to Buyer's flexible benefits plan any
balances standing to the credit of Transferred Employees under Seller's flexible
benefits plan as of the Closing Date. Seller shall provide to Buyer prior to the
Closing Date a list of those Transferred Employees that have participated in the
health or dependent care reimbursement accounts of Seller, together with their
elections made prior to the Closing Date with respect to such Account, and
balances standing to their credit as of the Closing Date.
5.13 Taxes. The Seller Parties, on the one hand, and Parent and Buyer,
on the other, shall (a) each provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax return, any audit or other examination by any taxing authority or any
judicial or administrative proceeding with respect to Taxes; (b) each retain and
provide the other with any records or other information which may be relevant to
such return, audit, examination or proceeding, and (c) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, Parent and Buyer, on the one hand, and
the Seller Parties, on the other, shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
5.14 Intentionally Omitted.
5.15 Citizens' Guarantees and Surety Instruments. Each of Parent and
Buyer shall use its reasonable efforts to assist Citizens in obtaining full and
complete releases on the guarantees, letters of credit, bonds and other surety
instruments listed on Schedule 5.15. For purposes of this Section 5.15 and
Section 5.16, reasonable efforts: (a) shall include Parent's or Buyer's
assumption of the Assumed Indebtedness, the Contracts and the Permits on the
terms set forth in this Agreement; (b) shall include an obligation on the part
of Parent or Buyer to provide a guarantee, letter of credit, bond or other
required surety instrument at Closing to the extent required by any Contract or
Permit and in general to provide an equivalent surety instrument to be
substituted for any surety instrument provided by Citizens to any beneficiary in
connection with the Business; and (c) shall include the obligation of Buyer
and/or Parent to provide a debt obligation (including obtaining a minimum credit
rating necessary to prevent any change to the tax-exempt status of any of the
Assumed Indebtedness and providing credit enhancements such as bond insurance)
to the issuer of any Bonds relating to the Assumed Indebtedness satisfactory to
such issuer in replacement of and in substitution for Citizens' obligations to
such issuer under the Assumed Indebtedness, all to enable Parent or Buyer to
assume the Assumed Indebtedness.
45
<PAGE>
Pennsylvania
5.16 Assumption of Seller Debt.
5.16.1 Each of Buyer and Parent shall use its reasonable efforts (as
defined in Section 5.15) to assist Seller in obtaining all consents and opinions
and taking such other actions as may be required to enable Buyer or Parent, as
the case may be, to assume at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3. If, after using such reasonable efforts, the parties reasonably conclude
that all such required consents and opinions will not be obtained by the date
that the conditions to Closing set forth in the first sentences of Sections
6.1.4 and 6.2.4 are expected to be satisfied, then Citizens, Parent and Buyer
will use their reasonable efforts and take such other actions as may be required
to enable Citizens to assign at the Closing all of Seller's liabilities and
obligations under the Assumed Indebtedness to the extent provided in Section
2.3, including complying with the provisions of Section 5.24 to the extent
applicable to such assignment of the Assumed Indebtedness.
5.16.2 Representations Re: Assumed Indebtedness.
(a) The Seller Parties represent that each of the Bonds which make up
the Assumed Indebtedness is a bond issue which was used to finance sewage
facilities within the meaning of Section 103(b)(4)(E) of the Internal Revenue
Code of 1954 as amended ("1954 Code") or Section 142(a)(5) of the Code, as the
case may be, or facilities for the furnishing of water within the meaning of
Section 103(b)(4)(G) of the 1954 Code or Section 142(a)(4) and Section 142(e) of
the Code, as the case may be, and that the interest of such Bonds was as of
their date of issue, excludable from the gross income of the holders of such
Bonds for federal or state (other than Illinois) income tax purposes pursuant to
such sections of the IRC or the Code. In the case of the facilities for the
furnishing of water (a) the water is or will be made available to members of the
general public (including electric utility, industrial, agricultural, or
commercial users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been established or
approved by a State or political subdivision thereof, by an agency or
instrumentality of the United States, or by a public service or public utility
commission or other similar body of any State or political subdivision thereof.
(b) The Seller Parties represent that they have complied with all of
their duties and obligations under the IDRB Documents, including their
obligations relating to the use of the proceeds of the bonds and the ownership,
operation, use and maintenance of the Assets financed with the proceeds of the
Bonds. Citizens and the other Seller Parties represent that the representations
and warranties of "Company" in the IDRB Documents remain true and correct, and
that they have not taken nor permitted to be taken any action which would have
the effect of subjecting the interest on any of such Bonds to federal or state
(other than Illinois) income taxation, except as otherwise contemplated or
permitted by the IDRB Documents.
(c) The Seller Parties represent that as of Closing all the proceeds of
the Bonds will have been spent in accordance with the IDRB Documents, the
construction of the
46
<PAGE>
Pennsylvania
projects to be financed with the Bonds will have been completed, that there are
no reserve funds associated with the Trust Indentures for such Bonds, and that
all of the proceeds of such Bonds were invested in tax-exempt obligations of
state and local governments (except to the extent used to acquire or construct
the facilities financed by such Bonds) and, that therefore, the Seller Parties
do not have any arbitrage profits subject to the rebate requirements of Section
148 of the Code.
(d) The Seller Parties represent that there is and has been no audit or
other examination by any taxing authority relating to the Bonds.
(e) The Seller Parties further represent the following with respect to
the Bonds:
(1) The Assets financed by the Bonds are sewage facilities or
facilities for the furnishing of water, which means that (a) the water
is or will be made available to members of the general public
(including electric utility, industrial, agricultural, or commercial
users) and (b) either the facility is operated by a governmental unit
or the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision thereof, by
an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State
or political subdivision thereof;
(2) They have not caused or permitted to be caused any
reissuance of the Bonds under Section 1001 of the Code, without first
obtaining a "no adverse effect" opinion of bond counsel;
(3) They have not caused an extension of the maturity of such
Bonds without first obtaining a "no adverse effect" opinion of bond
counsel;
(4) They have not taken or caused to be taken any action that
would cause the Bonds to be arbitrage bonds under Section 148 of the
Code, including, but not limited to, the failure to rebate arbitrage
profits, if any, as required by Section 148(f) of the Code;
(5) They have not taken any action that would cause the Bonds
not to be registered in accordance with Section 149(a) of the Code; and
(6) They have not permitted the Bonds to become directly or
indirectly "federally guaranteed" under Section 149 of the Code.
5.16.3 Covenants of Parent and Buyer. Parent and Buyer covenant and
agree, so long as any Assumed IDRB Indebtedness is outstanding, to cause the
Assets that were acquired,
47
<PAGE>
Pennsylvania
constructed, improved or equipped with the proceeds of such Assumed IDRB
Indebtedness to be used as sewage facilities within the meaning of Section
103(b)(4)(E) of the 1954 Code or Section 142(a)(5) of the Code, as the case may
be, and facilities for the furnishing of water within the meaning of Section
103(b)(4)(G) of the 1954 Code or 142(a)(4) and Section 142(e) of the Code, as
the case may be, which means in the case of the facilities for the furnishing of
water that (a) the water is or will be made available to members of the general
public (including electric utility, industrial, agricultural, or commercial
users) and (b) either the facility is operated by a governmental unit or the
rates for the furnishing or sale of the water have been established or approved
by a State or political subdivision thereof, by an agency or instrumentality of
the United States, or by a public service or public utility commission or other
similar body of any State or political subdivision thereof. Each of Parent and
Buyer further covenants and agrees, so long as any Assumed IDRB Indebtedness is
outstanding, the following:
(a) It will not cause or permit to be caused any reissuance under
Section 1001 of the Code without first obtaining a "no adverse effect" opinion
of bond counsel;
(b) It will not cause an extension of the maturity of the Bonds without
first obtaining a "no adverse effect" opinion of bond counsel;
(c) It will not take or cause to be taken any action that would cause
the Bonds to be arbitrage bonds under Section 148 of the Code, including, but
not limited to, the failure to rebate arbitrage profits, if any, as required by
Section 148(f) of the Code;
(d) It will not take any action that would cause the Bonds not to be
registered in accordance with Section 149(a) of the Code;
(e) It will not permit the Bonds to become directly or indirectly
"federally guaranteed" under Section 149 of the Code; and
(f) It will comply with each representation, warranty, covenant or
other agreement or obligation set out by the IDRB Documents as in effect on the
date of execution of this Agreement.
5.17 Schedule of Permits. No later than March 13, 2000, Citizens shall
deliver to Buyer a schedule, to be identified as Schedule 5.17, which sets forth
all material Permits required for the use of the Acquired Assets and the
operation of the Business by Buyer substantially in the manner as it was
conducted prior to the date hereof. For purposes of this Section 5.17, material
Permits shall include those required for the service of all utility customers at
substantially the same service levels as provided by Seller on the date of this
Agreement. All Permits listed on Schedule 5.17 that are required to be listed on
Schedule 3.3 or Schedule 3.9 shall be so designated. Seller has made or will
make prior to the Closing Date timely applications for renewals of all such
Permits
48
<PAGE>
Pennsylvania
listed on Schedule 5.17, which under applicable law must be filed prior to the
Closing Date to maintain the Permits listed on Schedule 5.17 in full force and
effect.
5.18 Title Information. No later than March 13, 2000, Seller shall use
its reasonable efforts to deliver to Buyer true, correct and complete copies of
all existing title policies, surveys, leases, deeds, instruments and agreements
relating to title to the Real Estate in Seller's possession.
5.19 Transaction with Related Parties. Effective as of the Closing
Date, except as otherwise provided in Sections 5.9 through 5.12, 5.15, 5.24,
5.26, 5.27 and 2.7.1(j) of this Agreement, Seller shall have terminated and
canceled all contracts, commitments and agreements (including employment
relationships) relating to the Acquired Assets or the Business, between Seller,
any Affiliate of Seller (including Citizens), any officer or director of any
Seller Party, or any Affiliate of the foregoing. Seller shall be solely liable
for any contractual or other claims, express or implied arising out of the
termination and cancellation of any of the foregoing raised by any party
thereto.
5.20 Approval by Citizens. Citizens shall, as the sole owner of common
stock of each other Seller Party, vote all of such shares of common stock to
approve this Agreement and the transactions contemplated hereby.
5.21 Supplemental Information.
5.21.1 Citizens shall provide Buyer, within fifteen (15) days after the
execution or the date of receipt thereof, a copy of (a) each Contract (other
than with respect to which the Business' total annual liability or expense is
less than $100,000 per such Contract) entered into by Seller after the date
hereof and prior to the Closing Date; (b) a copy of any written notice for
assessments for public improvements against the Real Estate received after the
date hereof and prior to the Closing Date; (c) a copy of the filing of any
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Real Estate received after the date hereof but
prior to the Closing Date; and (d) a copy of any Contract where Seller is a
lessee relating to the use or occupancy of the Real Estate and where such
Contract involves annual payments in excess of $100,000 entered into by Seller
after the date hereof and prior to the Closing Date.
5.21.2 Within fifteen (15) days after the receipt of notice of
violation, Citizens shall notify Buyer of any violations of state or federal
drinking water standards which, if such violations existed on the date hereof,
would be required to be disclosed pursuant to Section 3.8.10 hereof, and shall
promptly notify Buyer of the actions proposed to be taken by Seller to correct
or otherwise respond to such violations.
5.22 Non-Competition. The Seller Parties agree that for a period of
fifteen (15) years after the Closing Date no Seller Party nor any Affiliate of a
Seller Party shall directly or indirectly own, manage, operate, control or
participate in the ownership, management, operation or control of or be
otherwise connected in any substantial manner with any entity (other than Buyer
and
49
<PAGE>
Pennsylvania
its successors and assigns) engaged in the business of storing, supplying
and distributing water in the States in which Buyer acquires any Acquired
Assets, whether or not such business is subject to regulation by a PUC (it being
understood that the individual directors of Seller and Citizens are not
Affiliates of a Seller Party).
5.23 Intentionally Omitted.
5.24 IDRB Obligations.
(a) Buyer's IDRB Obligations. Each party acknowledges that (x) Citizens
is and after the Closing Date shall continue to be and shall remain the primary
obligor with respect to the Retained IDRB Indebtedness outstanding immediately
after the Closing Date to the same extent as though no sale of the Acquired
Assets had been made and that Parent and Buyer shall have no payment obligations
with respect to such Retained IDRB Indebtedness and (y) the IDRB Documents
require Citizens not to take or permit to be taken any action which would have
the effect, directly or indirectly, of subjecting the interest on any of the
Bonds to federal or state (other than Illinois) income taxation. Accordingly,
Parent and Buyer covenant and agree (i) at Closing to execute and deliver to
Citizens an agreement substantially in the form attached hereto as Exhibit D,
with respect to each issuer of Bonds relating to Retained IDRB Documents that
will be outstanding after the Closing Date, and (ii) so long as any such Bonds
are outstanding, to cause the Acquired Assets that were acquired, constructed,
improved or equipped with the proceeds of such Bonds to be used as facilities
for the furnishing of water (that is, (a) the water is or will be made available
to members of the general public (including electric utility, industrial,
agricultural, or commercial users) and (b) either the facility is operated by a
governmental unit or the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision thereof, by an
agency or instrumentality of the United States, or by a public service or public
utility commission or other similar body of any State or political subdivision
thereof) or sewage facilities within the meaning of Section 103(b)(4)(E) of the
1954 Code, or Section 142(a)(5) of the Code as the case may be.
(b) IDRB Construction Funds. Citizens hereby represents that there will
be no construction funds or unspent bond proceeds available after the Closing
Date that are held by the trustees of the Bonds relating to the Retained
IDRB Indebtedness.
(c) Consents and Opinions. The parties shall use their respective best
commercially reasonable efforts to obtain all consents and legal opinions as may
be required under the Retained IDRB Documents to enable Seller to retain all
Retained IDRB Indebtedness and to sell the Acquired Assets to Buyer.
5.25 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
Seller may, at Seller's written election delivered to Buyer no later than five
(5) days prior to the Closing Date, direct that all or a portion of the Initial
Cash Payment be delivered to a "qualified
50
<PAGE>
Pennsylvania
intermediary" as defined in Treasury Regulation ss.1.1031(k) - (g)(4) as to
enable Seller's relinquishment of the Acquired Assets to qualify as part of a
like-kind exchange of property covered by Section 1031 of the Code. If Seller so
elects, Buyer shall reasonably cooperate with Seller (but without being required
to incur any out-of-pocket costs in the course thereof) in connection with
Seller's efforts to effect such like-kind exchange, which cooperation shall
include, without limitation, taking such actions as Seller reasonably requests
in order to enable Seller to qualify such transfer as part of a like-kind
exchange of property covered by Section 1031 of the Code (including any actions
reasonably required to facilitate the use of a "qualified intermediary"), and
Buyer agrees that Seller may assign all or part of its rights (but no
obligations) under this Agreement to a person or entity acting as a qualified
intermediary to qualify the transfer of the Assets as part of a like-kind
exchange of property covered by Section 1031 of the Code. Buyer and Seller agree
in good faith to use reasonable efforts to coordinate the transactions
contemplated by this Agreement with any other transactions engaged in by either
Buyer or Seller; provided that such efforts shall, in no event, result in any
delay in the consummation of the transactions contemplated by this Agreement.
Seller shall indemnify and hold Buyer harmless from any cost, expense or
liability arising from its cooperating under this Section 5.25.
5.26 Transition Plan. Within 30 days after the execution date of this
Agreement, the parties jointly shall establish a transitional services team,
which shall include expertise from various functional specialties associated
with or involved in providing billing, payroll and other support services
provided to Seller by any automated or manual process using facilities or
employees that are not included among the Acquired Assets or Transferred
Employees. Such team will be responsible for preparing, and timely implementing,
a transition plan which will identify and describe substantially all of the
various transition activities that the parties will cause to occur before and
after Closing and any other transfer of control matters that any party
reasonably believes should be addressed in such transition plan. The transition
plan will set forth reasonable arrangements providing Buyer, at Buyer's sole
expense, with appropriate access to Seller's relevant computer systems to allow
for a full conversion of the relevant data and functionality to Buyer's systems
on the Closing Date. Buyer and Seller shall use their commercially reasonable
efforts to cause their representatives on such transition team to cooperate in
good faith and take all reasonable steps necessary to develop a mutually
acceptable transition plan no later than 60 days prior to the Closing Date.
5.27 Procedures regarding Refunds of Advances. Within 30 days after the
execution date of this Agreement, the parties jointly shall establish a working
group of appropriate subject matter experts to determine the appropriate
obligations of Parent and Buyer regarding notification and the provision of
other accurate and timely data to Citizens to enable Citizens timely and
accurately to satisfy the refund obligations described in Section 2.3.3(b). Such
working group will be responsible for preparing a comprehensive agreement no
later than March 13, 2000, which agreement shall be executed by the parties at
Closing. Among other arrangements, the parties would require that the customers
and developers owed refunds provide joint notices to Buyer and Citizens.
51
<PAGE>
Pennsylvania
5.28 Title Insurance. Prior to Closing, Seller shall cooperate with
Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires
to obtain ALTA title insurance commitments (collectively, the "Title
Commitments," and each a "Title Commitment"), in final form, from one or more
title insurance companies (collectively, the "Title Company"), committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment) to issuing ALTA (or its local
equivalent) form of title insurance policies insuring good, valid, indefeasible
fee simple title to the Real Estate in Buyer, in all cases, at Buyer's sole
expense and in the respective amounts that Buyer requests prior to Closing,
subject to no Liens or other exceptions to title other than Permitted Exceptions
(collectively the "Title Policies"). On or prior to the Closing Date, Seller
shall execute and deliver, or cause to be executed and delivered, to the Title
Company, at no cost to Seller, any customary affidavits, standard gap
indemnities and similar documents reasonably requested by the Title Company in
connection with the issuance of the Title Commitments or the Title Policies;
provided that such efforts and Buyers' request for Title Policies or Title
Commitments shall, in no event, result in any delay in the consummation of the
transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT; TERMINATION
6.1 Conditions Precedent to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to cause the purchase of the Acquired Assets and
the assumption of the Assumed Liabilities and to consummate the other
transactions contemplated hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer and Parent in their sole
discretion):
6.1.1 Performance of Agreements; Representations and Warranties. Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing; and the representations and warranties set
forth in this Agreement made by Seller shall be true and correct on and as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Closing Date (which need only be true and correct as of such date or
time), other than, in all such cases (except Section 3.25), such failures to be
true and/or correct as would not in the aggregate reasonably be expected to have
a Material Adverse Effect; provided, however, that if any such representation or
warranty is already qualified in any respect by materiality or as to material
adverse effect, for purposes of determining whether this condition has been
satisfied, such materiality or material adverse effect qualification will be in
all respects ignored and such representation or warranty shall be true and
correct in all respects without regard to such qualification (but subject to the
overall exception as to material adverse effect set forth immediately prior to
this proviso); and provided further, that the representation and warranty set
forth in Section 3.5.1 shall be deemed to be true and correct on and as of the
Closing
52
<PAGE>
Pennsylvania
Date if any Material Adverse Effect that may have arisen or occurred between the
execution date of this Agreement and the Closing Date shall have been cured or
remedied such that such Material Adverse Effect is not continuing as of the
Closing Date. Buyer shall have been furnished with a certificate of the Chief
Financial Officer or other Vice President of Citizens dated the Closing Date,
certifying to the foregoing.
6.1.2 Opinion of Counsel. Buyer shall have received from L. Russell
Mitten II, Vice President and General Counsel of Seller, an opinion dated the
Closing Date, in form and substance satisfactory to Buyer, to the effect set
forth in Exhibit E hereto.
6.1.3 HSR Act. The applicable waiting period under the HSR Act with
respect to the transactions contemplated hereby shall have expired or been
terminated.
6.1.4 Required PUC and Other Consents. The PUC shall have issued an
order approving the transactions contemplated hereby, and such order shall not
contain any restrictions or conditions (other than those in effect on the date
hereof or requiring that the regulatory treatment with respect to the Business
in existence as of the date of this Agreement applicable to Seller be continued
following the transactions contemplated hereby) which would have a Material
Adverse Effect or a material adverse effect on any other regulated business of
Buyer in the state in which the PUC has jurisdiction, and such order shall be
final and unappealable; Seller shall have obtained all statutory, regulatory and
other consents and approvals which are required in order to consummate the
transactions contemplated hereby and to permit Buyer to conduct the Business in
the manner contemplated by Section 3.25 hereof other than those the failure of
which to obtain would not have a Material Adverse Effect. Seller shall have also
obtained (i) all consents and legal opinions required to enable Parent or Buyer
to assume (or for Citizens to assign to Parent or Buyer) the Assumed
Indebtedness (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)) and all other consents and legal
opinions required to enable Seller to sell the Acquired Assets to Buyer at the
Closing (without any change in the tax-exempt status of such Assumed
Indebtedness and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F)), free and clear of all Liens
other than Permitted Exceptions (and specifically free and clear of any Lien
arising under or pursuant to the Mortgage Indenture) and (ii) all consents
required under Contracts and Permits relating to Seller's water appropriation
and flowage rights to the extent reasonably sufficient to enable Buyer to
service the customers of the Business and to service future commitments under
such Contracts.
6.1.5 Injunction; Litigation. (i) No statute, rule, regulation or order
of any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Buyer's ownership of all or any material portion of the
Acquired Assets, nor (ii) shall there be pending or threatened any litigation,
suit, action or proceeding by any party which would reasonably be expected to
materially limit or materially adversely affect Buyer's ownership of the
Acquired Assets.
53
<PAGE>
Pennsylvania
6.1.6 Documents. Seller and Citizens shall have delivered all of the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.7 hereof and
shall have made arrangements reasonably satisfactory to Buyer to deliver to
Buyer as promptly as practicable after the Closing such records (including
customer and employee records) necessary to own and operate the Business.
6.1.7 Related Closings. Buyer shall be reasonably satisfied that the
consummation of each of the asset purchase and sale transactions contemplated by
those certain purchase agreements described on Schedule 6.1.7 (the "Related
Purchase Agreements") will occur concurrently with the Closing.
6.2 Conditions Precedent to Obligations of Seller Parties. The
obligations of the Seller Parties to cause the sale of the Acquired Assets and
to consummate the other transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Seller Parties in their sole discretion):
6.2.1 Performance of Agreements; Representations and Warranties. Parent
and Buyer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them at or prior to the Closing; and the representations and warranties
set forth in this Agreement made by Buyer and Parent shall be true and correct
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time), other than, in all such cases (except Section 4.2), such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a material adverse effect on the respective ability of Buyer and Parent
to perform their obligations under this Agreement and the Transaction Documents,
provided, however, that if any such representation or warranty is already
qualified in any respect by materiality or as to material adverse effect, for
purposes of determining whether this condition has been satisfied, such
materiality or material adverse effect qualification will be in all respects
ignored and such representation or warranty shall be true and correct in all
respects without regard to such qualification (but subject to the overall
exception as to material adverse effect set forth immediately prior to this
proviso). Seller shall have been furnished with a certificate of the President
or Vice President of Parent and Buyer, dated the Closing Date, certifying to the
foregoing.
6.2.2 Opinion of Counsel. Seller shall have received from Dechert Price
& Rhoads, counsel to Parent and Buyer, an opinion dated the Closing Date, in
form and substance satisfactory to Seller, to the effect set forth in Exhibit F
hereto.
6.2.3 HSR Act. The applicable waiting period under the HSR Act with
respect to the transactions contemplated hereby shall have expired or been
terminated.
54
<PAGE>
Pennsylvania
6.2.4 Required PUC and Other Consents. The PUC shall have issued an
order approving the transactions contemplated hereby and such order shall not
contain any restrictions or conditions which would have a material adverse
effect on Seller's business activities in the State in which the PUC has
jurisdiction or any significant adverse effect on Citizens' acquisition and
divestiture activities in that State (including divestiture of the Acquired
Assets), and such order shall be final and unappealable; Seller shall have
obtained all statutory and regulatory consents and approvals which are required
in order to consummate the transactions contemplated hereby, other than those
the failure of which to obtain would not have a material adverse effect on the
Seller after the Closing. Seller shall have obtained (i) all consents and legal
opinions required to enable Parent or Buyer to assume (or Citizens to assign to
Parent or Buyer) the Assumed Indebtedness without any change in the tax-exempt
status thereof and without any event of taxability relating to the matters set
forth in Sections 7.4.1(a)(D) and 7.4.1(b)(F), (ii) all consents and legal
opinions required under the Retained IDRB Documents to enable Seller to retain
the Retained IDRB Indebtedness until maturity and to sell the Acquired Assets to
Buyer at the Closing (in each case without any change in the tax-exempt status
of the Assumed Indebtedness or the Retained IDRB Indebtedness and without any
event of taxability relating to the matters set forth in Sections 7.4.1(a)(D)
and 7.4.1(b)(F)), free and clear of all Liens other than Permitted Exceptions
(and specifically free and clear of any Lien arising under or pursuant to the
Mortgage Indenture), and (iii) all other consents required or advisable in order
for Seller to transfer Acquired Assets without incurring material liability
under any Contract, Permit or Real Estate instrument.
6.2.5 Injunction; Litigation. (i) No statute, rule, regulation or order
of any court or Authority shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement or which would limit or materially
adversely affect Seller's ownership of all or any material portion of its
properties, nor (ii) shall there be pending or threatened any litigation, suit,
action or proceeding by any party which could reasonably be expected to
materially limit or materially adversely affect Seller's ownership of any of its
properties.
6.2.6 Documents. Parent and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Sections 2.7, 5.24 and 5.27,
and shall have taken such actions as Seller may have requested pursuant to
Section 5.25 hereof.
6.2.7 Related Closings. Seller shall be reasonably satisfied that the
consummation of each of the Related Purchase Agreements will occur concurrently
with Closing.
6.3 Termination. This Agreement may be terminated at anytime prior to
the Closing Date:
6.3.1 by mutual written consent of the Seller Parties, Buyer and
Parent;
55
<PAGE>
Pennsylvania
6.3.2 by any of the Seller Parties, Parent or Buyer if: (i) any
governmental or regulatory body the consent of which is a condition to the
obligations of the Seller Parties, Parent and Buyer to consummate the
transactions contemplated hereby shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful; (ii) any court of competent jurisdiction shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable; or (iii) the Closing shall not have occurred on or before March
31, 2001; provided, however, that the right to terminate this Agreement under
this Section 6.3.2(iii) will not be available to any party that is in material
breach of its representations, warranties, covenants or agreements contained
herein; and provided, further, that if Closing has not occurred by such date
because the conditions precedent to Closing set forth in the first sentence of
Section 6.1.4 and the first sentence of Section 6.2.4 have not been fulfilled,
then such date shall be automatically extended to September 30, 2001; or
6.3.3 If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 6.3, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.6 relating to publicity, Sections 3.24 and 4.6 relating to brokerage
and Section 7.1 relating to expenses. Nothing in this Section 6.3 shall be
deemed to release either party from any liability for any willful breach by such
party of the terms and provisions of this Agreement.
ARTICLE 7
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses. Citizens shall be solely responsible
for all state and local sales, use, transfer, real property transfer and other
similar taxes, fees and charges that are calculated based on the value of the
Acquired Assets being transferred arising from and with respect to the sale and
purchase of the Acquired Assets and Buyer shall be solely responsible for all
transfer, registration, documentary stamp, recording and other similar fees and
charges arising from and with respect to the transfer and recording of title
documentation relating to the Acquired Assets. Parent shall be responsible for
all costs and expenses relating to the assumption by or assignment to Parent or
Buyer of the Assumed Indebtedness. Except as otherwise provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
7.2 Maintenance of Books and Records. The Seller Parties, on the one
hand, and Buyer and Parent, on the other hand, shall cooperate fully with each
other after the Closing so that (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege) each party has
access to the business records, contracts and other information existing at the
Closing Date and relating in any manner to the Acquired Assets or the Assumed
Liabilities or the conduct of the Business (whether in the possession of the
Seller Parties or Buyer or Parent). No
56
<PAGE>
Pennsylvania
files, books or records existing at the Closing Date and relating in any manner
to the Acquired Assets or the conduct of the Business shall be destroyed by any
party for a period of six years after the Closing Date without giving the other
party at least 30 days prior written notice, during which time such other party
shall have the right (subject to the provisions hereof) to examine and to remove
any such files, books and records prior to their destruction. The access to
files, books and records contemplated by this Section 7.2 shall be during normal
business hours and upon not less than two (2) business days prior written
request, shall be subject to such reasonable limitations as the party having
custody or control thereof may impose to preserve the confidentiality of
information contained therein, and shall not extend to material subject to a
claim of privilege unless expressly waived by the party entitled to claim the
same.
7.3 Survival.
7.3.1 Subject to this Section 7.3, Section 7.4.2(g) and Section
7.4.2(j), all representations, warranties, covenants and agreements contained in
this Agreement or the Transaction Documents shall survive (and not be affected
in any respect by) the Closing, any investigation conducted by any party hereto
and any information which any party may receive. Notwithstanding
the foregoing:
(a) the covenants contained in Sections 5.1, 5.3, 5.4, 5.5, 5.8.2
through 5.8.4 and 5.21 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought after, the third anniversary of the Closing Date;
(b) the covenants contained in Section 5.2 and the related indemnity
obligations contained in Section 7.4 shall terminate on, and no action or claim
with respect thereto may be brought after, the Closing Date;
(c) the representations and warranties contained in Sections 3.12 and
3.16 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought
following the expiration of the applicable statute of limitations (or extensions
or waivers thereof);
(d) the representations and warranties contained in Section 3.2 and the
related indemnity obligations contained in Section 7.4 shall survive for an
unlimited period of time;
(e) the representations and warranties contained in Section 3.10 and
the related indemnity obligations contained in Section 7.4 shall terminate on,
and no action or claim with respect thereto may be brought after, the third
anniversary of the Closing Date;
57
<PAGE>
Pennsylvania
(f) the representations and warranties contained in Section 3.7 and
3.17 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the third anniversary of the Closing Date;
(g) the representations and warranties contained in Sections 3.3, 3.5,
3.6, 3.8, 3.9 and 3.25 and the related indemnity obligations contained in
Section 7.4 shall terminate on, and no action or claim with respect thereto may
be brought after, the third anniversary of the Closing Date;
(h) the representations and warranties contained in Section 3.11 and
the related indemnity obligations contained in Section 7.4 shall terminate on,
and no action or claim with respect thereto may be brought after, the third
anniversary of the Closing Date;
(i) the representations and warranties contained in Section 4.2 and the
related indemnity obligations contained in Section 7.4 shall survive for an
unlimited period of time;
(j) the representations and warranties contained in Sections 4.3 and
4.4 and the related indemnity obligations contained in Section 7.4 shall
terminate on, and no action or claim with respect thereto may be brought after,
the third anniversary of the Closing Date;
(k) the representations and warranties contained in Section 4.5 and the
related indemnity obligations contained in Section 7.4 shall terminate on, and
no action or claim with respect thereto may be brought after, the Closing Date;
and
(l) all other representations and warranties contained in this
Agreement and the related indemnity obligations contained in Section 7.4 shall
terminate on and no further action or claim with respect thereto may be brought
after, the second anniversary of the Closing Date;
(m) such representations and warranties specified in the foregoing
clauses (c) through (k), and the covenants contained in Section 5.1, 5.2, 5.3,
5.4, 5.5, 5.8.2 through 5.8.4 and 5.21 and the liability of any party with
respect thereto, shall not terminate with respect to any claim, whether or not
fixed as to liability or liquidated as to amount, with respect to which such
party has been given written notice setting forth the facts upon which the claim
for indemnification is based and, if possible, a reasonable estimate of the
amount of the claims prior to the relevant anniversary of the Closing Date or
the 30th day after the expiration of the applicable statute of limitations (or
extensions or waivers thereof), as the case may be. If any claim for
indemnification is asserted or could be asserted with respect to a breach or
asserted breach of Section 3.17 (Undisclosed Liabilities) and the Buyer or
Parent is also entitled to indemnification in respect of that claim for breach
or asserted breach of any other representation or warranty in this Agreement for
which there is a shorter survival period, such shorter period will apply to such
claim except to the
58
<PAGE>
Pennsylvania
extent that such claim is a product liability, toxic tort or similar claim (as
described in Section 2.3.3(a)) brought by a private party litigant.
7.3.2 No claim for indemnity under Section 7.4 shall be brought or made
by Buyer or Parent pursuant to Sections 7.4.1(a)(B) or 7.4.1(a)(C):
(a) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), for any action or claim with respect to the Pre-Existing Conditions;
(b) after the tenth anniversary of the Closing Date (the seventh
anniversary of the Closing Date in the event of a Change of Control of
Citizens), with respect to the presence of Hazardous Substances at any locations
other than the Real Estate; and
(c) after the third anniversary of the Closing Date, for any action or
claim with respect to any other Retained Liability;
Provided, however, that the foregoing time limitations shall not apply
to any such claims which have been the subject of a written notice from Parent
and/or Buyer to the Seller Parties prior to such period setting forth the facts
upon which the claim for indemnification is based and, if possible, a reasonable
estimate of the amount of the claims; and, provided, further, that the foregoing
time limitations shall also not apply to any such claims: (u) with respect to
Taxes; (v) with respect to any liability of the types that appear as "Trade
Payables" or "Other Current and Accrued Liabilities" on the financial statements
of Seller; (w) not exclusively related to the Acquired Assets or not exclusively
related to the Business; and (x) with respect to any of the matters discussed in
Section 3.16 hereof.
For purposes of Sections 7.3.2(a) and (b), a "Change of Control of
Citizens" shall be deemed to have occurred if: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), other than an underwriter engaged in a firm commitment
underwriting on behalf of Citizens, is or becomes the beneficial owner (as such
term is used in Rule 13D-3 and 13D-5 under the Exchange Act, except that for
purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding shares of common stock of
the Company; (ii) all or substantially all of Citizens' and its Subsidiaries'
assets are sold, leased, exchanged or otherwise transferred to any person or
group of persons acting in concert; (iii) Citizens is merged or consolidated
with any other person, whether or not Citizens is the surviving corporation in
such merger or consolidation; or (iv) Citizens is liquidated or dissolved or
adopts a plan of liquidation.
7.4 Indemnification. Seller, Parent and Buyer agree as follows:
59
<PAGE>
Pennsylvania
7.4.1 General Indemnification Obligations.
(a) Seller shall indemnify Buyer and its directors, officers and other
Affiliates (including Parent) and hold Buyer and such other parties harmless
from and against any and all Damages arising out of or resulting from (A) any
breach of any representation, warranty, covenant or agreement made by the Seller
Parties in this Agreement or in any document or certificate required to be
furnished to Buyer by any of the Seller Parties pursuant to this Agreement
(including the Transaction Documents); (B) subject to Section 7.3.2, any
Excluded Assets or Retained Liabilities; (C) subject to Section 7.3.2, the
ownership, operation or use of any of the businesses or assets of the Seller
Parties or their Affiliates (other than the Business and the Acquired Assets)
whether before, on or after the Closing Date; and (D) an event of taxability, as
such term is customarily used in municipal securities transactions, relating to
the Retained IDRB Indebtedness and arising from the sale of the Acquired Assets
pursuant to this Agreement.
(b) Buyer and Parent shall indemnify Seller, and their directors,
officers and other Affiliates (including Citizens) and hold Seller and such
other parties harmless from and against any and all Damages arising out of or
resulting from (A) any breach of any representation, warranty, covenant or
agreement made by Parent or Buyer in this Agreement or in any document or
certificate required to be furnished to Seller by Parent or Buyer pursuant to
this Agreement (including the Transaction Documents), including the Buyer's IDRB
Obligations; (B) any Assumed Liabilities after the Closing Date, including the
Assumed Indebtedness; (C) the ownership, operation or use of the Business or the
Acquired Assets after the Closing Date (except to the extent resulting from
Retained Liabilities or to the extent resulting from breaches by the Seller
Parties of representations, warranties, covenants or agreements hereunder or in
the other Transaction Documents); (D) any claim by a Transferred Employee or a
Former Employee referred to on Schedule 5.12 or the Beneficiary of any such
employee or former employee for post-retirement health care or life insurance
benefits "incurred" (within the meaning of Section 5.9.4) after the Closing; (E)
any violation by Parent or Buyer, or any assignee, lessee or successor of Parent
or Buyer, of the covenants and agreements as provided by Section 5.16.3 hereof
and Section 5 of Exhibit D hereto; and (F) an event of taxability, as such term
is customarily used in municipal securities transactions, relating to the
Assumed Indebtedness and arising from the sale of the Acquired Assets pursuant
to this Agreement and/or the assignment or assumption of the Assumed
Indebtedness.
(c) For purposes of this Agreement, "Damages" shall mean any and all
losses, liabilities, obligations, damages (including any governmental
penalty or punitive damages assessed or asserted against the party seeking
indemnification and including costs of investigation, clean-up and remediation),
deficiencies, interest, costs and expenses and any claims, actions, demands,
causes of action, judgments, costs and reasonable expenses (including reasonable
attorneys' fees and all other reasonable expenses incurred in investigating,
preparing or defending any litigation or proceeding, commenced or threatened,
incident to the successful enforcement of this Agreement). For purposes of this
Section 7.4, the determination of whether any breach of any representation,
covenant or agreement has occurred, and the calculation of the amount of Damages
60
<PAGE>
Pennsylvania
incurred by the Indemnified Party arising out of or resulting from any breach of
a representation, covenant or agreement by any party hereto, the references to a
"Material Adverse Effect" or materiality (or other correlative terms) shall be
disregarded, provided that no such breach shall be found to have occurred due to
facts or circumstances arising from an occurrence or condition described in
Section 1.1.61(a). Notwithstanding the foregoing, Damages shall not include the
loss of profits of the party seeking indemnification, or punitive damages unless
the party seeking indemnification has had punitive damages assessed or asserted
against it.
(d) Notwithstanding any language contained in any Transaction Document
(including deeds to Real Estate and instruments delivered by Seller to the Title
Company), representations and warranties as to Real Estate set forth in Section
3.10 and 3.11 will not be merged into any Transaction Document and the
indemnification obligations of Seller, and the limitations on such obligations,
set forth in this Agreement, shall control. No provision set forth in any
Transaction Document shall be deemed to enlarge, alter or amend the terms or
provisions of this Agreement.
7.4.2 General Indemnification Procedures.
(a) A party seeking indemnification pursuant to this Section 7.4 (an
"Indemnified Party") shall give prompt written notice to the party from whom
such indemnification is sought (the "Indemnifying Party") of the assertion of
any claim, the incurrence of any Damages, or the commencement of any action,
suit or proceeding, of which it has knowledge and in respect of which indemnity
may be sought hereunder, and will give the Indemnifying Party such information
with respect thereto as the Indemnifying Party may reasonably request, but
failure to give such required notice shall relieve the Indemnifying Party of any
liability hereunder only to the extent that the Indemnifying Party has suffered
actual prejudice thereby. The Indemnifying Party shall have the right,
exercisable by written notice to the Indemnified Party after receipt of notice
from the Indemnified Party of the commencement of or assertion of any claim or
action, suit or proceeding by a third party in respect of which indemnity may be
sought hereunder (a "Third Party Claim"), to assume the defense of such Third
Party Claim which involves (and continues to involve) solely monetary damages;
provided, that (A) the Indemnifying Party expressly agrees in such notice that,
as between the Indemnifying Party and the Indemnified Party, solely the
Indemnifying Party shall be obligated to satisfy and discharge the Third Party
Claim, (B) such Third Party Claim does not include a request or demand for
injunctive or other equitable relief by an Authority and (C) the Indemnifying
Party makes reasonably adequate provision to assure the Indemnified Party of the
ability of the Indemnifying Party to satisfy the full amount of any adverse
monetary judgment that is reasonably likely to result. The Indemnifying Party
shall be deemed to have satisfied the condition set forth in clause (C) of the
proceeding sentence if it is a regulated utility.
(b) Neither the Indemnified Party nor the Indemnifying Party shall
settle any Third Party Claim without the prior written consent of the other,
which consent shall not be unreasonably withheld or delayed.
61
<PAGE>
Pennsylvania
(c) The Indemnifying Party or the Indemnified Party, as the case may
be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third Party Claim which the other party is defending
as provided in this Agreement.
(d) Amounts paid in respect of indemnification obligations of the
parties shall be treated as an adjustment to the Purchase Price.
(e) Subject to Section 7.4.2(f) and Section 7.4.2(i), neither Parent
nor Buyer (and the other Persons for which they can claim indemnity hereunder)
shall be entitled to indemnification for Damages incurred unless the aggregate
amount of Damages incurred by Parent or Buyer (or the other Persons for which
they can claim indemnification), together with all other claims for Damages
under Section 7.4.2(e) of each of the Related Purchase Agreements, exceeds
$6,123,000 in the aggregate (the "Threshold Amount"), in which case Seller shall
then be liable for Damages in excess of the Threshold Amount. Subject to Section
7.4.2(f) and Section 7.4.2(i), the cumulative aggregate indemnity obligation of
Citizens and its Affiliates under Section 7.4 of this Agreement and the Related
Purchase Agreements shall not exceed $60,000,000 (the "Ceiling").
(f) Notwithstanding the foregoing, the parties acknowledge that Parent
or Buyer (and the other Persons for which they can claim indemnity hereunder)
shall be entitled to indemnification for Damages in respect of intentional
and wilful breaches of covenants or agreements in this Agreement or any of the
Retained Liabilities other than the Specified Liabilities irrespective of the
Threshold Amount or the Ceiling (it being understood that the failure to cure a
breach shall not, by itself, be an intentional and wilful breach). As used
herein, the "Specified Liabilities" shall mean the Retained Liabilities arising
from claims made after the Closing Date which (i) do not relate to matters
within the scope of clauses (u), (v), (w) and (x) of Section 7.3.2; (ii) were
not known to the Seller Parties on or prior to Closing; and (iii) relate
exclusively to the Acquired Assets or the Business prior to the Closing Date.
Notwithstanding anything to the contrary in this Section 7.4, Parent or Buyer
(or the other Persons for which they can claim indemnification) shall be
entitled to indemnification for Damages in respect of a breach of Section 3.2,
3.12 or 3.16 irrespective of the Threshold Amount or the Ceiling.
(g) The rights and remedies of Seller, Parent and Buyer under this
Section 7.4 are exclusive and in lieu of any and all other rights and remedies
which Seller, Parent and Buyer may have under this Agreement or otherwise for
monetary relief with respect to (x) the inaccuracy of any representation,
warranty, certification or other statement made (or deemed made) by Seller,
Parent or Buyer in or pursuant to this Agreement or any of the Transaction
Documents or (y) any breach or failure to perform any covenant or agreements set
forth in this Agreement or any of the Transaction Documents.
(h) Except to the extent provided in Section 7.4.2(j) below, no right
to indemnification under this Section 7.4 shall be limited by reason of any
investigation or audit conducted before or after the Closing of any party hereto
including, without limitation, the
62
<PAGE>
Pennsylvania
knowledge of such party of any breach of any representation, warranty, agreement
or covenant by the other party at any time, or the decision by such party to
complete the Closing.
(i) No party shall have any liability to another party under this
Section 7.4 for Damages (and no cost or expense relating to such Damages shall
be included in determining the extent of Damages incurred by such party for
purposes of Section 7.4.2(e)) to the extent that:
(A) the Indemnified Party recovers insurance proceeds covering the
Damages or otherwise recovers payments in respect of such Damages from any other
source (whether in a lump sum or stream of payments); or
(B) the Indemnified Party's Tax liability is actually reduced as a
result of a tax benefit to which the Indemnified Party becomes entitled in
respect of the Damages.
(j) Seller shall have no liability or obligation under this Section 7.4
for any Damages resulting from the inaccuracy or breach of any representation or
warranty if such inaccuracy or breach is disclosed by Seller pursuant to and in
accordance with Sections 5.3 and 8.4 hereof;
(k) Buyer agrees to use its commercially reasonable efforts to give
timely and effective written notice to the appropriate insurance carrier(s) of
any occurrence or circumstances which, in the judgment of Buyer consistent with
its customary risk management practices, appear likely to give rise to a claim
against Buyer that is likely to involve one or more insurance policies of Buyer.
Any such notice shall be given in good faith by Buyer without regard to the
possibility of indemnification payments by Seller under this Section 7.4, and
shall be processed by Buyer in good faith and in a manner consistent with its
risk management practices involving claims for which no third party contractual
indemnification is available. Buyer agrees that (i) if it is entitled to receive
payment from Seller for Damages arising under or pursuant to a breach of the
representation and warranty set forth in Section 3.10, and (ii) if Buyer has
obtained title insurance which may cover the claim or matter giving rise to such
Damages, then (iii) such title insurance shall be primary coverage and Buyer
will make a claim under the title insurance if such claim can be made in good
faith before enforcing its right to receive payment from Seller. Buyer shall be
under no obligation to obtain title insurance or prosecute such claim (other
than the initial filing of such claim).
(l) If at any time subsequent to the receipt by an Indemnified Party of
an indemnity payment hereunder, such Indemnified Party (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with respect
to the Damages for which it received such indemnity payment (including insurance
proceeds and other payments pursuant to Section 7.4.2(i)(A) and a tax benefit
pursuant to Section 7.4.2(i)(B)) (the "Recovery"), such Indemnified Party shall
promptly pay to the Indemnifying Party an amount equal to the amount of such
Recovery,
63
<PAGE>
Pennsylvania
less any expense incurred by such Indemnified Party (or its Affiliates) in
connection with such Recovery, but in no event shall any such payment exceed the
amount of such indemnity payment;
(m) In the event of any indemnification claim under this Section 7.4
involving the claim of any third party, the Indemnified Party shall cooperate
fully (and shall cause its Affiliates to cooperate fully) with the Indemnifying
Party in the defense of any such claim under this Section 7.4. Without limiting
the generality of the foregoing, the Indemnified Party shall furnish the
Indemnifying Party with such documentary or other evidence as is then in its or
any of its Affiliates' possession as may reasonably be requested by the
Indemnifying Party for the purpose of defending against any such claim. Whether
or not the Indemnifying Party chooses to defend or prosecute any claim involving
a third party, all the parties hereto shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and testimony,
and attend such conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested in connection therewith.
7.4.3 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL
FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
7.5 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Acquired Assets or the
Business to Buyer. In addition, Seller will execute such documents and financing
statements as Buyer may reasonably request from time to time to evidence
transfer of the Acquired Assets to Buyer in accordance with this Agreement,
including any necessary assignment of financing statements.
7.6 Financial Statements. In connection with the preparation and filing
of any registration statement or periodic report of Buyer or its Affiliates
pursuant to Rule 3-05, Article 11 of Regulation S-X or other rule or regulation
promulgated under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, Seller, at Buyer's expense, shall provide
Buyer (a) by April 30, 2000 or within 120 days after Buyer's written request
therefor if made after January 1, 2000, with the following audited financial
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal year prior to Closing; and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business for the
last fiscal year prior to Closing (in each case combined with the businesses
being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements), including opinions thereon of Seller's Accountants, and (b) within
90 days after Buyer's written request made therefor (provided such request is
made after the end of the fiscal quarter described below), the following
unaudited
64
<PAGE>
Pennsylvania
statements: (i) a statement of net assets of the Business as of the end of the
last fiscal quarter prior to Closing (but only if such quarter is subsequent to
the last fiscal year prior to Closing); and (ii) a statement of income of the
Business and a statement of cash flows or its equivalent of the Business, for
the period from the end of the last fiscal year through the end of the last
fiscal quarter prior to Closing (in each case combined with the businesses being
acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase
Agreements).
7.7 Collection of Receivables. Seller agrees that it shall promptly
(and in any event no later than five (5) Business Days following receipt)
deliver all such payments with respect to accounts receivable from customers of
the Business received on and after the Closing Date (including but not limited
to negotiable instruments tendered in payment of accounts receivable assigned to
Buyer hereunder which shall be duly endorsed by Seller to the order of Buyer) to
Buyer. Seller shall cooperate with Buyer in coordinating the transfer of
collection agents and customers of the Business who pay their bills through the
Automated Clearinghouse (ACH) process to Buyer.
ARTICLE 8
MISCELLANEOUS
8.1 Construction. Parent, Buyer and the Seller Parties have
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event any ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by Parent, Buyer and the Seller Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" in this Agreement shall mean
including without limitation. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified. The word "or" shall not be exclusive. Provisions of this Agreement
shall apply, when appropriate, to successive events and transactions. Section
references refer to this Agreement unless otherwise specified.
8.2 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, by registered or certified
mail (return receipt requested) with postage and registration or certification
fees thereon prepaid, or by any nationally recognized overnight courier
addressed to the party at its address set forth below:
65
<PAGE>
Pennsylvania
If to Parent:
American Water Works Company
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Fax: (609) 346-8299
Attention: General Counsel
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Buyer:
Pennsylvania-American Water Company
800 West Hersheypark Drive
Hershey, PA 17033
Fax: (717) 531-3252
Attention: Corporate Counsel
with a copy to Parent and a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Fax: (215) 994-2222
Attention: Craig Godshall, Esq.
If to Seller:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: Robert J. DeSantis
Telecopier: (203) 614-4625
66
<PAGE>
Pennsylvania
with copies to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II
Telecopier: (203) 614-4651
and
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: J. Michael Love
Telecopier: (203) 614-5201
and
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention Jeffry L. Hardin
Telecopier: (202) 387-3467
8.3 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto; provided that Seller
may assign its rights or delegate its duties under this Agreement to a qualified
intermediary chosen by Seller to structure the transactions contemplated hereby
as a like-kind exchange of property covered by Section 1031 of the Code.
8.4 Exhibits and Schedules. All Exhibits and Disclosure Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Disclosure of any fact or item
in any Schedule referenced by a particular paragraph or Section in this
Agreement shall, should the existence of the fact or item or its contents be
clearly related to any other paragraph or section, be deemed to be disclosed
with respect to that other paragraph or section.
8.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
67
<PAGE>
Pennsylvania
8.6 Dispute Resolution. Except as otherwise provided herein, any
dispute, controversy or claim between the parties relating to, arising out of or
in connection with this Agreement (or any subsequent agreements or amendments
thereto), including as to its existence, enforceability, validity,
interpretation, performance or breach or as to indemnification or damages,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being herein referred to
as a "Dispute") shall be settled without litigation and only by use of the
following alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint a
knowledgeable, responsible representative to meet and negotiate in good faith to
resolve any Dispute. The discussions shall be left to the discretion of the
representatives. Upon agreement, the representatives may utilize other
alternative dispute resolution procedures such as mediation to assist in the
negotiations. Discussions and correspondence among the parties' representatives
for purposes of these negotiations shall be treated as confidential information
developed for the purposes of settlement, exempt from discovery and production,
and without the concurrence of both parties shall not be admissible in the
arbitration described below, or in any lawsuit. Documents identified in or
provided with such communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be admitted
in the arbitration.
(b) If negotiations between the representatives of the parties do not
resolve the Dispute within 60 days of the initial written request, the Dispute
shall be submitted to binding arbitration by a single arbitrator pursuant to the
Commercial Arbitration Rules, as then amended and in effect, of the American
Arbitration Association (the "Rules"); provided, however, that at the election
of either party, the arbitration shall take place before three (3) arbitrators,
one arbitrator being selected by Parent, one arbitrator being selected by
Citizen, and the third arbitrator, knowledgeable in the general subject matter
of the dispute, controversy or claim, being selected by the other two
arbitrators. Either party may demand such arbitration in accordance with the
procedures set out in the Rules. The parties hereto shall use reasonable efforts
to coordinate any arbitration commenced under this Agreement with any
arbitration on the same or similar issues commenced under any of the Related
Purchase Agreements so that the resolution of the arbitration under this
Agreement and the similar issues under the Related Purchase Agreements can be
resolved as expeditiously and efficiently as reasonably practicable. Reasonable
efforts shall include use of a common arbitrator or panel of arbitrators where
practicable. The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's demand for
arbitration. The arbitrator(s) shall have the power to and will instruct each
party to produce evidence through discovery (i) that is reasonably requested by
the other party to the arbitration in order to prepare and substantiate its case
and (ii) the production of which will not materially delay the expeditious
resolution of the dispute being arbitrated; each party hereto agrees to be bound
by any such discovery order. The arbitrator(s) shall control the scheduling (so
as to process the matter expeditiously) and any discovery. The parties may
submit written briefs. At the arbitration hearing, each party may make written
and oral presentations to the arbitrator(s), present testimony and written
evidence and examine witnesses. No party shall be eligible to receive, and the
arbitrator(s) shall not have the authority to award, exemplary or punitive
damages. The
68
<PAGE>
Pennsylvania
arbitrator(s) shall rule on the Dispute by issuing a written opinion within 30
days after the close of hearings. The arbitrators' majority decision shall be
binding and final. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in submitting and
presenting its position with respect to any Dispute to the arbitrator(s);
provided, however, that if the arbitrator(s) determines that the position taken
in the Dispute by the non-prevailing party taken as a whole is unreasonable, the
arbitrator(s) may order the non-prevailing party to bear such fees and expenses,
and reimburse the prevailing party for all or such portion of its reasonable
costs and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the circumstances.
Each party to the arbitration shall pay one-half of the fees and expenses of the
arbitrator(s) and the American Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i) either
party may commence an action to compel compliance with this Section 8.6 and (ii)
if any party, as party of a Dispute, seeks injunctive relief or any other
equitable remedy, including specific enforcement, then such party shall be
permitted to seek such injunctive or equitable relief in any federal or state
court or competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceed under this Section 8.6.
8.7 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
8.8 No Third Party Beneficiaries. Nothing herein expressed or implied
is intended or should be construed to confer upon or give to any Person other
than the parties hereto and their successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
8.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto
and the other Transaction Documents, and the Confidentiality Agreement dated
August 2, 1999, between Citizens and Parent, (i) together constitute the entire
understanding of the parties (and their affiliates) with respect to the subject
matter hereof, and any related matter, (ii) supercede all prior agreements or
understandings, written or oral, entered into by any of the parties that concern
the subject matter hereof and (iii) are not intended to confer upon any Person
other than the parties hereto any benefit, right or remedy.
8.10 Amendment and Waiver. The parties may, by mutual agreement, amend
this Agreement in any respect, and any party, as to such party, may (i) extend
the time for the performance of any of the obligations of the other party; (ii)
waive any inaccuracies in
69
<PAGE>
Pennsylvania
representations and warranties by the other party; (iii) waive compliance by the
other party with any of the covenants or agreements contained herein and
performance of any obligations by the other party; and (iv) waive the
fulfillment of any condition that is precedent to the performance by such party
of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the party providing such
waiver or extension, as the case may be. The waiver by any party hereto of any
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach, whether or not similar.
8.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.12 Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
8.13 Definitions. For purposes of this Agreement, references to the
knowledge of the Seller Parties (including a reference to "the best of the
knowledge of the Seller Parties" and similar references) shall mean the actual
knowledge possessed by any of the following officers or employees of Citizens:
Chief Financial Officer, Vice President and Treasurer; President, Citizens
Public Services; Vice President, Corporate Human Resources; Secretary; Vice
President, Water; and the general manager of the Business.
8.14 No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN
THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER OF
THE SELLER PARTIES ARE MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, ANY SCHEDULE HERETO,
THE TRANSACTION DOCUMENTS, OR ANY DOCUMENT, EXHIBIT, CERTIFICATE, INSTRUMENT OR
STATEMENT TO BE DELIVERED HEREUNDER OR THEREUNDER INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF THE ACQUIRED
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT ANY COST ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS CONTAINED OR
REFERRED TO IN THE SCHEDULES AND ANY COST ESTIMATES, PROJECTIONS OR PREDICTIONS
OR ANY OTHER INFORMATION CONTAINED OR REFERRED TO IN OTHER MATERIALS THAT HAVE
BEEN OR SHALL HEREINAFTER BE PROVIDED TO PARENT, BUYER OR ANY OF THEIR
AFFILIATES, AGENTS OR REPRESENTATIVES ARE NOT AND SHALL NOT BE DEEMED TO BE
REPRESENTATIONS OR WARRANTIES OF ANY OF THE SELLER PARTIES.
70
<PAGE>
Pennsylvania
8.15 Construction of Certain Provisions. It is understood and agreed
that neither the specification of any dollar amount in the representations and
warranties contained in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the parties shall use the fact of the setting of such amounts or the
fact of any inclusion of any such item in the Schedules or Exhibits in any
dispute or controversy between the parties as to whether any obligation, item or
matter is or is not material for purposes hereof.
8.16 Bulk Sales. Buyer agrees that it shall not make any filings under
any tax bulk sales provisions with respect to the transactions contemplated by
this Agreement.
[Signatures appear on following page.]
71
<PAGE>
Pennsylvania
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.
CITIZENS UTILITIES COMPANY
By: Robert J. DeSantis
---------------------------------------------
Robert J. DeSantis, Chief Financial
Officer, Vice President and Treasurer
CITIZENS BUSINESS SERVICES COMPANY
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES WATER COMPANY OF PENNSYLVANIA
By: Robert J. DeSantis
---------------------------------------------
Robert J. DeSantis, Vice President
AMERICAN WATER WORKS COMPANY, INC.
By: Joseph F. Hartnett, Jr.
--------------------------------------------
Joseph F. Hartnett, Jr., Treasurer
PENNSYLVANIA-AMERICAN WATER COMPANY
By: R. M. Ross
--------------------------------------------
R. M. Ross, President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Assumption") is made as of _____________,
by Pennsylvania-American Water Company, a Pennsylvania corporation
("Transferee"), in favor of Citizens Utilities Company, a Delaware corporation
("citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor").
This Assumption is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and between
Transferor and American Water Works Company, Inc. (the "agreement").
Capitalized terms not otherwise defined in this Assumption shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferee does hereby assume and
agree to observe, comply with, and perform in accordance with the terms of each
of, the Assumed Liabilities. Transferee does not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, and neither the execution, delivery and performance of the
Agreement nor the execution, delivery and performance of this Assumption shall
render Transferee liable for any such liability, obligation, undertaking,
expense or agreement other than the Assumed Liabilities.
No provisions set forth in this Assumption shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assumption and provisions of the
Agreement, the Agreement shall control.
This Assumption is made solely for the benefit of Transferor and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws rules of Delaware.
This Assumption may be executed in counterparts, each of which shall be
deemed an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assumption effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES WATER COMPANY OF PENNSYLVANIA
By:________________________________________________
Name:
Title:
TRANSFEREE:
PENNSYLVANIA-AMERICAN WATER COMPANY
By:________________________________________________
Name:
Title:
Signature Page of Assumption Agreement
among Transferor and Transferee, dated _______
-2-
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment (this "Assignment") is made as of
________________, by Citizens Utilities Company, a Delaware corporation
("Citizens"), and each of the wholly-owned subsidiaries of Citizens named on the
signature page hereof (collectively with Citizens, "Transferor"), in favor of
Pennsylvania-American Water Company, a Pennsylvania corporation ("Transferee").
This Assignment is entered into pursuant to, and is subject to, the terms
of the Asset Purchase Agreement dated as of October 15, 1999, by and among
Transferor and American Water Works Company, Inc. (the "Agreement").
Capitalized terms not otherwise defined in this Assignment shall have the
meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions contemplated
by the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transferor does hereby grant,
bargain, sell, transfer and assign and convey unto Transferee, its successors
and assigns, all of the rights, title and interest of the Transferor in and to
the Acquired Assets.
No provisions set forth in this Assignment shall be deemed to enlarge,
alter or amend the terms and provisions of the Agreement. In the event of any
conflict between the provisions of this Assignment and the provisions of the
Agreement, the Agreement shall control.
This Assignment is made solely for the benefit of Transferee and no third
party shall have any right to enforce its terms or to rely on it.
This instrument and the rights of the parties under it shall be governed by
and construed in accordance with laws of the State of Delaware, without regard
to conflicts of laws rules of Delaware.
This Assignment may be executed in counterparts, each of which shall be
deemed an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment effective
as of the date first written above.
TRANSFEROR:
CITIZENS UTILITIES COMPANY
By:________________________________________________
Name:
Title:
CITIZENS RESOURCES COMPANY
CITIZENS UTILITIES WATER COMPANY OF PENNSYLVANIA
By:________________________________________________
Name:
Title:
TRANSFEREE:
PENNSYLVANIA-AMERICAN WATER COMPANY
By:_________________________________________________
Name:
Title:
Signature Page of Bill of Sale and Assignment among
Transferor and Transferee, dated __________
-2-
<PAGE>
EXHIBIT D
================================================================================
RETAINED IDRB OBLIGATIONS AGREEMENT
among
CITIZENS UTILITIES COMPANY
AND
CERTAIN OF ITS AFFILIATES,
as Seller
and
AMERICAN WATER WORKS COMPANY, INC.
AND
CERTAIN OF ITS AFFILIATES,
as Buyer
Dated as of ___________________, 2000
<PAGE>
RETAINED IDRB OBLIGATIONS AGREEMENT
THIS RETAINED IDRB OBLIGATIONS AGREEMENT (this "Agreement") is made as of
the ____ day of ____________________, 2000, by and between CITIZENS UTILITIES
COMPANY, a Delaware corporation, and each of the wholly-owned subsidiaries of
Citizens Utilities Company named on the signature page hereof (collectively,
"Seller"), and AMERICAN WATER WORKS COMPANY, INC., a Delaware corporation
("Parent"), and each of the subsidiaries of Parent named on the signature page
hereof (collectively with Parent, "Buyer"). Capitalized terms used herein shall
have the meanings ascribed to them in Article I, unless otherwise provided.
W I T N E S S E T H :
WHEREAS, Seller and Buyer have entered into that certain Asset Purchase
Agreement dated as of October , 1999 (the "Purchase Agreement"), pursuant to
which as of the date hereof Seller has sold and Buyer has purchased the Assets
(as hereinafter defined); and
WHEREAS, such Assets include assets financed through the issuance by
[ISSUER] (the "Issuer") of certain Retained IDRB Indebtedness (as hereinafter
defined and as identified by Schedule I attached hereto); and
WHEREAS, notwithstanding such sale of the Assets, Seller remains primarily
liable for the payment and other obligations arising under the respective
financing agreements identified by Schedule I attached hereto relating to the
Retained IDRB Indebtedness (collectively, the "Loan Agreements"); and
WHEREAS, Buyer henceforth will have legal title to and entire operational
control of the Assets and Seller will have no further rights to enter, possess
or otherwise operate, control or maintain the Assets; and
WHEREAS, Seller's primary liability will terminate upon the respective
termination of the Loan Agreements; and
WHEREAS, pursuant to Section 5.24(a)(ii) of the Purchase Agreement, Buyer
has agreed "at Closing to execute and deliver to Seller an agreement . . . with
respect to each issuer of Bonds relating to Retained IDRB Documents that will be
outstanding after the Closing Date;" and
WHEREAS, Seller and Buyer intend that this Agreement is and shall be that
agreement required to be delivered pursuant to Section 5.24(a)(ii) of the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1. Certain Defined Terms. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Assets" means, collectively, all of the assets, property and interests of
every type and description, real, personal or mixed, tangible and intangible,
owned by Seller (as defined in the Purchase Agreement) and relating to the
Business (as defined in the Purchase Agreement), other than the "Excluded
Assets" (as defined in the Purchase Agreement).
"IDRB Documents" means, collectively, the Loan Agreements, the Tax
Regulatory Agreements, Tax Representations and Project Certificates to which
Seller is a party or by which any of the Assets is bound, and relating to the
Retained IDRB Indebtedness.
"IRS" means the Internal Revenue Service or any successor agency.
"Retained IDRB Indebtedness" means, collectively, the indebtedness of
Seller owing to the Issuer of the Bonds (as defined by each Loan Agreement and
as described further on Schedule I attached hereto) and arising under the Loan
Agreements included among the IDRB Documents.
Section 2. Receipt and Review of IDRB Documents. Buyer hereby
acknowledges that it has received the IDRB Documents and has had the opportunity
to review the agreements, obligations and covenants of Seller set forth in such
IDRB Documents and related Indentures of Trust and certain No Arbitrage
Certificates, including, in particular, those agreements, obligations,
representations, warranties and covenants relating to the ownership, operation,
use and maintenance of the Assets, to the preservation of the tax-exempt status
of the Retained IDRB Indebtedness and to the indemnification by Seller of the
Issuer.
Section 3. Representations Regarding Assets. Seller hereby represents
that it has performed all duties and obligations of "Company" under the IDRB
Documents relating to the ownership, operation, use and maintenance of the
Assets financed with the proceeds of the Retained IDRB Indebtedness and that the
representations and warranties of "Company" relating to the ownership,
operation, use and maintenance of such Assets under the IDRB Documents remain
true and correct.
Section 4. Covenant Regarding Tax Exemption. Buyer represents, warrants,
covenants and agrees that it is in the business of providing water utility and
sewage services, and that, so long as any Retained IDRB Indebtedness is
outstanding, it will cause the Assets that were acquired, constructed, improved
or equipped with the proceeds of such Retained IDRB Indebtedness to be used as
facilities for the furnishing of water (that is, (a) the water is or will be
made available to members of the general public (including electric utility,
industrial, agricultural or commercial users) and (b) either the facility is
operated by a governmental unit or the rates for
2
<PAGE>
the furnishing or sale of water have been established or approved by a State or
political subdivision thereof, by an agency or instrumentality of the United
States or by a public service or public utility commission or other similar body
of any State or political subdivision thereof) or sewage facilities within the
meaning of Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as
amended, or Section 142(a)(5) of the Internal Revenue Code of 1986, as amended,
as the case may be. Buyer further represents, warrants, covenants and agrees
that it will not violate or otherwise contravene any representation, warranty,
covenant or other agreement or obligation set out by the IDRB Documents as in
effect on October __, 1999, which are applicable to Buyer's ownership of the
Assets, other than (x) the sale pursuant to the Asset Purchase Agreement of the
Assets to Buyer, (y) subject to the two next succeeding sentences, any such
covenants relating to the application of the proceeds of any eminent domain
proceeding or casualty loss and (z) insofar as they are not integral to Buyer's
use and operation of the Assets, the representations, warranties, covenants or
other agreements or obligations relating to the tax-exempt status of the
interest on such Retained IDRB Indebtedness. Buyer shall notify Seller in
writing promptly upon Buyer receiving notice of any threatened or impending
eminent domain proceeding against the Assets or of any material casualty loss of
Assets financed with Retained IDRB Indebtedness, shall cooperate in good faith
with Seller in Seller's efforts to ascertain the consequences of any such
eminent domain proceeding or casualty loss for the tax exemption of the Retained
IDRB Indebtedness, and shall not take any action with respect to the proceeds of
an eminent domain proceeding or insurance claim without express written consent
of Seller, which consent will not be withheld if Buyer is in receipt of a "no
adverse effect" opinion of nationally recognized bond counsel. Notwithstanding
the next preceding sentence, as between Seller and Buyer, Seller, without
recourse to Buyer, shall be responsible for any payments with respect to the
Retained IDRB Indebtedness arising as a result of an eminent domain proceeding
or casualty loss occurring on or after the date of this Agreement, and Buyer
shall be entitled to retain any eminent domain or insurance proceeds. Buyer
acknowledges and agrees that Seller's bond counsel may rely on Buyer's
representations, warranties and covenants as hereinabove provided for the
purpose of rendering legal opinions, as required by the IDRB Documents as a
precondition to the sale by Seller of such Assets, to the effect that the sale
of such Assets will not have a material adverse effect on the exclusion from
gross income of the interest on the Retained IDRB Indebtedness. Nothing in this
Agreement is intended to nor shall it be interpreted as (i) an assignment to,
and assumption by, Buyer of any of the IDRB Documents, or (ii) as an undertaking
or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other
payment obligations pursuant to the IDRB Documents.
Seller represents, warrants, covenants and agrees that it will not refund
or otherwise refinance with the proceeds of any obligation the interest on which
is excluded from gross income for federal income tax purposes any of the
Retained IDRB Indebtedness without Buyer's express written consent, which
consent Buyer shall provide unless Buyer reasonably concludes that such
refunding or refinancing would affect Buyer's use and operation of the related
Assets.
Section 5. Indemnification of Seller by Buyer. Buyer shall and hereby
agrees to indemnify and save harmless Seller against and from all claims by or
on behalf of one or more of the Issuer, the trustee or trustees (collectively,
the "Trustees") identified in the IDRB Documents, any actual or beneficial owner
of Retained IDRB Indebtedness or any other person, firm, corporation or other
legal entity arising from the conduct or management of, or from any work or
3
<PAGE>
thing done on, the Assets for the period commencing on the date hereof and
thereafter during the remaining terms of the IDRB Documents, including, without
limitation, (i) any condition of the Assets financed with the proceeds of the
Retained IDRB Indebtedness, (ii) any breach or default on the part of Buyer in
the performance of any of its obligations under this Agreement, including the
obligation to preserve the exclusion from gross income of the interest on the
Bonds for federal or state (as applicable) income tax purposes, (iii) any act or
negligence of Buyer or of any of its agents, contractors, servants, employees or
licensees or (iv) any act or negligence of any assignee, lessee or successor of
Buyer, or of any agents, contractors, servants, employees or licensees of any
assignee, lessee or successor of Buyer. Buyer shall indemnify and save harmless
Seller from any such claim arising as aforesaid, or in connection with any
action or proceeding brought thereon, and, upon notice from Seller, Buyer shall
defend it in any such action or proceeding. Any claim for indemnity under this
Agreement shall follow the procedures outlined in Sections 7.4.2(a) through (c),
inclusive, of the Asset Purchase Agreement.
Section 6. Term of Agreement. This Agreement shall be coterminous with
the term of the IDRB Documents, provided that the obligations of Buyer under
Section 5 hereof shall survive the termination of this Agreement.
Section 7. Successor Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 8. Governing Law. The validity, performance, and enforcement of
this Agreement, unless expressly provided to the contrary, shall be governed by
the laws of the State of Delaware without giving effect to the principles of
conflicts of law of such state.
Section 9. Dispute Resolution. Except as otherwise provided in this
Section 9, any dispute, controversy or claim between the parties relating to,
arising out of or in connection with this Agreement (or any subsequent
agreements or amendments thereto), including as to its existence,
enforceability, validity, interpretation, performance or breach or as to
indemnification or damages, including claims in tort and audit, regulatory or
other actions initiated by or on behalf of the IRS with respect to the Retained
IDRB Indebtedness, whether arising before or after the termination of this
Agreement (any such dispute, controversy or claim being herein referred to as a
"Dispute"), shall be settled without litigation and only by use of the following
alternative dispute resolution procedure:
(a) At the written request of a party, each party shall appoint
a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to
the discretion of the representatives. Upon agreement, the
representatives may utilize other alternative dispute resolution
procedures such as mediation to assist in the negotiations.
Discussions and correspondence among the parties' representatives for
purposes of these negotiations shall be treated as confidential
information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of both parties
shall not be admissible in the arbitration described below, or in any
lawsuit. Documents identified in or provided with such
communications, which are not prepared for purposes of the
negotiations, are not so exempted and may, if otherwise admissible, be
admitted in the arbitration.
4
<PAGE>
(b) If negotiations between the representatives of the parties
do not resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration Rules, as
then amended and in effect, of the American Arbitration Association
(the "Rules"); provided, however, that at the election of either
party, the arbitration shall take place before three (3) arbitrators,
one arbitrator being selected by the Parent, one arbitrator being
selected by Citizens Utilities Company and the third arbitrator,
knowledgeable with respect to the general subject matter of the
dispute, controversy or claim, including, if applicable, the federal
income tax laws applicable to obligations the interest on which is
excluded from gross income for federal income tax purposes, being
selected by the other two arbitrators. Either party may demand such
arbitration in accordance with the procedures set out in the Rules.
The arbitration shall take place in Newark, New Jersey. The
arbitration hearing shall be commenced within 60 days of such party's
demand for arbitration. The arbitrator(s) shall have the power to and
will instruct each party to produce the discovery of documents (i)
that are reasonably requested by the other party to the arbitration in
order to prepare and substantiate its case and (ii) the production of
which will not materially delay the expeditious resolution of the
dispute being arbitrated; each party hereto agrees to be bound by any
such discovery order. The arbitrator(s) shall control the scheduling
(so as to process the matter expeditiously) and any discovery. The
parties may submit written briefs. At the arbitration hearing, each
party may make written and oral presentations to the arbitrator(s),
present testimony and written evidence and examine witnesses. No
party shall be eligible to receive, and the arbitrator(s) shall not
have the authority to award, exemplary or punitive damages. The
arbitrator(s) shall rule on the Dispute by issuing a written opinion
within 30 days after the close of hearings. The arbitrators' majority
decision shall be binding and final. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction.
(c) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to
the arbitrator(s); provided, however, that if the arbitrator(s)
determines that the position taken in the Dispute by the nonprevailing
party taken as a whole is unreasonable, the arbitrator(s) may order
the nonprevailing party to bear such fees and expenses, and reimburse
the prevailing party for all or such portion of its reasonable costs
and expenses in submitting and presenting its position, as the
arbitrator(s) shall reasonably determine to be fair under the
circumstances. Each party to the arbitration shall pay one-half of
the fees and expenses of the arbitrator(s) and the American
Arbitration Association.
(d) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this
Section 9 and (ii) if any party, as party of a Dispute, seeks
injunctive relief or any other equitable remedy, including specific
enforcement, then such party shall be permitted to seek such
injunctive or equitable relief in any federal or state court or
competent jurisdiction before, during or after the pendency of a
mediation or arbitration proceeding under this Section 9.
Section 10. Cooperation. Each of the parties hereto agrees to use its
reasonable best efforts to take or cause to be taken all action, and to do or
cause to be done all things necessary,
5
<PAGE>
proper or advisable under applicable laws, regulations or otherwise, to
consummate and to make effective the transactions contemplated by this
Agreement, including, without limitation, the timely performance of all actions
and things contemplated by this Agreement to be taken or done by each of the
parties hereto.
Section 11. Construction of Agreement. The terms and provisions of this
Agreement represent the results of negotiations between Buyer and Seller, each
of which has been represented by counsel of its own choosing, and neither of
which has acted under duress nor compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary meanings,
and Buyer and Seller hereby waive the application in connection with the
interpretation and construction of this Agreement of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
Section 12. Publicity. No party hereto shall issue, make or cause the
publication of any press release or other announcement with respect to this
Agreement or the transactions contemplated hereby, or otherwise make any
disclosures relating thereto, without the consent of the other party, such
consent not to be unreasonably withheld or delayed; provided, however, that such
consent shall not be required in the case of any notices or other information
provided to the Trustees and the Issuer or otherwise where such release or
announcement is required by applicable law or the rules or regulations of a
securities exchange, in which event the party so required to issue such release
or announcement shall endeavor, wherever possible, to furnish an advance copy of
the proposed release to the other party.
Section 13. Waiver. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of waiver of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
Section 14. Parties in Interest. This Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their successors and permitted assigns, any
rights or remedies hereunder.
Section 15 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 16. Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 17 Entire Agreement. This Agreement and schedules hereto and the
documents specifically referred to herein (including the Purchase Agreement)
constitute the entire agreement, understanding, representations and warranties
of the parties hereto, and supersede all prior agreements, both written and
oral, between Buyer and Seller.
6
<PAGE>
Section 18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 19. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CITIZENS UTILITIES COMPANY
By ___________________________________
Name _________________________________
Title ________________________________
AMERICAN WATER WORKS COMPANY, INC.
By ___________________________________
Name _________________________________
Title ________________________________
[AWW SUBSIDIARY]
By____________________________________
Name__________________________________
Title_________________________________
7
<PAGE>
[Signature page to Retained IDRB Obligations Agreement between
Citizens Utilities Company and American Water Works Company, Inc., dated as of
____________________, 2000.]
8
<PAGE>
SCHEDULE I
Retained IDRB Indebtedness Loan Agreements
<PAGE>
EXHIBIT E
_______________
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, New Jersey 08043
Ladies and Gentlemen:
I have acted as counsel for Citizens Utilities Company, a Delaware
corporation ("Citizens"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement, dated as of October ______, 1999 (the
"Agreement"), among Citizens and certain of its affiliates (collectively with
Citizens, "Seller Parties") and American Water Works Company, Inc. ("American").
This opinion is rendered to American and certain of its affiliates (collectively
with American, "Buyer") pursuant to Section 6.1.2 of the Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
I have participated in and am familiar with the corporate proceedings of
the Seller Parties relating to the negotiation, authorization, execution and
delivery of the Transaction Documents (as hereinafter defined). In connection
with the foregoing, I have examined the originals or copies, certified or
otherwise authenticated to my satisfaction, of (i) the Agreement, (ii) the Bill
of Sale and Assignment dated as of the date hereof by the Seller Parties in
favor of Buyer (the agreements and instruments described in clauses (i) and (ii)
being referred to herein collectively as the "Transaction Documents") and (iii)
such corporate records, certificates of public officials and officers of the
Seller Parties, and such other agreements, instruments and documents that I have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination, I have assumed that genuineness and authenticity of all documents
submitted to me as originals, the conformity with genuine and authentic
originals of all documents submitted to me as copies, the genuineness of all
signatures, and, with respect to my examination of documents executed by parties
other than the Seller Parties, I have assumed that such parties had the power,
corporate or otherwise, to enter into and to perform all obligations thereunder.
I have relied, as to matters of fact, upon the representations made by the
Seller Parties in the Agreement and in related affidavits and certificates made
by the Seller Parties, and upon the governmental certificates and reports
attached as exhibits to this opinion.
I am a member of the bar of the State of New York, and I express, subject
to the qualifications herein, no opinion as to the laws of any jurisdiction
except the General Corporation Law of the State of Delaware, the federal laws of
the United States of America (with the exception of federal antitrust laws and
regulations, federal securities laws and regulations, matters relating to the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission, and the laws of the State of New York (with
the exception of state antitrust or unfair competition laws and regulations,
state securities laws and other statutes, ordinances, administrative decisions
and rules and regulations of counties, towns, municipalities and special
political subdivisions). I am not admitted to practice in the State of
Delaware. To the extent
<PAGE>
American Water Works Company, Inc.
____________________
Page 2
that any matter with respect to which an opinion is rendered herein is governed
by the laws of another jurisdiction other than the General Corporation Law of
the State of Delaware, I have, with your permission, assumed that the laws of
such other jurisdiction are identical to the laws of the State of New York.
Actual Knowledge as used in this letter means the conscious awareness of
facts or other information by myself or any lawyer in the employ of the Seller
Parties who has had active involvement in negotiating the Agreement, preparing
the Transaction Documents or preparing this letter.
The opinions expressed herein are further qualified and I express no
opinion regarding the following:
A. The effect of applicable bankruptcy, reorganization, insolvency,
moratoria, or similar laws of the United States or of any state now or hereafter
in effect, affecting the rights of creditors generally.
B. The availability or enforceability of certain terms or provisions,
covenants or remedies set forth in any Transaction Document governing specific
performance, injunctive relief, payment of attorneys fees and expenses and costs
of enforcement and forum selection clauses in federal courts.
C. The applicability of principles relating to unconscionability,
diligence, good faith, reasonableness, and the application of general principles
of equity in any proceeding, legal or equitable.
D. The effect of changes after the date hereof in any rules, laws,
regulations or statutes of limitation, or moratoria or similar actions by
federal, state, or local governmental agencies, legislatures, courts or other
authorities having jurisdiction.
On the basis of the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Seller Parties is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
2. Each of the Seller Parties has all requisite corporate power
and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the
Transaction Documents to which it is a party, and to own, lease and
operate the Acquired Assets and the Business as presently being
conducted.
<PAGE>
American Water Works Company, Inc.
____________________
Page 3
3. The execution and delivery and performance by each of the
Seller Parties of the Transaction Documents to which it is a party,
and the consummation of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action of such party,
and do not and will not contravene any provision of the organizational
documents of the Seller Parties.
4. Upon due execution and delivery by the parties thereto, the
Transaction Documents will be the legal obligations of each of the
Seller Parties, enforceable against each of the Seller Parties in
accordance with their terms.
5. Other than as disclosed on Schedule 3.3 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that the execution,
delivery and performance of the Transaction Documents, or the
consummation of the transactions contemplated thereby, would violate,
conflict with, result in the breach of, or constitute a default under
or result in or permit the termination, modification, acceleration, or
cancellation of, or result in the creation or imposition of any Lien
of any nature whatsoever upon any of the Acquired Assets or give to
others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or
written, to which any of the Seller Parties is a party, or by which
the Business or any of the Acquired Assets may be bound or affected,
except for such violations, conflicts, breaches, terminations,
modifications, accelerations, cancellations, Liens, interests or
rights which, individually and in the aggregate, do not have a
Material Adverse Effect or will be cured, waived or terminated prior
to the Closing Date, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or
Authority or any applicable constitution, law, ordinance, rule or
regulation, to which any of the Seller Parties is subject, other than
those violations or conflicts which individually and in the aggregate
would not have a Material Adverse Effect.
6. Other than as disclosed on Schedule 3.18 to the Agreement (as
such schedule may be supplemented or amended pursuant to Section 5.3
of the Agreement), I have no Actual Knowledge that (i) there are any
actions, suits, investigations or proceedings pending against or
threatened, against or affecting, the Seller Parties, the Business or
any of the Acquired Assets before any court or arbitrator or Authority
which individually or in the aggregate, would have a Material Adverse
Effect, and (ii) there are currently any outstanding judgments,
decrees or orders of any court or Authority against any of the Seller
Parties, which relates to or arise out of the conduct of the Business
or the ownership, condition or operation of the Business or the
Acquired Assets (other than any PUC order relating to rates, tariffs
and similar matters arising in the ordinary course of business) which
individually or in the aggregate would have a Material Adverse Effect.
<PAGE>
American Water Works Company, Inc.
____________________
Page 4
The foregoing opinions are solely for the use of Buyer, have been expressed
solely in connection with the transactions contemplated by the Agreements and
are given for no other purpose, and shall not be delivered to or relied upon by
any other person or party, except Buyer. This letter is not to be quoted, in
whole of in part, or referred to in any document without the prior written
consent of the undersigned. I assume no obligation to update or revise this
opinion letter.
Very truly yours,
L. Russell Mitten, II
Vice President-General Counsel
Citizens Utilities Company
<PAGE>
EXHIBIT F
[DP&R Letterhead]
[Closing Date}
Citizens Utilities Company
High Ridge Park
Stanford, CT 06905
Gentlemen:
We have acted as counsel to American Water Works Company, Inc., a Delaware
Corporation ("Parent"), and such of its subsidiaries as may join in the
Agreement (collectively, the "Companies") in connection with the execution and
delivery by Parent, and Citizens Utilities Company and certain of its affiliates
(collectively, "Seller Parties") of the Asset Purchase Agreement (the
"Agreement") dated October __, 1999. All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
In connection with the opinions expressed below, we have made such
examination of law and have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Agreement and the Assumption Agreement
dated the date hereof (collectively, the "Transaction Documents") and such
corporate documents and records of the Companies, certificates of public
officials and of officers of the Companies, and such other documents as we have
deemed necessary or appropriate. With respect to the matters set forth in
Paragraph 1, we have relied upon certain documentation received from public
officials.
In making such examination and rendering the opinions set forth below, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to factual matters material to our opinion, we have had such discussions with
the officers of the Companies as we have deemed relevant or necessary, and, we
have assumed, with your permission and without independent investigation, the
truthfulness of all recitals, representations, warranties and factual matters
set forth in all documents, instruments, certificates and reports we have
examined.
In rendering the opinions set forth below, we have also assumed that (a)
each of the parties to the Agreement and the Transaction Documents other than
the Companies is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and formation; (b) each of such
other parties to the Agreement and the Transaction Documents has the requisite
corporate power and corporate authority and has taken the corporate action
necessary to execute and deliver the Agreement and the Transaction Documents and
to consummate the transactions contemplated thereby; (c) the Agreement and
Transaction Documents have been duly executed and delivered by each of such
other parties thereto; and (d)
<PAGE>
the Agreement and the Transaction Documents constitute the legal, valid and
binding obligations of each such other party thereto, enforceable against such
other party in accordance with its respective terms.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinion is subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, arrangement, moratorium or other similar
laws now or hereafter relating to or affecting debtors' obligations and the
rights of creditors generally.
(ii) Our opinion is subject to limitations imposed by general principles
of equity upon the specific enforceability of any of the remedies, covenants or
other provisions of the Transaction Documents and upon the availability of
injunctive relief or other equitable remedies, and the application of principles
of equity (regardless of whether enforcement is considered in proceedings in law
or in equity).
(iii) The opinions stated herein are as of the date hereof and are limited
to laws, facts and circumstances in existence on the date hereof, and we assume
no undertaking to advise the Seller Parties of any change in the opinions
expressed herein, whether or not material, as a result of any change in any
laws, facts or circumstances pertaining to the Transaction Documents which may
come to our attention after the date hereof.
(iv) Our opinion is limited solely to the General Corporation Law of the
State of Delaware, the laws of the Commonwealth of Pennsylvania and the
applicable laws of the United States of America.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. Parent is a corporation validly existing and in good standing under the
laws of the State of Delaware. Each of the Companies is validly existing and in
good standing under the laws of the jurisdiction of its incorporation. The
Companies have all necessary corporate power to perform their obligations under
the Transaction Documents, and the Companies have all requisite corporate power
and authority to own, lease and operate the Acquired Assets and the Business.
2. All corporate proceedings required to be taken by or on the part of the
Companies and the shareholders of the Companies to authorize the execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions thereby, have been duly and properly taken. Each of the
Transaction Documents have been duly and validly executed and delivered.
3. Neither the execution and delivery of the Transaction Documents by the
Companies nor the consummation of the transactions contemplated thereby will:
(a) violate or conflict with any provision of the certificates or articles of
incorporation or bylaws of the Companies, as amended to date; or (b) violate or
conflict with any provision of any law, rule,
<PAGE>
regulation, or to our knowledge, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any court,
arbitrator or Authority.
4. The Agreement and other agreements and documents to be executed
pursuant thereto, when executed and delivered by the Companies will constitute
legal, valid and binding obligations of the Companies enforceable against them
in accordance with their respective terms.
The opinions expressed herein are intended only for your benefit and use,
and may not, without our written consent, be used or relied upon in any manner
for any purpose by any other person or entity.
Very truly yours,
EXHIBIT 13
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
=====================================================================================================
Revenues
Water service
<S> <C> <C> <C> <C> <C>
Residential $ 733,956 $ 691,279 $ 658,955 $ 617,846 $ 554,448
Commercial 262,940 249,564 235,561 224,354 201,711
Industrial 77,953 78,092 73,596 72,101 64,310
Public and other 149,531 146,299 137,289 122,951 113,147
Other water revenues 11,997 13,983 11,064 9,868 9,131
- -----------------------------------------------------------------------------------------------------
1,236,377 1,179,217 1,116,465 1,047,120 942,747
Wastewater service 24,480 20,820 14,909 15,378 14,953
Management fees -- -- -- -- 8,042
- -----------------------------------------------------------------------------------------------------
$1,260,857 $1,200,037 $1,131,374 $1,062,498 $ 965,742
==============================================================
Water sales (million gallons)
Residential 175,487 168,617 169,307 164,700 161,552
Commercial 81,857 79,115 78,542 77,319 75,678
Industrial 45,862 46,361 46,088 46,009 44,248
Public and other 41,477 40,110 39,831 36,152 35,653
- -----------------------------------------------------------------------------------------------------
344,683 334,203 333,768 324,180 317,131
==============================================================
Net income* $ 138,949 $ 150,439 $ 137,691 $ 116,820 $ 108,723
Earnings per common share
on average shares outstanding* $1.40 $1.54 $1.42 $1.26 $1.29
Common dividends paid per share $.86 $.82 $.76 $.70 $.64
AT YEAR-END
Water customers (thousands) 2,476 2,446 2,400 2,380 2,210
Wastewater customers (thousands) 40 39 25 24 24
Total assets $5,952,206 $5,458,658 $4,992,023 $4,682,097 $4,016,353
Preferred stocks with mandatory
redemption requirements
American Water Works Company, Inc. $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000
Subsidiaries 34,020 37,298 39,734 41,060 42,326
Long-term debt
American Water Works Company, Inc. $ 211,000 $ 216,500 $ 131,000 $ 132,000 $ 133,000
Subsidiaries 2,182,097 2,115,687 1,965,924 1,796,170 1,462,760
Market price of common stock
at year-end $21.25 $33.75 $27.31 $20.63 $19.44
</TABLE>
*Includes one-time merger costs of $20,535 ($12,905 net of tax) and
$.13 per share in 1999, and $352 in 1998.
The results presented in 1999 and the restated results for prior
years reflect the pooling of interests method of accounting to recognize
the acquisition of National Enterprises Inc.
24
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE STRATEGY OF AMERICAN WATER WORKS COMPANY
The Company's goal is to consistently enhance long term shareholder
value. The primary strategy by which this goal is accomplished is by
investing in the business of water service. Existing utility
subsidiaries apply the investments to reinforce, rehabilitate and
replace existing service infrastructure and provide for growth within
existing service territories. The Company also invests in acquisitions
of water and wastewater utilities that complement our existing service
territories or which enhance the Company's goal of geographic
diversification.
The Parent Company's investment in its subsidiaries has increased
from $1.4 billion at year-end 1996 to $1.8 billion at year-end 1999.
The schedule at the top of page 26 illustrates that the growth in the
Parent Company's investment in its subsidiaries has been accomplished by
subsidiary earnings retention, the investment of a portion of the
dividends received from subsidiaries and the sale of securities and bank
loans.
Earnings to common shareholders have risen from $112.8 million in
1996 to $147.9 million, excluding one-time after tax merger costs of
$12.9 million, in 1999.
Income to common shareholders of American Water Works Company is
influenced by three factors: the amount of investment in subsidiaries,
the rate of return on that investment and the costs to operate the
Parent Company.
The schedule at the bottom of page 26 demonstrates that the growth
in earnings over this period is the direct result of new investment in
subsidiaries. Fluctuations in the rate of return are the result of the
influence of weather conditions on water sales and the response of
utility regulation to the economic climate.
A second strategy for enhancement of shareholder value is the
provision of management services to water and wastewater utilities owned
by others. Municipally owned water and wastewater utilities face the
same challenges associated with providing high quality service that are
faced by our own utility subsidiaries. They need access to specialized
expertise and capital resources to meet these challenges. Our
management services subsidiary, American Water Services, (AWS),
continues our long-standing record of providing these services. AWS has
broadened the array of services it can provide to a municipality in the
areas of operations, technical assistance and capital projects.
The third strategy for enhancement of shareholder value is the
development of complementary water resource management product and
service capabilities. This will be accomplished through our American
Water Resources subsidiary.
DESCRIPTION OF THE BUSINESS
AMERICAN WATER WORKS COMPANY AND THE AMERICAN WATER SYSTEM
The core business of American Water Works Company, Inc. is the
ownership of common stock of utility companies providing water service.
The combination of American Water Works with its subsidiaries
constitutes the American Water System - a system that has functioned
well for over 50 years. Each subsidiary functions independently, yet
shares in the benefits of size and identity afforded by the American
Water System.
However, the water utility industry environment is changing rapidly.
Changes in regulation, the need for significant capital replacement, low
growth in consumption within existing service territories and continuing
pressures for increased efficiencies and productivity are changing the
nature of the industry. To maintain its leadership position in this
evolving industry, the Company will continue to grow through
acquisitions of water utilities as well as expanding its scope of
activities to become a full service water resource management
enterprise.
REGULATED UTILITY SERVICE
The 25 utility subsidiaries provide water and/or wastewater service
to approximately nine million people in 22 states. As public utilities,
each company is subject to the rules of both federal and state
environmental protection agencies, particularly with respect to the
quality of the water they distribute. In addition, with the exception
of Michigan-American Water Company, the utility companies function under
economic regulations prescribed by state regulatory commissions.
The mission of the utility subsidiaries of the Company is to provide
high quality, reliable water and wastewater service at an affordable
price. There are several keys to continued success in this endeavor:
efficient planning and deployment of capital investment, cultivating
experienced managers and knowledgeable staff, supporting
state-of-the-art water quality programs, and maintaining responsive
customer service.
WATER AND WASTEWATER MANAGEMENT SERVICES
American Water Services (AWS) became a wholly owned subsidiary when
the Company acquired its joint venture partner's 50 percent interest in
AmericanAnglian Environmental Technologies on December 31, 1999. AWS is
focused on the growing contract operations segment of the water and
wastewater market. It currently manages and operates 175 water and
wastewater facilities, providing service to approximately one million
people in seven states, six of which states also have communities served
by our utility subsidiaries.
WATER RESOURCE MANAGEMENT
American Water Resources is a subsidiary formed to invest in water
and wastewater related products and services that provide value to our
customers and shareholders.
25
<PAGE>
<TABLE>
<CAPTION>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
ANALYSIS OF GROWTH IN AMERICAN WATER WORKS COMPANY'S
INVESTMENT IN SUBSIDIARIES
(000) 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Investment in subsidiaries at December 31 $1,819,412 $1,708,659 $1,556,631
Investment in subsidiaries at January 1 1,708,659 1,556,631 1,438,681
- --------------------------------------------------------------------------------
Change during the year $ 110,753 $ 152,028 $ 117,950
====================================
Sources of additional investment
Undistributed earnings of subsidiaries $ 37,677 $ 49,481 $ 49,802
Investment in subsidiary securities 73,076 102,547 68,148
- --------------------------------------------------------------------------------
Change during the year $ 110,753 $ 152,028 $ 117,950
====================================
Net income of subsidiaries $ 166,537 $ 168,764 $ 152,085
Return on January 1 investment
in subsidiaries 9.7% 10.8% 10.6%
Subsidiaries' common stock dividend
payout ratio 77% 71% 67%
- --------------------------------------------------------------------------------
Dividends from subsidiaries 128,860 119,283 102,283
- --------------------------------------------------------------------------------
Parent Company's use of cash
Preferred dividends 3,984 3,984 3,984
Other cash requirements
(includes merger related cash
requirements of $12,704 in 1999) 33,185 16,742 14,387
- --------------------------------------------------------------------------------
37,169 20,726 18,371
- --------------------------------------------------------------------------------
Available for common dividends 91,691 98,557 83,912
Common dividends declared 79,370 71,389 66,424
Cash payout ratio 87% 72% 79%
Available after dividends 12,321 27,168 17,488
Parent Company cash at beginning of year 18,042 879 75
- --------------------------------------------------------------------------------
30,363 28,047 17,563
Investment in securities of subsidiaries (73,076) (102,547) (68,148)
Notes and advances to subsidiaries, net 692 (672) 10
- --------------------------------------------------------------------------------
(42,021) (75,172) (50,575)
- --------------------------------------------------------------------------------
Net bank borrowings 46,500 (59,500) 21,400
Proceeds from long-term debt -- 120,000 --
Intercompany borrowings, net -- (3,013) 3,013
Proceeds from common stock, net 40,723 36,227 28,041
Redemption of securities (40,500) (500) (1,000)
- --------------------------------------------------------------------------------
46,723 93,214 51,454
- --------------------------------------------------------------------------------
Parent Company cash at end of year $ 4,702 $ 18,042 $ 879
====================================
ANALYSIS OF CHANGE IN INCOME
(000) 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Net income to common stock-current year $ 134,965 $ 146,455 $ 133,707
Net income to common stock-prior year 146,455 133,707 112,836
- --------------------------------------------------------------------------------
Change in income (11,490) 12,748 20,871
Change in Parent Company operating cost
(includes after tax merger costs
of $6,422 in 1999) 9,263 3,931 (3,703)
- --------------------------------------------------------------------------------
Change in investment income ($2,227) $ 16,679 $ 17,168
====================================
Sources of change in investment income
Additional investment in subsidiaries $ 14,818 $ 12,788 $ 28,236
Change in rate of return on investment
(includes $6,483 of after tax merger
costs in 1999) (17,045) 3,891 (11,068)
- --------------------------------------------------------------------------------
Total change in investment income ($2,227) $ 16,679 $ 17,168
====================================
26
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
SHARED SERVICES
American Water Works Service Company, a subsidiary, provides
professional services as required to affiliated companies. These
services include accounting, administration, communication, corporate
secretarial, engineering, financial, human resources, information
systems, operations, rates and revenue, risk management and water
quality. This arrangement, which provides these services at cost,
affords affiliated companies professional and technical talent otherwise
unavailable economically or on a timely basis.
SYSTEM GROWTH AND DEVELOPMENT
ACQUISITIONS OF UTILITY SYSTEMS
Consistent with the Company's growth strategy, management continues
to search for opportunities to acquire water and wastewater systems that
represent the prospect for enhanced shareholder value.
The year 1999 began with 23 acquisitions that were awaiting
regulatory approval. During the year, contract negotiations for 22 more
acquisitions were completed. Of that total of 45 transactions, 21 were
finalized during 1999, adding approximately 518,000 new customers.
The most significant transaction completed in 1999 was the
acquisition of National Enterprises Inc. (NEI), a privately owned
holding company with operations primarily in the water utility business.
NEI subsidiaries provide water utility service to more than 500,000
customers in Illinois, Indiana, Missouri and New York. Since most of
NEI's customers are in the mid-west this acquisition significantly
furthered the Company's strategy of geographic diversification. As a
result of the NEI acquisition, the Company also acquired investments in
two publicly traded companies, ITC Deltacom and Powertel, and privately
owned ITC Holding. See Note 3 to the financial statements for more
information about the NEI acquisition.
At year end there were 24 pending acquisitions for which agreements
had been signed, including two transactions of particular significance
that will dramatically increase the Company's presence in the western
region of the country.
First, on October 15, 1999 the Company entered into an agreement to
acquire all of the water and wastewater sector assets of Citizens
Utilities, a multi-utility holding company. The transaction will be
completed by American Water Works and its utility subsidiaries in
Arizona, California, Illinois, Indiana, Ohio and Pennsylvania acquiring
the water and wastewater sector assets of Citizens and its subsidiaries
in those six states. This transaction represents six of the 24 pending
acquisitions and will add approximately 305,000 water and wastewater
customers for the Company. The largest group of customers being
acquired from Citizens are in Arizona, and the addition of those
operations will significantly strengthen the Company's opportunities in
one of the fastest growing regions in the country.
Second, on October 28, 1999 the Company executed a definitive
agreement to acquire all of the outstanding common stock of SJW Corp.
(SJW), a publicly traded holding company headquartered in San Jose,
California. This transaction is subject to approval of SJW Corp.
shareholders. SJW's San Jose Water Company subsidiary serves
approximately 216,000 water customers. This acquisition provides entry
into San Jose, the 11th largest municipality in the United States, and
the Silicon Valley region with high growth potential through
acquisitions and favorable demographics. SJW Corp. also owns real
estate in San Jose and has an investment in California Water Service
Group.
The remaining 17 acquisitions for which signed agreements are in
hand will add over 41,000 additional customers to the Company's utility
subsidiaries.
More information about pending acquisitions can be found in Note 4
to the financial statements.
CAPITAL SPENDING PROGRAM
Investment in new facilities in 1999 totaled $467 million, which was
6 percent above the 1998 construction expenditures of $439 million.
Construction activity planned for 2000 totals $448 million.
</TABLE>
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000) 1999 1998 1997 1996 1995
============================================================================================
<S> <C> <C> <C> <C> <C>
Water plant
Sources of supply $ 18,038 $ 19,744 $ 17,841 $ 12,210 $ 19,235
Treatment and pumping 114,830 113,725 102,011 84,024 130,922
Transmission and distribution 191,700 180,545 157,635 131,531 129,619
Services, meters and fire hydrants 70,998 69,606 64,050 52,982 51,070
General structures and equipment 66,019 52,347 48,246 31,267 32,496
Wastewater plant 5,766 3,250 4,646 1,800 1,218
- --------------------------------------------------------------------------------------------
$467,351 $439,217 $394,429 $313,814 $364,560
========================================================
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
With the benefit of comprehensive engineering, operational and
financial planning, each subsidiary prepares a capital expenditure plan
representing a balance of water quality and source of supply
initiatives, operational improvements, system growth opportunities,
regulatory compliance requirements, and infrastructure replacement
needs. The actual expenditures recorded in a given year are influenced
by many factors including the timing of required governmental approvals
of projects, weather conditions, availability of labor resources, and
equipment and material deliveries. It is anticipated that approximately
$2.2 billion will be invested in new facilities between now and the end
of the year 2004. The full investment in this construction program is
expected to be recognized in regulatory decisions.
Source of supply improvements accounted for approximately 4 percent
of the year's construction expenditures. Projects included the
completion of new groundwater sources in Jeffersonville, Indiana;
Warrensburg, Missouri; San Marino, California; Hampton, New Hampshire
and Peoria, Illinois. Progress continued in 1999 on significant source
of supply projects in St. Joseph, Missouri and Fayette County, West
Virginia. Structural and hydraulic dam upgrades were completed in
Greenwich, Connecticut and Joplin, Missouri.
Investment in treatment and pumping facilities comprised
approximately 25 percent of the 1999 construction expenditures. A new
water treatment plant was completed in Jeffersonville, Indiana in
support of a major regional supply project. A new plant was constructed
in Dallas Township, Pennsylvania near Wilkes-Barre to replace an aging
plant. Water treatment plant upgrades were completed in Huntington and
Charleston, West Virginia to replace aging infrastructure, improve water
quality and support continuing water system regionalization efforts.
Other plant upgrades were completed in Greenwich, Connecticut;
Ashtabula, Ohio; Chattanooga, Tennessee; Lexington, Kentucky; Peoria and
Pekin, Illinois and Brownsville, Pennsylvania. Significant treatment
and pumping projects continued in St. Joseph, Warrensburg and Mexico,
Missouri; Alton, Illinois; Fayette County, West Virginia; Norristown and
New Castle, Pennsylvania; and Hopewell, Virginia.
Transmission and distribution facilities accounted for approximately
41 percent of the 1999 construction expenditures. Prominent projects
include continuing regionalization efforts in Putnam and Boone Counties,
West Virginia and transmission, pumping and storage related projects in
Alton and East St. Louis, Illinois; Bel Air, Maryland; Thousand Oaks,
California; Parkville, Missouri; Gary, Indiana; Chattanooga, Tennessee
and Scranton, Pennsylvania. Significant capital expenditures occurred
across a large number of service areas for distribution system
improvements. These projects improve existing service conditions,
provide service to new areas and allow full utilization of existing
source of supply and treatment facilities between neighboring water
systems.
The Company's formal planning process involves a comprehensive
evaluation by each utility subsidiary of all aspects of public water
supply. This includes reviews of source water supply reliability,
adequacy of water treatment facilities and distribution systems, and the
potential for regional water supply solutions and acquisition. In 1999
planning reports were prepared for the Johnson County, Terre Haute,
Muncie and Richmond service territories in Indiana; Hampton, New
Hampshire; Bangor, Kane, Ellwood City and New Castle service areas in
Pennsylvania; Paradise Valley, Arizona; San Marino, Thousand Oaks and
Coronado, California; Atlantic, Burlington, Camden and Gloucester
Counties in New Jersey and Chattanooga, Tennessee. Studies are underway
for subsidiaries in California, Hawaii, Illinois, Indiana, Kentucky,
Massachusetts, New Jersey, New York, Pennsylvania, Virginia and West
Virginia. These continuing studies encompass 49 service areas.
CONDEMNATIONS OF UTILITY SYSTEMS
In November 1998 the City of Chattanooga, Tennessee, began an effort
to condemn the assets of Tennessee-American Water Company through an
eminent domain proceeding. The Company responded with a vigorous and
ultimately successful defense that led to a settlement between the two
parties in October 1999. The City Council rescinded its resolution
authorizing the takeover and withdrew its condemnation litigation. In
return, Tennessee-American and the City obtained the approval of the
Tennessee Regulatory Authority to lower fire hydrant fees significantly
over two years.
The support of Tennessee-American by a vast majority of
Chattanoogans was a key factor in the outcome of the 11-month campaign
against the takeover. The basis of that support, however, was equally
important: the Company's long-standing record of delivering quality
water and service at a reasonable price.
During the campaign, the Company won an important legal victory.
A Chancery Court ruled that Tennessee-American had a state franchise,
issued in the mid-1800s, to operate in Chattanooga. That ruling
rebutted a city claim that the company was "trespassing."
The City and Tennessee-American reached an agreement shortly after
this ruling and pledged their mutual cooperation in the area's economic
development. The City has appealed the Chancery Court's decision that
Tennessee-American has a perpetual franchise. As part of the settlement
the City has agreed to grant Tennessee-American a 25-year franchise if
its appeal is successful.
In Illinois, the cities of Pekin and Peoria are considering
acquiring, by eminent domain or otherwise, the utility assets of
Illinois-American Water Company that are used to provide water service
to their respective communities. As with Tennessee-American,
Illinois-American plans to vigorously contest litigation relating to the
proposed taking by the City of Peoria. The Company also continues its
efforts to dissuade the City of Pekin from pursuing the acquisition.
28
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
WATER AND WASTEWATER MANAGEMENT SERVICES
American Water Services (AWS) was created when the Company purchased
Anglian Water's 50% interest in AmericanAnglian Environmental
Technologies for $32 million on December 31, 1999. The mission of AWS
is to provide wastewater and water utility operational and management
services to clients in the United Sates on an unregulated basis. The
business will focus on providing wastewater services to the over 1,000
communities already served by utility subsidiaries. This will
complement the water services being provided and generate synergies for
existing and future customers. The business will also pursue new
opportunities to provide full-service water management solutions, from
intake to outfall, for communities not currently served by the American
Water System.
The current market for contract services is $1.5 billion in annual
revenues and is anticipated to grow at an average annual rate of 16% for
the foreseeable future. Competition within this market continued to be
very active in 1999 and should continue to grow as this market expands.
Several foreign competitors have established market share in the United
States market which has intensified the competitiveness of this
business.
American Water Works' purchase of the remaining share of the
AmericanAnglian joint venture reflects the Company's intention to be a
key player within the full-service water and wastewater management
market. The ability of AWS to be competitive and to actively
participate in this market's growth will be significantly enhanced
through this acquisition. AWS is the seventh largest operations and
maintenance contractor in the United States.
In 1999 AWS developed and signed new wastewater operations contracts
with Scranton, Pennsylvania; Strongsville, Ohio; and Moore County in
North Carolina. These contracts provided additional wastewater
credentials and expanded the presence of the business into new
geographic areas.
RESULTS OF OPERATIONS
The Company's experience in assessing the impact of inflation on its
business indicates that with timely rate increases authorized by
regulators, revenue will likely keep pace with inflation. Inflation did
not significantly impact the Company's financial position or results of
operations in 1997 through 1999, and it is not expected to materially
affect 2000 results.
OPERATING REVENUES
(000) 1999 1998 1997
===============================================================
Water service $1,236,377 $1,179,217 $1,116,465
Wastewater service 24,480 20,820 14,909
- ---------------------------------------------------------------
$1,260,857 $1,200,037 $1,131,374
======================================
OPERATING REVENUES
Revenues in 1999 totaled $1.261 billion and were 5% above those for
1998, reflecting increased sales volume due to customer growth,
acquisitions and rate increases authorized for various subsidiaries in
1999 and the latter part of 1998. The volume of water sold increased 3%
to 344.7 billion gallons in 1999 compared with 1998.
Rate authorizations adjusted the water service rates in effect for
nine utility subsidiaries during 1999. These authorizations are
expected to increase annual revenues by $59.3 million. Operating
revenues for 1999 included approximately $15.8 million which resulted
from these rate orders.
Nine applications requesting additional annual revenues of $28.3
million are awaiting regulatory decisions. Of these the largest single
request is Missouri-American Water Company's request of $16.4 million,
which is primarily related to the new water treatment plant in St. Joseph.
Revenues of $1.200 billion in 1998 were 6% above those for 1997.
Nine utility subsidiaries received rate orders in 1998, authorizing
increases in annual revenues aggregating $16.7 million. Operating
revenues for 1998 included approximately $8.3 million which resulted
from these rate orders. The 334.2 billion gallons of water sold in 1998
was slightly above sales in 1997.
PERCENTAGE OF REVENUES BY CUSTOMER CLASS
1999 1998 1997
===============================================================
Residential 58.2% 57.6% 58.2%
Commercial 20.8% 20.8% 20.8%
Industrial 6.2% 6.5% 6.5%
Public and other 11.9% 12.2% 12.2%
Other water revenues 1.0% 1.2% 1.0%
Wastewater service 1.9% 1.7% 1.3%
- ---------------------------------------------------------------
100.0% 100.0% 100.0%
======================
RESIDENTIAL
Residential water service revenues in 1999 amounted to $734.0
million, an increase of 6% over those for 1998. This 1999 revenue
improvement followed an increase of 5% in 1998. The volume of water
sold to residential customers increased by 4% in 1998 to 175.5 billion
gallons. The average unit price of residential water increased by 2% in
1999 and by 5% in 1998.
29
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMERCIAL
Revenues from commercial customers in 1999 rose by 5% to $262.9
million, following an increase of 6% in 1998. Commercial customers
purchased 81.9 billion gallons of commercial water in 1999, 3% more than
in 1998. The average unit price of commercial water increased by 2% in
1999, down from a 5% increase in 1998.
INDUSTRIAL
Industrial water use of 45.9 billion gallons in 1999 was 1% lower
than in 1998. Revenues from industrial sales of $78.0 million in 1999
were equal to those recorded in 1998 and the average unit price of water
increased 1%. In 1998, revenues from industrial sales were 6% above
those for 1997 due to a 5% increase in the average unit price of water.
PUBLIC AND OTHER
Public and other revenues in 1999 increased by 2% to $149.5 million
following an increase of 7% in 1998. Revenues derived from municipal
governments for fire protection services and customers requiring special
private fire service facilities totaled $61.6 million in 1999, exceeding
1998 revenue from these customers by 4%. The 41.5 billion gallons of
water sold to governmental entities and resale customers in 1999 was 3%
greater than the quantities sold in 1998. Revenues generated by these
sales totaled $87.9 million and exceeded 1998 revenues by 1%.
PERCENTAGE OF WATER SALES (GALLONS)
BY CUSTOMER CLASS
1999 1998 1997
==============================================================
Residential 50.9% 50.4% 50.8%
Commercial 23.8% 23.7% 23.5%
Industrial 13.3% 13.9% 13.8%
Public and other 12.0% 12.0% 11.9%
- --------------------------------------------------------------
100.0% 100.0% 100.0%
======================
WASTEWATER SERVICE
Utility subsidiaries provided wastewater service in Hawaii and to
portions of the Company's service areas in New Jersey, Pennsylvania,
Missouri, West Virginia, Kentucky and Indiana. Revenues from these
services amounted to $24.5 million in 1999, $20.8 million in 1998 and
$14.9 million in 1997. The growth in wastewater revenues reflects the
April 1998 acquisition of the operations in Hawaii.
OPERATING EXPENSES
(000) 1999 1998 1997
==============================================================
Operation and
maintenance expenses $566,948 $536,519 $518,090
Depreciation and amortization 151,641 139,661 121,402
General taxes 122,674 118,132 110,836
- --------------------------------------------------------------
$841,263 $794,312 $750,328
==============================
OPERATING EXPENSES
Operating expenses in 1999 increased by 6% to $841.3 million,
following a 6% increase in 1998.
Operation and maintenance expenses totaled $566.9 million in 1999,
6% higher than in 1998. These expenses had increased by 4% in 1998.
Excluding $5.6 million of costs related to resisting unwelcome takeover
attempts in Tennessee and Illinois, operation and maintenance expenses
increased by 4.5% in 1999.
Associate-related costs, representing 44% of operation and
maintenance expenses, increased 2% in 1999 and 1998.
The primary components of associate-related costs are wage and
salary expenses, which were up 1% to $201.3 million in 1999 following a
1% increase in 1998. The number of associates employed at year-end
totaled 4,970, which was 3% below the employment level of 5,128 at the
close of 1998, which was approximately equal to the 5,110 associates at
the end of 1997.
Group insurance expense, which includes the cost of providing
current health care and life insurance benefits as well as the expected
cost of providing postretirement benefits, increased by 10% to $42.8
million in 1999 after a 6% increase in 1998. The increased group
insurance expense reflects the higher health care costs all large
employers have recently encountered.
Pension expense increased by 3% in 1999 to $6.5 million following a
15% increase in 1998. Pension cost is deferred by certain subsidiaries
when it is probable such costs will be recovered in future water service
rates as contributions are made to the plan. The increased expense in
1998 reflects higher supplemental pension plan expense.
OPERATION AND MAINTENANCE EXPENSES
(000) 1999 1998 1997
==============================================================
Associate-related costs $250,649 $244,695 $238,945
Fuel and power 48,661 46,332 46,612
Purchased water 45,404 43,407 44,761
Chemicals 22,749 23,639 21,795
Waste disposal 16,137 15,336 14,625
Maintenance materials
and services 39,152 36,846 35,204
Operating supplies and services 102,173 86,647 75,484
Customer billing and accounting 26,168 23,846 24,368
Other 15,855 15,771 16,296
- --------------------------------------------------------------
$566,948 $536,519 $518,090
==============================
Expenses associated with the collection, treatment, and pumping of
water include the cost of fuel and power, water purchased from other
suppliers, chemicals for water treatment and purification, and waste
disposal. These costs increased by 3% in 1999 after a 1% rise in 1998.
The unit cost of water produced was unchanged in 1999, after a 1%
increase in 1998.
30
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
Maintenance materials and services, which include emergency repairs
as well as costs for preventive maintenance, increased by 6% in 1999
following a 5% increase in 1998.
Operating supplies and services include the day-to-day expenses of
office operation, legal and other professional services, as well as
information systems and other office equipment rental charges. These
costs increased by 18% in 1999 after a 15% increase in 1998. The
expenses in this category in 1999 include $5.6 million of costs
connected with the take over attempt of the Company's operations in
Chattanooga, Tennessee and Peoria, Illinois.
Customer billing and accounting expenses increased by 10% in 1999
and decreased by 2% in 1998. The increase in 1999 reflects higher
charge-offs of uncollectible customer accounts.
Depreciation and amortization increased by 9% in 1999 and 15% in
1998. The higher depreciation expense in both years was primarily due
to growth in utility plant in service.
General taxes, which include gross receipts, franchise, property,
capital stock, payroll and other taxes, increased by 4% in 1999 after a
7% rise in 1998.
Gross receipts and franchise taxes, which are a function of
revenues, increased by 5% in 1999. Property and capital stock taxes are
assessed on the basis of tax values assigned to assets and
capitalization. These taxes in 1999 were equal to those in 1998.
OTHER INCOME AND INCOME DEDUCTIONS
Interest expense rose 6% to $178.2 million in 1999 compared to 1998.
This expense had increased by 5% in 1998. The increases in 1999 and
1998 can be attributed primarily to an increase in total debt to fund
the construction of new water service assets.
The total allowance for funds used during construction recorded in
1999 was $22.4 million, which was 39% higher than the $16.1 million
recorded in 1998. The 1999 increase was the result of the construction
of new water service assets. The utility subsidiaries record an
allowance for funds used during construction to the extent permitted by
the regulatory authorities.
Merger related costs of $20.5 million in 1999 and $.4 million in
1998 reflect the one-time costs incurred in connection with the NEI
merger. These costs consist primarily of severance costs as well as
vesting of certain benefits, professional fees and other costs.
Other income deductions include the Company's share of losses at its
former contract management joint venture. This business is now
completely under the Company's ownership, and significant improvements
in it's operating results are anticipated.
INCOME TAXES
Income taxes decreased by 4% in 1999, following a 9% increase in
1998. Income tax expense in 1999 reflects the decrease in taxable
income primarily related to one-time merger related costs. Details
regarding the components of the total amount of state and federal income
taxes, and a reconciliation of statutory to reported income tax expense
are included in Note 11 to the financial statements.
SUMMARY OF TAXES
(000) 1999 1998 1997
==================================================================
Gross receipts and franchise taxes $ 41,839 $ 40,014 $ 38,239
Property and capital stock taxes 53,458 53,705 53,890
Payroll taxes 18,445 16,911 15,347
Other general taxes 8,932 7,502 3,360
State income taxes 14,282 13,575 13,326
Federal income taxes 77,118 81,973 74,664
- ------------------------------------------------------------------
$214,074 $213,680 $198,826
==============================
NET INCOME TO COMMON STOCK
Net income to common stock in 1999 before merger costs was $147.9
million, up slightly from $146.8 million in 1998. In addition, one-time
after tax merger costs of $12.9 million and $.4 million were incurred in
1999 and 1998, respectively, in connection with the NEI transaction.
After accounting for these merger costs, net income to common stock was
$135.0 million in 1999, compared to $146.5 million in 1998 and $133.8
million in 1997.
COMPREHENSIVE INCOME
Other comprehensive income was $59.3 million in 1999, $29.1 million
in 1998 and $4.0 million in 1997. The Company's other comprehensive
income represents the after tax unrealized gain on passive investments
in two publicly traded telecommunications firms, ITC Deltacom and
Powertel, acquired in the merger with NEI.
Comprehensive income was $194.3 million in 1999 compared to $175.6
million in 1998 and $137.8 million in 1997.
CONSOLIDATED CAPITALIZATION
COMMON PREFERRED LONG-TERM
(000) EQUITY STOCK DEBT
=================================================
1999 $1,634,798 $93,811 $2,431,452
1998 1,481,611 97,089 2,385,950
1997 1,341,946 97,663 2,129,228
1996 1,241,167 99,012 2,006,966
1995 992,240 100,287 1,642,453
- -------------------------------------------------
CONSOLIDATED CAPITALIZATION RATIOS
COMMON PREFERRED LONG-TERM
EQUITY STOCK DEBT
=================================================
1999 39% 2% 59%
1998 37% 3% 60%
1997 37% 3% 60%
1996 37% 3% 60%
1995 36% 4% 60%
- -------------------------------------------------
Note: Long-term debt includes amounts due within one year.
31
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Internal sources of cash flow are provided by retention of a portion
of earnings, amortization of deferred charges, deferral of taxes and
depreciation expense. Internal cash generation is influenced by weather
patterns, economic conditions and the timing of rate relief. When
internal cash generation is not sufficient to meet corporate obligations
on a timely basis, external sources of funds are utilized. The
availability and cost of external cash reflect the consistency and
reliability of earnings. External sources of cash consist of short-term
bank loans, the sale of securities -- bonds, preferred stock and common
stock -- as well as advances and contributions from developers.
The Company's Dividend Reinvestment and Stock Purchase Plan allows
shareholders and customers of the utility subsidiaries to purchase up to
$5,000 of common stock each month directly from the Company at a 2%
discount from the then prevailing market price. The discount may be
discontinued by the Company at any time.
Common stock may also be issued in connection with the continuation
of the Company's Dividend Reinvestment and Stock Purchase Plan, the
Employees' Stock Ownership Plan, the Savings Plan for Employees and the
Long-Term Performance-Based Incentive Plan. The Board of Directors has
also authorized management to purchase shares of the Company's common
stock to cover the obligations under the employee benefit plans and
dividend reinvestment stock purchase plan.
Utility subsidiary companies fund construction programs and
supplement cash flow by borrowing from banks under individual credit
lines established annually. The Company and its subsidiaries have
committed lines of credit with commercial banks under which they may
borrow up to $500 million, of which $240 million was outstanding at
December 31, 1999. Ample credit lines are available to provide funds
needed for 2000 construction requirements and to maintain bank
borrowings not yet refinanced on a long-term basis. Bank borrowings are
repaid with the proceeds obtained from selling bonds and preferred stock
either publicly or to institutional investors on a private placement basis.
MARKET RISK
The Company is exposed to market risk, including changes in interest
rates, certain commodity prices and equity prices. The exposure to
changes in interest rates is a result of financing through the issuance
of fixed-rate preferred stocks and long-term debt. The following tables
provide the principal amounts by period of maturity and the weighted
average effective interest rate for all such obligations outstanding in
the period for the Company's obligations that are sensitive to interest
rate changes. The exposure to equity price risk is generally associated
with the Company's investments in equity securities of several
telecommunications companies.
INTEREST RATE RISK
<TABLE>
<CAPTION>
Fair Value at
(000) 2000 2001 2002 2003 2004 Thereafter Total Dec. 31, 1999
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate
long-term debt,
including current
portion $37,932 $160,382 $146,424 $207,919 $64,411 $1,811,044 $2,428,112 $2,332,683
Average interest rate 7.18% 7.15% 7.15% 7.14% 7.11% 7.08%
Fixed-rate preferred
stocks with
mandatory redemption
requirements $42,031 $ 996 $ 668 $ 608 $ 608 $ 29,109 $ 74,020 $ 74,627
Average interest rate 8.31% 8.11% 8.09% 8.15% 8.18% 8.20%
</TABLE>
<TABLE>
<CAPTION>
Fair Value at
(000) 1999 2000 2001 2002 2003 Thereafter Total Dec. 31, 1998
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate
long-term debt,
including current
portion $53,085 $37,826 $163,774 $144,313 $205,709 $1,779,127 $2,383,834 $2,616,269
Average interest rate 7.29% 7.25% 7.22% 7.22% 7.22% 7.18%
Fixed-rate preferred
stocks with
mandatory redemption
requirements $ 3,198 $41,031 $ 956 $ 788 $ 728 $ 30,597 $ 77,298 $ 86,812
Average interest rate 8.24% 8.31% 8.08% 8.13% 8.15% 8.17%
</TABLE>
32
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
During 1999, three subsidiaries issued $30.3 million of mortgage
bonds at interest rates between 6.90% and 7.61%. Three subsidiaries
issued tax-exempt debt totaling $94.7 million at interest rates between
5.00% and 5.10%. Proceeds from the sale of the bonds were used to repay
bank loans, fund construction programs, and to refinance existing debt.
The Company and its subsidiaries are currently evaluating alternatives
to expand access to the capital markets. By aggregating the financing
needs of the Company and its subsidiaries into larger offerings, we will
look to access the public markets in addition to the traditional private
market. This should offer the prospect for more efficient execution in
the capital markets as well as the opportunity to achieve a lower cost
of capital on future financings.
The Company and its subsidiaries plan to fund construction programs,
continue acquisitions and repay bank borrowings and maturing bonds with
the issuance of approximately $160 million of long-term debt in 2000.
In addition, during 2000 the Company will arrange acquisition financing
of approximately $1.2 billion to fund the closing of the SJW and
Citizens water and wastewater sector acquisitions. Management intends
to fund these transactions permanently through a combination of
long-term debt and preferred equity securities. Excluding any
short-term borrowings incurred in connection with these pending
transactions, the combined amount of bank borrowings and bonds maturing
within one year is expected to remain at approximately the current level
in 2000. A discussion of the acquisition and capital spending programs
begins on page 27.
REGULATION
ECONOMIC
Twenty state commissions regulate the Company's utility
subsidiaries. They have broad authority to establish rates for service,
prescribe service standards, review and approve rules and regulations
and, in most instances, they must approve long-term financing programs,
transactions between the utility and affiliated interests,
reorganizations, mergers and acquisitions prior to their completion.
The jurisdiction exercised by each commission is prescribed by state
legislation and therefore varies from state to state.
Commissions range in size from three to seven members. The
commissioners in Arizona are elected by the voting public. The three
directors of the Tennessee Regulatory Authority are appointed by the
Governor, the Speaker of the Senate, and the Speaker of the House of
Representatives. In Virginia, members of the State Corporation
Commission are elected by a joint vote of the two houses of the general
assembly. In 1999 a new state regulatory commission in New Mexico was
formed consisting of five popularly elected Commissioners from separate
districts. All other state commissioners regulating subsidiaries are
appointed by the governors of the respective states and the appointments
usually require approval by the state legislature. The backgrounds of
the individuals serving in these important utility regulatory
commissioner positions cover a broad spectrum.
Economic regulation deals with many competing, and often
conflicting, public pressures and policy goals. Rate adjustments
normally are initiated by the utility entity. Public hearings, which
are economic and service quality fact-finding proceedings, are conducted
in a trial-like setting where evidence is submitted, subject to cross
examination, which then forms the basis for a commission decision. The
purpose of this process is to set rates for service which ensure the
financial viability of the utility entity and quality service to
customers at reasonable cost. A rate case generally focuses on four
areas:
o The amount of investment in facilities which provide public
service
o The operating costs associated with providing that service
o The capital costs for the funds used to provide the facilities
which serve the public
o The tariff design which allocates revenue requirements equitably
across the customer base
Prudent management dictates that a water utility anticipate the time
required for the regulatory process and file for rate adjustments which
will reflect the cost of providing service at the time the authorized
rates become effective.
Proceedings involving mergers and acquisitions will focus on the
financial effects on the utility, the rate and service impacts on
customers and generally whether the transaction is in the public
interest.
The utility subsidiaries aggressively pursue various methods of
offsetting the adverse financial impact of regulatory lag. Certain
subsidiaries have received rate orders allowing recovery of interest and
depreciation expense related to the interim period from the time a major
construction project was placed in service until new rates reflecting
the cost of the project went into effect. Several subsidiaries also now
recover in rates a return on utility plant before it is in service
instead of capitalizing an allowance for funds used during construction.
Additionally, utility subsidiaries with multiple operating districts
within a state have pursued single tariff pricing. This is a concept
that sets identical rates for service throughout the service territory.
It allows simplification of customer service operations, and also
reduces the complexity of rate proceedings. This concept also spreads
fixed costs over a larger customer base and helps to mitigate adverse
rate impacts to customers resulting from necessary capital improvements.
It also permits flexibility in timing of utility subsidiary financing.
Single tariff pricing is now in effect in Connecticut, Illinois,
Missouri, New Jersey, Ohio, Pennsylvania and West Virginia.
33
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
During the past year, regulatory commissions authorized nine
subsidiaries to increase rates for service by an annual amount of $59.3
million. In most of these decisions the primary factor for these price
increases was to reflect a return on the investment made for essential
water service facilities.
In Indiana, Pennsylvania and Maryland the subsidiary companies were
able to reach commission approved agreements which resulted in rate
relief earlier than would have been the case under ordinary procedures.
For example, on July 1, 1999, the Indiana Utility Regulatory Commission
approved a settlement which provided Indiana-American Water Company a
revenue increase of $13.25 million (over 90% of the original requested
increase of 21%), further movement toward single tariff pricing, and
rate recognition of $55.3 million in investment related to the Southern
Indiana Regional Water Supply Project. An additional increase of
$969,000 went into effect in Indiana on January 1, 1999 for the second
step of a case that was settled in 1998. Likewise, pursuant to
stipulation, on May 28, 1999 Maryland-American received approval of a
general increase of $360,000 (95% of the original request) and a step
increase of $293,000 to be effective in mid-2000. The order allows
recognition of improvements in the Winter's Run Water Treatment facility
approximately three months earlier than the statutory date. On December
16, 1999, Pennsylvania-American Water Company received an increase of
$24.6 million with an effective date approximately 45 days earlier than
would have resulted from a fully litigated process.
California-American Water Company received orders effective January 1,
1999 authorizing step increases for the Los Angeles and Monterey
divisions providing for increased revenues of $314,000 and $466,000,
respectively. In addition, a general rate case for the Monterey
division was resolved by settlement between the parties resulting in an
allowed increase in rates of $875,000 (3.92%), on an annual basis
beginning in 2000; $444,500 (1.99%), in 2001; and $508,300 (2.15%), in
2002. In addition, a step increase was filed for the Los Angeles
division requesting additional revenues of $376,800 (2.49%) over present
revenues which will become effective in January 2000. The Monterey
general rate case also resulted in agreements between the parties
concerning special requests providing for recovery of expenses related
to conservation programs, emergency water treatment projects,
catastrophic events, and rationing programs. In addition, the company
filed for an offset rate increase for its Coronado division for $626,260
related to a purchase water offset, which will become effective on April
1, 2000. California-American will also recover $526,000 related to an
under-collection in its purchase water balancing account through use of
a surcharge, which also will become effective on April 1, 2000.
Arizona-American received an order from the Commission on July 14,
1999 authorizing the company to increase present rates by approximately
$811,000 or 20.08%. Approximately one half of this amount is related to
recovery of certain Central Arizona Project (CAP) expenses.
Effective April 6, 1999 the New Jersey Board of Public Utilities
approved a revenue increase of $13.08 million. The order resulted in
part from settlement negotiations among the parties that resolved
certain issues. The impact of the decision resulted in partial
recognition of the acquisition adjustment related to the purchase of the
Howell Township Water System and also initiated a formal proceeding to
further review guidelines for acquisitions and related policies.
The West Virginia Public Service Commission approved automatic rate
increases that were negotiated as part of a joint settlement of West
Virginia-American's last general rate case. The first increase of 4.5%
became effective on January 1, 2000 and the second increase of 3% is
scheduled to become effective on January 1, 2001. In addition, "Special
Project" step increases were approved, which provide for revenue
increases associated with the company's investment in phase II of the
Huntington Treatment Plant improvements.
New York-American Water Company received a rate increase on August
1, 1999, which is the second phase of a three-step rate proceeding. The
first-step increase was received on August 1, 1998 and another increase
will occur on August 1 of the year 2000.
ADDITIONAL ANNUAL REVENUES AUTHORIZED BY RATE DECISIONS
(000) 1999 1998 1997
===================================================
Arizona $ 811 $ -- $ 739
California 780 -- 1,354
Illinois -- 750 7,301
Indiana 14,219 2,000 6,443
Iowa -- 1,836 --
Kentucky -- -- 1,050
Maryland 360 -- 31
Michigan -- 80 --
Missouri -- 3,800 10,029
New Jersey 13,083 -- 2,157
New Mexico -- 790 --
New York 100 440 --
Ohio -- 733 952
Pennsylvania 24,600 -- 27,450
Virginia 776 -- 717
West Virginia 4,522 6,287 2,698
- ---------------------------------------------------
$59,251 $16,716 $60,921
==========================
34
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
American Water System personnel participate in regulatory
conferences and meetings, including those conducted by regional
regulatory associations. The goal in this effort is to increase
understanding of the industry and its unique regulatory requirements.
The Company appreciates the thoughtful work of the Water Committee
of the National Association of Regulatory Utility Commissioners. Its
initiatives and the growing public awareness of the importance of
adequate water supply have led to progressive regulation which has
allowed utility subsidiaries to address, on a timely basis, water supply
issues which otherwise would still be unresolved.
ENVIRONMENTAL
Two areas of environmental regulation impact the water utility
industry. The regulation of drinking water quality is legislated under
the Safe Drinking Water Act, which most recently was amended in August
of 1996. The regulation of wastes generated during the drinking water
treatment process is legislated under the Clean Water Act, Resource
Conservation and Recovery Act, and Toxic Substances Control Act. Water
utilities, individually and through industry associations, follow the
development of these legislative mandates closely, and provide technical
guidance to Congress on areas of improvement. By far, the Safe Drinking
Water Act has the most potential for impact on water utilities, and has
as its objective the improvement of public health. The utility
subsidiaries are, as a matter of policy, committed to compliance with
all applicable environmental mandates and routinely support
environmental protection initiatives.
All environmental regulations promulgated under these statutes are
adopted by the United States Environmental Protection Agency (EPA). Its
broad operating experience, state of the art water quality laboratory
and research efforts afford the American Water System the unique
opportunity to assist the EPA in developing the most practical
regulation possible.
During 1999, the American Water System compliance record was
outstanding. Health regulators were again very pleased with American
subsidiaries' performance and customer surveys showed satisfaction with
water quality and service. Still, the American Water System recognizes
that further improvements are possible, and supports new regulations
aimed at providing an even higher level of protection to consumers and
the environment.
American Water Works water utility subsidiaries are aggressively
pursuing the standards set for the Partnership for Safe Water. This
partnership is a voluntary cooperative effort between the EPA and state
health officials, and water utilities. Joining the partnership means a
commitment to producing an extremely high quality water as determined by
the program. Attaining the objectives results in being given an EPA
award. Many American Water System plants have already achieved this
award, and the others are expected to do so in 2000.
The EPA continues to reduce the allowable amounts of disinfection
by-products in drinking water. In December 1998, EPA finalized a new
regulation, lowering those allowable limits, and is currently working on
a plan to lower them even more. Consequently, the trend to use less
chlorine in water treatment will continue. The Company follows this
regulatory process very closely, and is exploring all the possible
alternatives to chlorine, if such a step is necessary.
Future EPA drinking water regulations will concentrate on microbial
waterborne diseases, caused by Cryptosporidium and viruses, and also
potent carcinogens like arsenic as well as several pesticides. The
American Water System is intensively studying these and other
contaminants and will be able to assess the impact of future regulation
and will be ready to comply before it is required.
All waste from the utility subsidiaries' water treatment processes
are either recycled or disposed. Solid wastes are disposed in
accordance with current best practices, and with the proper permits from
the authorities. Wastewaters are discharged to a river or a sewer in
accordance with state permits, or are recycled. All these activities
are conducted in compliance with regulations.
YEAR 2000 ISSUES
Preparing for Year 2000 was a high priority for the Company. The
successful completion of the Company's Year 2000 compliance program
included the implementation of new financial and customer service
software, as well as upgrading and replacing computers and other
equipment. There have been no operational or information system
failures or problems resulting from the roll over of the date to 2000.
35
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
NEW ACCOUNTING STANDARDS
In 2001, the Company will adopt Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board in June
of 1998 and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133, as amended by SFAS 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133," requires adoption on
January 1, 2001. This new accounting standard is not expected to have
any effect on the Company's financial position or results of operations
as the Company has no significant derivative instruments or hedging
activities.
FORWARD LOOKING INFORMATION
Forward looking statements in this report, including, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequacy of resources, are made
pursuant to the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward looking statements involve
known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking statements.
These factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives,
advertising and promotional efforts; existence of adverse publicity or
litigation; changes in business strategy or plans; quality of
management; availability, terms and development of capital; business
abilities and judgment of personnel; changes in, or the failure to
comply with governmental regulations; and other factors described in
filings of the Company with the SEC. The Company undertakes no
obligation to publicly update or revise any forward looking statement,
whether as a result of new information, future events or otherwise.
36
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN WATER WORKS COMPANY, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income and
of retained earnings, of cash flows, of capitalization and of common
stockholders' equity present fairly, in all material respects, the
financial position of American Water Works Company, Inc. and Subsidiary
Companies at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania
February 1, 2000
37
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
At December 31, 1999 1998
==============================================================================
ASSETS
Property, plant and equipment
Utility plant - at original cost
less accumulated depreciation $4,939,408 $ 4,613,027
Utility plant acquisition adjustments, net 51,697 55,097
Nonutility property, net of
accumulated depreciation 36,265 32,367
Excess of cost of investments in
subsidiaries over book equity
at acquisition, net 57,118 24,431
- ------------------------------------------------------------------------------
Total property, plant and equipment 5,084,488 4,724,922
- ------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 43,100 39,877
Customer accounts receivable 91,353 85,018
Allowance for uncollectible accounts (2,346) (2,263)
Unbilled revenues 78,205 75,943
Miscellaneous receivables 10,936 9,308
Materials and supplies 20,058 16,786
Deferred vacation pay 8,951 10,127
Restricted funds 14,558 11,917
Other 13,866 13,513
- ------------------------------------------------------------------------------
Total current assets 278,681 260,226
- ------------------------------------------------------------------------------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 214,349 218,527
Other investments 181,579 79,195
Debt and preferred stock expense 48,289 45,645
Deferred pension expense 32,872 27,011
Deferred postretirement benefit expense 10,264 12,538
Deferred treatment plant costs 5,811 6,873
Deferred tank painting costs 14,178 13,558
Restricted funds 6,557 10,935
Other 75,138 59,228
- ------------------------------------------------------------------------------
Total regulatory and other long-term assets 589,037 473,510
- ------------------------------------------------------------------------------
TOTAL ASSETS $5,952,206 $5,458,658
===========================
38
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
1999 1998
==============================================================================
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $1,634,798 $1,481,611
Preferred stocks with mandatory
redemption requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with
mandatory redemption requirements 34,020 37,298
Preferred stocks of subsidiaries without
mandatory redemption requirements 8,118 8,118
Long-term debt
American Water Works Company, Inc. 211,000 216,500
Subsidiaries 2,182,097 2,115,687
- ------------------------------------------------------------------------------
Total capitalization 4,121,706 3,910,887
- ------------------------------------------------------------------------------
Current liabilities
Bank debt 239,864 88,590
Current portion of long-term debt 38,355 53,763
Accounts payable 67,064 63,272
Taxes accrued, including federal income 16,030 23,628
Interest accrued 43,672 41,863
Accrued vacation pay 9,581 10,613
Other 77,142 51,400
- ------------------------------------------------------------------------------
Total current liabilities 491,708 333,129
- ------------------------------------------------------------------------------
Regulatory and other long-term liabilities
Advances for construction 207,891 191,738
Deferred income taxes 610,460 535,106
Deferred investment tax credits 40,585 41,976
Accrued pension expense 63,095 51,690
Accrued postretirement benefit expense 12,471 12,257
Other 29,453 27,474
- ------------------------------------------------------------------------------
Total regulatory and other long-term liabilities 963,955 860,241
- ------------------------------------------------------------------------------
Contributions in aid of construction 374,837 354,401
- ------------------------------------------------------------------------------
Commitments and contingencies -- --
- ------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $5,952,206 $5,458,658
=========================
The accompanying notes are an integral part of these financial statements.
The results presented in 1999 and the restated results for 1998 reflect the
pooling of interests method of accounting to recognize the acquisition of
National Enterprises Inc.
39
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AND OF RETAINED EARNINGS
(Dollars in thousands, except per share amounts)
For the years ended December 31, 1999 1998 1997
==============================================================================
CONSOLIDATED INCOME AND
COMPREHENSIVE INCOME
Operating revenues $1,260,857 $1,200,037 $1,131,374
- ------------------------------------------------------------------------------
Operating expenses
Operation and maintenance 566,948 536,519 518,090
Depreciation and amortization 151,641 139,661 121,402
General taxes 122,674 118,132 110,836
- ------------------------------------------------------------------------------
841,263 794,312 750,328
- ------------------------------------------------------------------------------
Operating income 419,594 405,725 381,046
Other income (deductions)
Interest (178,215) (168,779) (161,437)
Allowance for other funds used
during construction 11,849 9,803 7,035
Allowance for borrowed funds used
during construction 10,577 6,312 5,258
Amortization of debt expense (2,754) (2,494) (2,148)
Preferred dividends of subsidiaries (3,311) (3,408) (3,522)
Merger related costs (20,535) (352) --
Other, net (6,856) (820) (551)
- ------------------------------------------------------------------------------
(189,245) (159,738) (155,365)
- ------------------------------------------------------------------------------
Income before income taxes 230,349 245,987 225,681
Provision for income taxes 91,400 95,548 87,990
- ------------------------------------------------------------------------------
Net income 138,949 150,439 137,691
Dividends on preferred stocks 3,984 3,984 3,984
- ------------------------------------------------------------------------------
Net income to common stock 134,965 146,455 133,707
- ------------------------------------------------------------------------------
Other comprehensive income
Unrealized gains on securities 102,604 47,083 5,348
Income taxes on other comprehensive
income (43,281) (17,959) (1,334)
- ------------------------------------------------------------------------------
Other comprehensive income, net 59,323 29,124 4,014
- ------------------------------------------------------------------------------
Comprehensive income $ 194,288 $ 175,579 $ 137,721
====================================
Average shares of basic common
stock outstanding 96,544 95,234 94,080
Basic and diluted earnings per common
share on average shares outstanding $ 1.40 $ 1.54 $ 1.42
====================================
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year $ 945,434 $ 870,368 $ 803,085
Add: net income 138,949 150,439 137,691
- ------------------------------------------------------------------------------
1,084,383 1,020,807 940,776
- ------------------------------------------------------------------------------
Deduct: dividends paid
Preferred stock 3,528 3,528 3,528
Preference stock 456 456 456
Common stock - $.86 per share in 1999,
$.82 per share in 1998, $.76 per
share in 1997 76,479 65,781 60,084
National Enterprises Inc. common stock 2,891 5,608 6,340
- ------------------------------------------------------------------------------
83,354 75,373 70,408
- ------------------------------------------------------------------------------
Balance at end of year $1,001,029 $ 945,434 $ 870,368
====================================
The accompanying notes are an integral part of these financial statements.
The results presented in 1999 and the restated results for 1998 and
1997 reflect the pooling of interests method of accounting to recognize
the acquisition of National Enterprises Inc.
40
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the years ended December 31, 1999 1998 1997
==============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $138,949 $150,439 $137,691
Adjustments
Depreciation and amortization 151,641 139,661 121,402
Provision for deferred income taxes 31,411 29,922 33,925
Provision for losses on accounts
receivable 7,731 6,832 7,468
Allowance for other funds used
during construction (11,849) (9,803) (7,035)
Employee stock plan expenses 5,185 5,648 6,301
Employee benefit expenses greater
(less) than funding 4,217 (1,848) 1,427
Deferred tank painting costs (3,349) (4,081) (1,733)
Deferred rate case expense (2,024) (1,894) (2,219)
Deferred treatment plant costs 2,075 (1,803) (2,654)
Amortization of deferred charges 13,985 10,709 9,388
Other, net (3,427) (5,640) (2,059)
Changes in assets and liabilities,
net of effects from acquisitions
Accounts receivable (10,934) (16,327) (8,640)
Unbilled revenues (2,262) (4,064) (1,962)
Other current assets (1,978) (1,130) (2,902)
Accounts payable (3,150) 13,208 6,986
Taxes accrued, including federal income (8,751) 5,591 3,953
Interest accrued 1,809 4,212 1,225
Other current liabilities 20,113 (7,437) 8,517
- ------------------------------------------------------------------------------
Net cash from operating activities 329,392 312,195 309,079
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (467,351) (437,627) (394,429)
Allowance for other funds used during
construction 11,849 9,803 7,035
Acquisitions (41,764) (46,203) (3,072)
Proceeds from the disposition of property,
plant and equipment 2,703 1,484 3,952
Removal costs from property, plant and
equipment retirements (15,409) (7,543) (10,824)
Restricted funds 1,737 (14,786) 8,321
- ------------------------------------------------------------------------------
Net cash used in investing activities (508,235) (494,872) (389,017)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 128,332 330,174 208,700
Proceeds from common stock, net of
issuance costs 36,617 29,942 23,040
Net borrowings (repayments) under
line-of-credit agreements 150,024 (46,172) (12,628)
Advances and contributions for
construction, net of refunds 43,121 38,719 36,888
Debt issuance costs (5,376) (8,070) (4,762)
Repayment of long-term debt (82,830) (75,042) (86,438)
Redemption of preferred stocks (3,278) (2,438) (1,349)
Dividends paid (83,354) (75,373) (70,408)
Purchase of common stock for treasury (1,190) -- --
- ------------------------------------------------------------------------------
Net cash from financing activities 182,066 191,740 93,043
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,223 9,063 13,105
Cash and cash equivalents at
beginning of year 39,877 30,814 17,709
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43,100 $ 39,877 $ 30,814
==================================
Cash paid during the year for:
Interest, net of capitalized amount $180,475 $169,044 $162,332
==================================
Income taxes $ 69,015 $ 75,510 $ 67,605
==================================
Common stock issued in lieu of cash in
connection with the Employee Stock Ownership
Plan, the Savings Plan for Employees and the
Long-Term Performance-Based Incentive Plan
totaled $5,428 in 1999, $6,854 in 1998 and
$5,438 in 1997. Capital lease obligations
of $1,590 were recorded in 1998.
The accompanying notes are an integral part of these financial statements.
The results presented in 1999 and the restated results for 1998 and 1997
reflect the pooling of interests method of accounting to recognize the
acquisition of National Enterprises Inc.
41
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CAPITALIZATION
(Dollars in thousands, except per share amounts)
At December 31, 1999 1998
==============================================================================
COMMON STOCKHOLDERS' EQUITY:
Common stock -- $1.25 par value, authorized
300,000,000 shares, outstanding 97,303,759
shares in 1999 and 95,831,790 shares
in 1998 $ 121,630 $ 119,789
Paid-in capital 424,434 384,255
Retained earnings 1,001,029 945,434
Accumulated other comprehensive income 92,461 33,138
Unearned compensation (1,056) (980)
Treasury stock at cost -- 109,675 shares in
1999 and 800 shares in 1998 (3,700) (25)
- ------------------------------------------------------------------------------
1,634,798 1,481,611
- ------------------------------------------------------------------------------
At December 31, 1999, common shares reserved for
issuance in connection with the Company's stock
plans were 80,865,863 shares for the Stockholder
Rights Plan, 4,214,504 shares for the Dividend
Reinvestment and Stock Purchase Plan, 597,627
shares for the Employees' Stock Ownership Plan,
597,925 shares for the Savings Plan for Employees
and 296,347 shares for the Long-Term
Performance-Based Incentive Plan. During 1999,
108,875 shares were acquired and placed into
treasury in connection with the Long-Term
Performance-Based Incentive Plan and 800 shares
were placed into treasury as a result of the NEI
merger.
PREFERRED STOCKS WITH MANDATORY REDEMPTION REQUIREMENTS:
Cumulative preferred stock - $25 par value,
authorized 1,770,000 shares
8.5% series (non-voting), outstanding
1,600,000 shares, due for redemption at
par value on December 1, 2000 40,000 40,000
- ------------------------------------------------------------------------------
PREFERRED STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS:
Cumulative preferred stock - $25 par value
5% series (one-tenth of a vote per share),
outstanding 101,777 shares 2,544 2,544
Cumulative preference stock - $25 par value,
authorized 750,000 shares
5% series (non-voting), outstanding 365,158
shares 9,129 9,129
Cumulative preferential stock - $35 par value,
authorized 3,000,000 shares
(one-tenth of a vote per share), no
outstanding shares -- --
- ------------------------------------------------------------------------------
11,673 11,673
- ------------------------------------------------------------------------------
PREFERRED STOCKS OF SUBSIDIARIES:
Dividend rate
3.9% to less than 5% 4,917 5,931
5% to less than 6% 4,726 5,285
6% to less than 7% 1,559 1,823
7% to less than 8% 4,034 4,084
8% to less than 9% 23,350 24,370
9% to less than 10% 3,272 3,503
10% to less than 11% 280 420
- ------------------------------------------------------------------------------
42,138 45,416
- ------------------------------------------------------------------------------
Preferred stock agreements of certain subsidiaries
require annual sinking fund payments in varying
amounts and permit redemption at various prices at
the option of the subsidiaries on thirty days
notice, or, in the event of involuntary
liquidation, at par value plus accrued dividends.
Sinking fund payments for the next five years will
amount to $2,031 in 2000, $996 in 2001, $668 in
2002, $608 in 2003 and $608 in 2004.
Redemptions of preferred stock amounted to $3,278
in 1999 and $2,438 in 1998.
42
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT
MATURITIES 1999 1998
===================================================================================
<S> <C> <C> <C>
LONG-TERM DEBT OF
AMERICAN WATER WORKS COMPANY, INC.:
7.41% Series C debentures, due May 1, 2003 -- $ 81,000 $ 81,000
6.21% Series D debentures, due July 2, 2001 -- 50,000 50,000
6.28% Series D debentures, due July 2, 2002 -- 10,000 10,000
6.28% Series D debentures, due July 2, 2003 -- 45,000 45,000
6.32% Series D debentures, due July 2, 2004 -- 15,000 15,000
7.02% Senior Notes, due August 1, 2005 -- 10,000 10,000
6.34% Installment loan due September 1, 2001 -- -- 5,500
- -----------------------------------------------------------------------------------
-- 211,000 216,500
- -----------------------------------------------------------------------------------
LONG-TERM DEBT OF SUBSIDIARIES:
Interest rate
1% to less than 2% $ 250 8,486 5,880
3% to less than 4% 39 393 433
4% to less than 5% 424 3,994 4,418
5% to less than 6% 52 459,304 370,685
6% to less than 7% 420 513,628 511,257
7% to less than 8% 1,141 711,221 703,361
8% to less than 9% 1,100 177,900 179,000
9% to less than 10% 30,609 249,555 280,164
10% to less than 11% 3,897 54,699 58,596
- -----------------------------------------------------------------------------------
37,932 2,179,180 2,113,794
Capital leases 423 2,917 1,893
- -----------------------------------------------------------------------------------
$38,355 2,182,097 2,115,687
- -----------------------------------------------------------------------------------
$4,121,706 $3,910,887
=======================
</TABLE>
Maturities of long-term debt of subsidiaries,
including sinking fund requirements, during the
next five years will amount to $38,355 in 2000,
$108,833 in 2001, $134,827 in 2002, $80,357 in
2003 and $47,752 in 2004.
Long-term debt of subsidiaries is substantially
secured by utility plant and by a pledge of
certain securities of subsidiaries and affiliates.
The accompanying notes are an integral part of
these financial statements.
The results presented in 1999 and the restated
results for 1998 reflect the pooling of interests
method of accounting to recognize the acquisition
of National Enterprises Inc.
43
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Other Common
Unearned Compre- Stock-
Common Stock Paid-in Retained Compen- Treasury Stock hensive holders'
Shares Par Value Capital Earnings sation Shares At Cost Income Equity
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996 93,358,302 $116,698 $322,193 $803,085 ($784) 800 ($25) -- $1,241,167
Net income -- -- -- 137,691 -- -- -- -- 137,691
Dividend reinvestment 291,236 364 6,235 -- -- -- -- -- 6,599
Stock purchase 555,109 693 11,777 -- -- -- -- -- 12,470
Employees' stock
ownership plan 134,182 168 2,761 -- -- -- -- -- 2,929
Savings plan for
employees 222,940 279 4,741 -- -- -- -- -- 5,020
Incentive plan 60,843 76 2,420 -- (32) -- -- -- 2,464
Other comprehensive
income -- -- -- -- -- -- -- 4,014 4,014
Dividends:
Preferred stocks -- -- -- (3,984) -- -- -- -- (3,984)
Common stock -- -- -- (66,424) -- -- -- -- (66,424)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 94,622,612 118,278 350,127 870,368 (816) 800 (25) 4,014 1,341,946
Net income -- -- -- 150,439 -- -- -- -- 150,439
Dividend reinvestment 249,250 312 7,082 -- -- -- -- -- 7,394
Stock purchase 600,036 750 17,267 -- -- -- -- -- 18,017
Employees' stock
ownership plan 95,499 119 2,903 -- -- -- -- -- 3,022
Savings plan for
employees 193,943 242 5,593 -- -- -- -- -- 5,835
Incentive plan 70,450 88 1,283 -- (164) -- -- -- 1,207
Other comprehensive
income -- -- -- -- -- -- -- 29,124 29,124
Dividends:
Preferred stocks -- -- -- (3,984) -- -- -- -- (3,984)
Common stock -- -- -- (71,389) -- -- -- -- (71,389)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 95,831,790 119,789 384,255 945,434 (980) 800 (25) 33,138 1,481,611
Net income -- -- -- 138,949 -- -- -- -- 138,949
Dividend reinvestment 291,808 365 7,896 -- -- -- -- -- 8,261
Stock purchase 839,288 1,050 22,714 -- -- -- -- -- 23,764
Employees' stock
ownership plan 109,932 137 3,040 -- -- -- -- -- 3,177
Savings plan for
employees 200,153 251 5,699 -- -- -- -- -- 5,950
Incentive plan 30,788 38 830 -- (76) -- -- -- 792
Other comprehensive
income -- -- -- -- -- -- -- 59,323 59,323
Treasury stock -- -- -- -- -- 108,875 (3,675) -- (3,675)
Dividends:
Preferred stocks -- -- -- (3,984) -- -- -- -- (3,984)
Common stock -- -- -- (79,370) -- -- -- -- (79,370)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 97,303,759 $121,630 $424,434 $1,001,029 ($1,056) 109,675 ($3,700) $92,461 $1,634,798
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
The results presented in 1999 and the restated results for prior years reflect
the pooling of interests method of accounting to recognize the acquisition of
National Enterprises Inc.
44
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1: ORGANIZATION AND OPERATION
American Water Works Company, Inc. through its utility subsidiaries
provides water and wastewater service in 22 states. As public utilities,
these subsidiaries function under rules and regulations prescribed by state
regulatory commissions. The Company also manages and operates water and
wastewater facilities in seven states through its unregulated contract
management subsidiary, which had been operated as a joint venture until
December 31, 1999 when the Company acquired its partner's interest (see
Contract Management Business in Note 3).
The Company, however, reflects one reportable segment for financial
statement purposes as the Company's utility subsidiaries represent similar
entities offering substantially identical services to similar customers.
Wastewater service and the Company's share of the contract management
business joint venture have not been reflected as reportable segments as
revenues, net income and assets associated with these services are less
than 10% of those for the Company as a whole.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
parent company and all subsidiaries. Intercompany accounts and
transactions are eliminated. The results of operations of the Company's
former contract management business joint venture have been accounted for
under the equity method (see Contract Management Business in Note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
REGULATION
The utility subsidiaries have incurred various costs and received
various credits which have been reflected as regulatory assets and
liabilities on the Company's consolidated balance sheet. Accounting for
such costs and credits as regulatory assets and liabilities is in
accordance with Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
This statement sets forth the application of generally accepted accounting
principles for those companies whose rates are established by or are
subject to approval by an independent third-party regulator. Under SFAS
71, utility companies defer costs and credits on the balance sheet as
regulatory assets and liabilities when it is probable that those costs and
credits will be recognized in the rate making process in a period different
from the period in which they would have been reflected in income by an
unregulated company. These deferred regulatory assets and liabilities are
then reflected in the income statement in the period in which the same
amounts are reflected in the rates charged for service.
PROPERTY, PLANT AND EQUIPMENT
Additions to utility plant and replacements of retirement units of
property are capitalized. Costs include material, direct labor and such
indirect items as engineering and supervision, payroll taxes and benefits,
transportation and an allowance for funds used during construction. The
costs incurred to acquire and internally develop computer software for
internal use are capitalized as a unit of property. Repairs, maintenance
and minor replacements of property are charged to current operations. The
cost of property units retired in the ordinary course of business plus
removal cost (less salvage) is charged to accumulated depreciation. The
cost of property, plant and equipment is generally depreciated using the
straight-line method over the estimated service lives of the assets.
Utility plant acquisition adjustments include the difference between
the purchase price of utility plant and its original cost (less accumulated
depreciation) and are generally being amortized over a period of 40 years.
The excess of cost of investments in subsidiaries over book equity at
acquisition includes approximately $33,000 of goodwill associated with the
Company's acquisition of its joint venture partner's interest in the
contract management business (see Contract Management Business Acquisition
in Note 3). The balance of the excess cost of investments in subsidiaries
is attributable to various acquisitions of utility subsidiaries.
Utility plant acquisition adjustments and the excess of cost of
investments in subsidiaries over book equity at acquisition, prior to
October 31, 1970, are not being amortized because in the opinion of
management there has been no diminution in value.
CASH AND CASH EQUIVALENTS
Substantially all of the Company's cash is invested in interest bearing
accounts. The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Cash equivalents consist primarily of investment grade commercial paper,
bank certificates of deposit and United States Government securities. Cash
equivalents are stated at cost plus accrued interest which approximates
market value.
MATERIALS AND SUPPLIES
Materials and supplies are stated at average cost.
REGULATORY ASSETS
The Company has recorded a regulatory asset for the additional revenues
expected to be realized as the tax effects of temporary differences
previously flowed through to customers
45
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
reverse. These temporary differences are primarily related to the
difference between book and tax depreciation on property placed in service
before the adoption by the regulatory authorities of full normalization for
rate making purposes.
The regulatory asset for income taxes recoverable through rates is net
of the reduction expected in future revenues as deferred taxes previously
provided, attributable to the difference between the state and federal
income tax rates under prior law and the current statutory rates, reverse
over the average remaining service lives of the related assets.
Debt expense is amortized over the lives of the respective issues.
Call premiums on the redemption of long-term debt, as well as unamortized
debt expense, are deferred and amortized to the extent they will be
recovered through future service rates. Expenses of preferred stock issues
without sinking fund provisions are amortized over 30 years from date of
issue; expenses of issues with sinking fund provisions are charged to
operations as shares are retired.
Pension expense in excess of the amount contributed to the pension plan
is deferred by certain subsidiaries. These costs will be recovered in
future service rates as contributions are made to the pension plan.
Postretirement benefit expense in excess of the amount recovered in
rates through 1997 has been deferred by certain subsidiaries. These costs
are now recognized in the rates charged for water service and will be fully
recovered over a 20-year period ending in 2012 as authorized by the
regulatory authorities.
Deferred treatment plant costs consist of operating expenses, including
depreciation and property taxes, and the carrying charges associated with
several water treatment plants and related facilities from the time the
assets were placed in service until recovery of such costs were allowed in
future service rates. These costs have been recognized in the rates
charged for water service and are being amortized over a 10-year period as
authorized by the regulatory authorities.
Tank painting costs are generally deferred and amortized to current
operations on a straight-line basis over periods ranging from 4 to 20
years, as authorized by the regulatory authorities in their determination
of rates charged for service.
OTHER INVESTMENTS AND ACCUMULATED
OTHER COMPREHENSIVE INCOME
Other investments include primarily equity securities of publicly and
privately held companies. Investments in publicly traded securities are
classified as available for sale and are recorded in the balance sheet at
fair market value with the change in market value, net of the tax effect,
recorded as part of comprehensive income. The cost basis of these publicly
traded securities is $17,215, and the fair value of these investments is
determined using quoted market prices. Investments in privately held
companies are carried at cost. The principal publicly traded investments
are 4,000,000 shares of ITC Deltacom (NASDQ: ITCD) and 600,000 shares of
Powertel (NASDQ: PTEL). The Company also has a significant investment in
privately held ITC Holding.
The components of accumulated other comprehensive income at December 31
are as follows:
1999 1998 1997
==============================================================================
Beginning balance $33,138 $ 4,014 $ --
Unrealized gains on securities 102,604 47,083 5,348
Income taxes on other
comprehensive income (43,281) (17,959) (1,334)
- ------------------------------------------------------------------------------
Ending balance $92,461 $33,138 $4,014
=============================
OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1999 and 1998 include
payables to banks of $21,621 and $17,033 respectively, which represent
checks issued but not presented to the banks for payment, net of the
related bank balance.
ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Utility subsidiaries may receive advances and contributions to fund
construction necessary to extend service to new areas. As determined by
the regulatory authorities, advances for construction are refundable for
limited periods of time as new customers begin to receive service. Amounts
which are no longer refundable are reclassified to contributions in aid of
construction. Utility plant funded by advances and contributions is
excluded from rate base and is generally not depreciated for rate making
purposes. Generally, advances and contributions received during the period
January 1, 1987 through June 12, 1996 have been included in taxable income
and the related property is depreciable for tax purposes. As a result of a
tax law change, advances and contributions received subsequent to June 12,
1996 are excluded from taxable income and the related property is not
depreciable for tax purposes.
RECOGNITION OF REVENUES
Service revenues for financial reporting purposes include amounts
billed to customers on a cycle basis and unbilled amounts based on
estimated usage from the date of the latest meter reading to the end of the
accounting period.
INCOME TAXES
The Company and its subsidiaries participate in a consolidated federal
income tax return. Federal income tax expense for financial reporting
purposes is provided on a separate return basis, except that the federal
income tax rate applicable to the consolidated group is applied to separate
company taxable income and the benefit of net operating losses, principally
at the parent company level, is recognized currently.
Certain income and expense items are accounted for in different time
periods for financial reporting than for income tax reporting purposes.
Deferred income taxes have been provided on the difference between the tax
bases of assets and liabilities and the amounts at which they are carried
in the financial
46
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
statements. These deferred income taxes are based on the enacted tax
rates to be in effect when such temporary differences are expected to
reverse. The utility subsidiaries also recognize regulatory assets and
liabilities for the effect on revenues expected to be realized as the tax
effects of temporary differences previously flowed through to customers
reverse.
Investment tax credits have been deferred and are being amortized to
income over the average estimated service lives of the related assets.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC is a non-cash credit to income with a corresponding charge to
utility plant which represents the cost of borrowed funds and a return on
equity funds devoted to plant under construction. The utility subsidiaries
record AFUDC to the extent permitted by the regulatory authorities.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations or provide
a future benefit are expensed or capitalized as appropriate. Remediation
costs that relate to an existing condition caused by past operations are
accrued when it is probable that these costs will be incurred and can be
reasonably estimated.
ASSET IMPAIRMENT
Long-lived assets and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets, on a
separate entity basis, may not be recoverable. If the sum of the future
cash flows expected to result from the use of the assets and their eventual
disposition is less than the carrying amount of the assets, an impairment
loss is recognized. Measurement of an impairment loss is based on the fair
value of the assets. A regulatory asset is charged to earnings if and when
future recovery in rates of that asset is no longer probable.
EARNINGS PER SHARE
The average number of shares used to calculate diluted earnings per
share includes 51,837, 57,831 and 76,996 of potential common shares
issuable in connection with the Company's Long-Term Performance-Based
Incentive Plan (see Note 9) in 1999, 1998 and 1997, respectively.
NEW ACCOUNTING STANDARDS
In 2001, the Company will adopt Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board in June of
1998 and requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133, as amended by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," requires adoption on January 1,
2001. This new accounting standard is not expected to have any effect on
the Company's financial position or results of operations as the Company
has no significant derivative instruments or hedging activities.
RECLASSIFICATION
Certain reclassifications have been made to conform previously reported
data to the current presentation. The results presented in 1999 and the
restated results for previous periods reflect the pooling of interests
method of accounting to recognize the acquisition of National Enterprises
Inc. (see National Enterprises Inc. in Note 3).
NOTE 3: ACQUISITIONS
NATIONAL ENTERPRISES INC.
On June 25, 1999, the Company completed the acquisition of National
Enterprises Inc. (NEI), a privately owned company, in a transaction valued
at $700,000. The transaction was accomplished through a tax free exchange
of 14,937,000 shares of the Company's stock for all of the outstanding
shares of NEI and the assumption of $241,000 of debt. Subsidiaries of NEI
provided water service to approximately 504,000 customers in Missouri,
Illinois, Indiana and New York. NEI also had passive investments in the
telecommunications industry owning 4,000,000 shares of ITC Deltacom and
600,000 shares of Powertel, as well as an interest in privately held ITC
Holdings.
This business combination has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for
periods prior to the combination have been restated to include the accounts
and results of operations of NEI.
During 1999 the Company recorded a charge of $20,535, and related tax
benefits of $7,630, reflecting the one-time costs incurred in connection
with the merger. The merger related costs consist primarily of severance
costs as well as vesting of certain benefits, professional fees and other
costs. The merger related costs have been reported on a separate line in
the consolidated statement of income and comprehensive income.
The results of operations previously reported by the Company and the
combined amounts presented in the accompanying consolidated financial
statements are summarized in the following table:
Six Months Twelve Months Twelve Months
Ended Ended Ended
June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
==============================================================================
Operating revenues
Company $509,281 $1,017,812 $ 954,199
NEI 87,110 182,225 177,175
- ------------------------------------------------------------------------------
Combined $596,391 $1,200,037 $1,131,374
==========================================
Net income
Company $ 56,458 $ 131,048 $ 119,128
NEI (2,914) 19,391 18,563
- ------------------------------------------------------------------------------
Combined $ 53,544 $ 150,439 $ 137,691
==========================================
47
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
CONTRACT MANAGEMENT BUSINESS
On December 31, 1999, the Company finalized the purchase of its joint
venture partner Anglian Water's interest in AmericanAnglian Environmental
Technologies for $32,000. This business, which in the future will operate
as American Water Services, manages and operates 175 water and wastewater
facilities in seven states.
HAWAII WASTEWATER SYSTEM
On April 1, 1998, the Company acquired East Honolulu Community
Services, Inc. ("EHCS"), a suburban Honolulu wastewater utility located on
the eastern tip of Oahu, Hawaii. The Company acquired EHCS for $17,300
from Maunalua Associates, Inc., a subsidiary of Kemper Corporation. This
utility, now operating as Hawaii-American Water Company, provides
wastewater service to approximately 10,000 customers in the community of
Hawaii Kai.
NOTE 4: PENDING ACQUISITIONS
WATER AND WASTEWATER ASSETS OF CITIZENS UTILITIES
On October 18, 1999, the Company announced it had agreed to purchase
the water and wastewater utility assets of Citizens Utilities Company
(NYSE:CZN) for $835,000 in cash and debt. Citizens Utilities provides
water and wastewater service to 305,000 customers in Arizona, California,
Illinois, Indiana, Ohio and Pennsylvania. For the latest fiscal year ended
December 31, 1999, the operations being acquired had revenues of $102,000.
It is anticipated that the transaction will be completed in the second half
of 2000, following regulatory approvals and completion of other
requirements.
SJW CORP.
On October 29, 1999, the Company announced an agreement had been
reached to acquire all the common stock of SJW Corp. (SJW) for
approximately $390,000 in cash, or $128 per share, and the assumption of
$90,000 in debt. SJW is a publicly traded holding company (AMEX:SJW)
headquartered in San Jose, California. SJW Corp., through its subsidiary
San Jose Water Company, provides water service to 216,000 customers in
San Jose and nearby communities.
SJW also owns 1,100,000 shares of California Water Service Group
(NYSE:CWT) and SJW Land Company, which owns a parking facility, a
commercial property and undeveloped real estate in San Jose. For the
latest fiscal year ended December 31, 1999, SJW, Corp. had revenues of
$117,000, net income of $16,000 and total assets of $372,000. It is
expected that the transaction, which will be accounted for as a purchase,
will be completed in the second half of 2000, following approval of SJW's
shareholders, regulatory approvals and completion of other requirements.
WATER UTILITY SUBSIDIARIES OF UNITED WATER RESOURCES INC.
On July 13, 1999, the Company announced it had agreed to acquire from
United Water Resources Inc. five water utilities in Missouri, Indiana,
Illinois and Virginia for approximately $49,000 in cash. These water
utilities provide service to 35,000 customers. On January 31, 2000 the
acquisition of two of these utilities was completed, and the remaining
three acquisitions are expected to be completed in the first half of 2000
upon the receipt of regulatory approvals.
NOTE 5: UTILITY PLANT
The components of utility plant by category at December 31 are as
follows:
1999 1998
==============================================================================
Water plant
Sources of supply $ 262,662 $ 251,013
Treatment and pumping 1,336,457 1,239,189
Transmission and distribution 2,768,971 2,613,070
Services, meters and fire hydrants 994,843 933,382
General structures and equipment 421,621 332,646
Wastewater plant 72,606 67,899
Construction work in progress 234,823 227,150
- ------------------------------------------------------------------------------
6,091,983 5,664,349
Less-accumulated depreciation 1,152,575 1,051,322
- ------------------------------------------------------------------------------
$4,939,408 $4,613,027
========================
NOTE 6: DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company's Dividend Reinvestment and Stock Purchase Plan provides
for optional cash purchases of newly issued common stock of the Company.
In addition to permitting record holders of common stock to have all or
part of their dividends automatically reinvested in additional shares of
common stock, the plan permits stockholders to purchase up to five thousand
dollars of common stock each month directly from the Company.
The plan was amended, as of March 15, 1998, to provide for new shares
purchased under the plan to be priced at a 2% discount from the applicable
average market price. Previously shares purchased with reinvested
dividends or optional cash purchases were priced at the applicable average
market price.
48
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
NOTE 7: SHAREHOLDERS RIGHTS PLAN
On February 4, 1999 the Company's Board of Directors adopted a new
Shareholder Rights Plan to replace the Rights Plan adopted 10 years ago
which expired on March 2, 1999.
Each Right under the new plan entitles shareholders to buy one share of
the Company's common stock at an exercise price of $150. Each Right
entitles its holder to purchase, at the Right's then-current exercise
price, shares of the Company's common stock, or a number of shares of an
acquiring company's stock, which would have a market value of two times the
exercise price. The Rights become exercisable if there is a public
announcement that a person or group acquires, or commences a tender offer
to acquire, 25% or more of the outstanding shares of the Company. The
Rights also become exercisable if the Company is acquired in a merger or a
person or group acquires 35% or more of the outstanding shares of the
Company.
The Rights are redeemable, in whole, but not in part, by the Company at
a price of $.0005 per Right under certain circumstances. The Rights do not
have voting or dividend rights and, until they become exercisable, have no
dilutive effect on the earnings per share of the Company.
NOTE 8: EMPLOYEE BENEFITS
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company maintains noncontributory defined benefit pension plans
covering substantially all associates. Benefits under the plans are based
on the associate's years of service and compensation.
The Company's funding policy is to contribute at least the minimum
amount required by the Employee Retirement Income Security Act of 1974.
Pension plan assets are invested in a number of investments including a
guaranteed interest contract with a major insurance company, equity mutual
funds, United States Government securities and publicly traded bonds. The
actual return on plan assets over the last three years reflects the higher
than expected returns in the general capital markets.
The Company also has several unfunded noncontributory supplemental
non-qualified pension plans that provide additional retirement benefits to
certain associates of the Company and its subsidiaries.
The Company maintains postretirement benefit plans providing varying
levels of medical and life insurance to eligible retirees. The adoption of
a new accounting standard for other postretirement benefits resulted in a
transition obligation of $143,391 at January 1, 1993 which is being
amortized over 20 years. The Company's policy is to fund postretirement
benefit costs accrued. Plan assets are invested in equity and bond mutual
funds.
Other
Pension Postretirement
Benefits Benefits
1999 1998 1999 1998
==============================================================================
CHANGE IN BENEFIT OBLIGATION
Benefit obligation
at January 1 $607,065 $550,828 $208,387 $193,112
Service cost 17,614 16,541 7,581 6,224
Interest 41,151 39,079 14,938 13,452
Plan participants'
contributions -- -- 875 668
Amendments 1,271 945 -- (2,276)
Actuarial (gain) loss (94,959) 18,018 (18,192) 7,187
Benefits paid (24,068) (22,637) (9,148) (9,980)
Other -- 4,291 -- --
- ------------------------------------------------------------------------------
Benefit obligation
at December 31 $548,074 $607,065 $204,441 $208,387
============================================
CHANGE IN PLAN ASSETS
Fair value of plan assets
at January 1 $556,668 $524,613 $117,351 $ 93,654
Actual return on
plan assets 64,463 48,625 18,343 14,600
Employer contribution 1,239 1,776 20,593 18,452
Plan participants'
contributions -- -- 875 625
Benefits paid (24,068) (22,637) (9,148) (9,980)
Other -- 4,291 -- --
- ------------------------------------------------------------------------------
Fair value of plan assets
at December 31 $598,302 $556,668 $148,014 $117,351
============================================
Funded status at
December 31 $ 50,228 $(50,397) $(56,427) $(91,036)
Unrecognized net transition
obligation (asset) (6,698) (8,857) 88,556 95,368
Unrecognized prior
service cost 10,163 11,204 5,393 5,851
Unrecognized net
actuarial gain (116,788) (3,734) (49,993) (23,004)
Contributions made
post-measurement date -- 94 -- 564
- ------------------------------------------------------------------------------
Net amount recognized $(63,095) $(51,690) $(12,471) $(12,257)
============================================
Amounts recognized in the
balance sheet consist of:
Prepaid benefit cost $274 $421 $23 $5
Accrued benefit cost (63,369) (52,111) (12,494) (12,262)
Additional minimum liability (1,048) (4,656) -- --
Intangible asset 1,048 4,656 -- --
- ------------------------------------------------------------------------------
Net amount recognized $(63,095) $(51,690) $(12,471) $(12,257)
============================================
The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets
(the supplemental plans are unfunded) were $16,787 and $14,414,
respectively, as of December 31, 1999, and $19,749 and $16,388,
respectively, as of December 31, 1998.
49
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1999 1998 1997
==============================================================================
COMPONENTS OF NET PERIODIC
PENSION BENEFIT COST
Service cost $17,614 $16,541 $14,439
Interest cost 41,151 39,079 36,646
Expected return on plan assets (46,387) (43,357) (39,560)
Amortization of transition asset (2,159) (2,159) (2,159)
Amortization of prior service cost 2,312 2,230 1,426
Recognized net actuarial (gain) loss 19 (964) (944)
- ------------------------------------------------------------------------------
Net periodic pension benefit cost $12,550 $11,370 $ 9,848
=================================
COMPONENTS OF NET PERIODIC OTHER
POSTRETIREMENT BENEFIT COST
Service cost $ 7,581 $ 6,224 $ 5,378
Interest cost 14,938 13,452 12,989
Expected return on plan assets (9,759) (7,808) (5,914)
Amortization of transition obligation 6,812 6,813 6,813
Amortization of prior service cost 458 458 623
Recognized net actuarial (gain) loss 213 (699) (1,296)
- ------------------------------------------------------------------------------
Net periodic other
postretirement benefit cost $20,243 $18,440 $18,593
=================================
Other
Pension Postretirement
Benefits Benefits
1999 1998 1999 1998
==============================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
Discount rate 8.00% 6.75% 8.00% 6.75%
Expected return on plan assets 8.50% 8.50% 7.90% 7.90%
Rate of compensation increase 4.75% 4.75% 4.75% 4.75%
The health care cost trend rate, used to calculate the Company's cost
for postretirement health care benefits, is a constant 5.5% annual rate,
except for a 7.0% annual rate in 1999 that is assumed to decrease gradually
to a 5.5% annual rate in 2003 and remain at that level thereafter for
pre-acquisition retirees of certain Pennsylvania water utility operations
acquired in 1996.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the other postretirement benefit plan.
A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
One-Percentage- One-Percentage-
Point Increase Point Decrease
==============================================================================
Effect on total of service and
interest cost components $ 3,800 $ (2,989)
Effect on other postretirement
benefit obligation $25,053 $(20,472)
SAVINGS PLANS FOR EMPLOYEES
The Company maintains 401(k) savings plans that allow substantially all
associates to save for retirement on a tax-deferred basis. Compensation
expense associated with these savings plans was $3,491 in 1999, $3,391 in
1998 and $2,973 in 1997.
Included in the above expenses were the Company's matching
contributions to the primary savings plan totaling $2,781 for 1999, $2,705
for 1998 and $2,304 for 1997 that are invested in a fund of Company common
stock. The trustee of this plan may purchase shares of the Company's
common stock at the prevailing market price from the Company, in the open
market, or in a private transaction.
EMPLOYEES' STOCK OWNERSHIP PLAN
The Company maintains an Employees' Stock Ownership Plan which provides
for beneficial ownership of Company common stock by most associates who are
not included in a bargaining unit. Each participating associate can elect
to contribute an amount that does not exceed 2% of their wages. In
addition to the associate's participation, the Company makes a contribution
equivalent to 1/2% of each participant's qualified compensation, and
matches 100% of the contribution by each participant. The Company expensed
contributions of $1,805 for 1999, $1,706 for 1998, and $1,674 for 1997 that
it made to the plan. The trustee of the plan may purchase shares of the
Company's common stock at the prevailing market price from the Company, in
the open market, or in a private transaction.
NOTE 9: LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN
The Company and its subsidiaries have a Long-Term Performance-Based
Incentive Plan. Under the plan, designated executives and other key
associates are eligible to receive awards if performance cycle goals based
on earnings-per-share growth and total return to Company shareholders, in
comparison to a designated peer group of water companies, are met. The
plan is administered by the Compensation and Management Development
Committee of the Board of Directors. The Committee will determine the
value or range of values, including the maximum value, of awards to each
participant. Awards may be paid in the form of cash, restricted shares of
common stock, or a combination of both. The cost of the plan is being
charged to expense over each three-year performance cycle. Such expense
was $863 in 1999, $1,541 in 1998, and $2,715 in 1997. The market value of
common stock expected to be awarded under the plan has been recorded as
unearned compensation and is shown as a separate component of common
stockholders' equity.
50
<PAGE>
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------
NOTE 10: GENERAL TAXES
Components of general tax expense for the years presented in the
consolidated statement of income and comprehensive income are as follows:
1999 1998 1997
==============================================================================
Gross receipts and franchise $ 41,839 $ 40,014 $ 38,239
Property and capital stock 53,458 53,705 53,890
Payroll 18,445 16,911 15,347
Other general 8,932 7,502 3,360
- ------------------------------------------------------------------------------
$122,674 $118,132 $110,836
==================================
NOTE 11: INCOME TAXES
Components of income tax expense for the years presented in the
consolidated statement of income and comprehensive income are as follows:
1999 1998 1997
==============================================================================
STATE INCOME TAXES:
Current $10,483 $10,517 $10,364
Deferred
Current 199 (24) 146
Non-current 3,600 3,082 2,816
- ------------------------------------------------------------------------------
$14,282 $13,575 $13,326
=================================
FEDERAL INCOME TAXES:
Current $47,858 $54,961 $43,611
Deferred
Current 1,449 172 (56)
Non-current 29,248 28,277 32,546
Amortization of deferred
investment tax credits (1,437) (1,437) (1,437)
- ------------------------------------------------------------------------------
$77,118 $81,973 $74,664
=================================
A reconciliation of income tax expense at the statutory federal income
tax rate to actual income tax expense is as follows:
1999 1998 1997
==============================================================================
Income tax at statutory rate $80,622 $86,095 $78,989
Increases (decreases)
resulting from -
State taxes, net of
federal taxes 9,283 8,824 8,662
Flow through differences 1,708 1,311 1,179
Amortization of investment
tax credits (1,437) (1,437) (1,437)
Subsidiary preferred dividends 1,144 1,177 1,198
Other, net 80 (422) (601)
- ------------------------------------------------------------------------------
Actual income tax expense $91,400 $95,548 $87,990
=================================
The following table provides the components of the net deferred tax
liability at December 31:
1999 1998
==============================================================================
DEFERRED TAX ASSETS
Advances and contributions $185,424 $173,936
Deferred investment tax credits 16,731 16,804
Other 32,637 30,474
- ------------------------------------------------------------------------------
234,792 221,214
- ------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Utility plant, principally due
to depreciation 647,964 601,319
Income taxes recoverable
through rates 93,167 94,455
Other comprehensive income 62,574 19,293
Other 41,547 41,253
- ------------------------------------------------------------------------------
845,252 756,320
- ------------------------------------------------------------------------------
$610,460 $535,106
=======================
No material valuation allowances were required on deferred tax assets
at December 31, 1999 and 1998.
NOTE 12: LEASES
The Company has entered into operating leases involving certain
facilities and equipment. Rental expenses under operating leases were
$15,192 for 1999, $13,037 for 1998 and $12,247 for 1997. Capital leases
currently in effect are not significant.
At December 31, 1999, the minimum annual future rental commitment under
operating leases that have initial or remaining noncancellable lease terms
in excess of one year are $10,513 in 2000, $7,439 in 2001, $5,372 in 2002,
$3,727 in 2003, $2,479 in 2004 and $4,160 thereafter.
NOTE 13: COMMITMENTS AND CONTINGENCIES
Construction programs of subsidiaries for 2000 are estimated to cost
approximately $448,000. Commitments have been made in connection with
certain construction programs.
The Company is routinely involved in condemnation proceedings and legal
actions relating to several utility subsidiaries. In the opinion of
management, none of these matters will have a material adverse effect, if
any, on the financial position or results of operations of the Company.
NOTE 14: COMPENSATING BALANCES AND BANK DEBT
During 1999 the Company and its subsidiaries maintained lines of credit
with various banks. The total of the unused lines of credit at December
31, 1999 was $60,500 for the Company and $200,345 for the subsidiaries.
Borrowings under such lines of credit generally are payable on demand
and bear interest at variable rates. Agreements with lending banks
generally do not have compensating balance requirements.
51
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The maximum amount of short-term bank borrowings outstanding during
1999 was $239,864, and the average amount outstanding during the year was
$129,377. The weighted average annual interest rate on these borrowings
during 1999 was 5.79%, and the interest rate at December 31, 1999 was 5.37%.
NOTE 15: FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Current assets and current liabilities: The carrying amount reported
in the balance sheet for current assets and current liabilities, including
bank debt, approximates their fair values.
Preferred stocks with mandatory redemption requirements and long-term
debt: The fair values of the Company's preferred stocks with mandatory
redemption requirements and long-term debt are estimated using discounted
cash flow analyses based on the Company's current incremental financing
rates for similar types of securities.
The carrying amounts and fair values of the Company's financial
instruments at December 31 are as follows:
CARRYING
1999 AMOUNT FAIR VALUE
==============================================================================
Preferred stocks of the Company with
mandatory redemption requirements $40,000 $40,668
Preferred stocks of subsidiaries with
mandatory redemption requirements 34,020 33,959
Long-term debt of the Company 211,000 205,793
Long-term debt of subsidiaries 2,217,112 2,126,890
CARRYING
1998 AMOUNT FAIR VALUE
==============================================================================
Preferred stocks of the Company with
mandatory redemption requirements $40,000 $44,298
Preferred stocks of subsidiaries with
mandatory redemption requirements 37,298 42,514
Long-term debt of the Company 251,500 265,290
Long-term debt of subsidiaries 2,132,334 2,350,979
NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 are as follows:
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
==============================================================================
Operating revenues $277,416 $318,975 $353,578 $310,888
Operating income 74,928 111,298 136,343 97,025
Net income 20,422 33,122 52,847 32,558
Net income to common stock 19,426 32,126 51,851 31,562
Net income per common share $.20 $.33 $.54 $.33
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
==============================================================================
Operating revenues $265,289 $301,156 $333,515 $300,077
Operating income 79,675 105,495 128,353 92,202
Net income 23,696 39,612 53,588 33,543
Net income to common stock 22,700 38,616 52,592 32,547
Net income per common share $.24 $.41 $.55 $.34
52
<PAGE>
RANGE OF MARKET PRICES
AWK is the trading symbol of American Water Works Company, Inc. on the
New York Stock Exchange on which the Common Stock, 5% Preferred Stock and
5% Preference Stock of the Company are traded.
Common Stock 5% Preferred Stock 5% Preference Stock
- -------------------------------------------------------------------------------
Newspaper listing AmWtrWks A Wat pr A Wat pf
- -------------------------------------------------------------------------------
1999 High Low High Low High Low
===============================================================================
1st quarter $34-3/4 $28-1/4 $24 $20 $23-1/2 $21
2nd quarter 31-7/16 27-1/2 22-1/2 20-1/2 22-1/2 19
3rd quarter 31-7/16 28-1/8 21-1/2 18-1/2 21-1/4 19-3/16
4th quarter 30 20-1/2 21-1/2 17-1/4 21 17-1/4
Quarterly dividend
paid per share $.215 $.3125 $.3125
Number of
shareholders at
December 31, 1999 43,577 198 645
- -------------------------------------------------------------------------------
1998
===============================================================================
1st quarter $33-5/16 $25-1/4 $22 $19 $22 $19-15/16
2nd quarter 33-3/16 28-1/8 23 20-1/2 24 20
3rd quarter 33-1/4 27-3/8 23-1/2 21-11/16 24 21-5/16
4th quarter 33-3/4 30-1/4 24-3/4 23-1/2 24-3/4 23
Quarterly dividend
paid per share $.205 $.3125 $.3125
Number of
shareholders at
December 31, 1998 43,256 203 688
- -------------------------------------------------------------------------------
The common and 5% preferred stocks have voting rights.
OPTIONS TRADING Options for Company stock (AWK) are traded on the
Philadelphia Stock Exchange (Newspaper listing: PB).
Design/Production: The Creative Department, Inc.
Copywriting: Gerard F. Reimel
Photography: H. Mark Weidman, cover, editorial section;
Mimi Janosy, Ed Eckstein portraits
55
EXHIBIT 21
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
Subsidiaries of the Registrant
The following list includes the Registrant and all of its subsidiaries as
of December 31, 1999. The voting stock of each company shown indented is owned,
to the extent indicated by the percentage, by the company immediately above
which is not indented to the same degree. All subsidiaries of the Registrant
appearing in the following table are included in the consolidated financial
statements of the Registrant and its subsidiaries.
Percentage
State of Voting Stock
Name of Company Incorporation Owned
--------------- ------------- ------------
American Water Works Company, Inc.
American Commonwealth Company Delaware 100
American Water Resources, Inc. Virginia 100
American Water Services, Inc. Delaware 100
AmericanAnglian Environmental Technologies, Inc. Delaware 100
AmericanAnglian Environmental Technologies, L.P. Delaware 100
American Water Works Service Company, Inc. Delaware 100
Arizona-American Water Company Arizona 100
California-American Water Company California 100
Continental Water Company Delaware 100
Long Island Water Corporation New York 100
Northern Illinois Water Corporation Illinois 100
St. Louis County Water Company Missouri 100
Water Utility Service Company Missouri 100
Greenwich Water System, Inc. Delaware 100
Connecticut-American Water Company Connecticut 100
Hampton Water Works Company New Hampshire 100
Massachusetts-American Water Company Massachusetts 100
New York-American Water Company, Inc. New York 100
The Salisbury Water Supply Company Massachusetts 100
Hawaii-American Water Company Nevada 100
Illinois-American Water Company Illinois 99.86
Indiana-American Water Company, Inc. Indiana 100
Iowa-American Water Company Delaware 95.81
Kentucky-American Water Company Kentucky 100
Maryland-American Water Company Maryland 100
Massachusetts Capital Resources Company Delaware 100
Michigan-American Water Company Michigan 100
Missouri-American Water Company Missouri 100
New Jersey-American Resources Company New Jersey 100
New Jersey-American Water Company, Inc. New Jersey 100*
New Mexico-American Water Company, Inc. New Mexico 99.98
Ohio-American Water Company Ohio 100
Pennsylvania-American Water Company Pennsylvania 96.06**
SJW Acquisition Corp. Delaware 100
Tennessee-American Water Company Tennessee 99.89
Virginia-American Water Company Virginia 100
West Virginia-American Water Company West Virginia 99.96
Bluefield Valley Water Works Company Virginia 100
- ------------------------------------------------------------------------------
* Includes 6.79% which is owned by American Commonwealth Company, an
affiliate of the Registrant.
** Includes 2.27% which is owned by Greenwich Water System, Inc., an
affiliate of the Registrant.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000318819
<NAME> W. TIMOTHY POHL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,939,408
<OTHER-PROPERTY-AND-INVEST> 145,080
<TOTAL-CURRENT-ASSETS> 278,681
<TOTAL-DEFERRED-CHARGES> 332,320
<OTHER-ASSETS> 256,717
<TOTAL-ASSETS> 5,952,206
<COMMON> 117,930
<CAPITAL-SURPLUS-PAID-IN> 423,378
<RETAINED-EARNINGS> 1,001,029
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,634,798
74,020
19,791
<LONG-TERM-DEBT-NET> 2,393,097
<SHORT-TERM-NOTES> 239,864
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 38,355
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,552,281
<TOT-CAPITALIZATION-AND-LIAB> 5,952,206
<GROSS-OPERATING-REVENUE> 1,260,857
<INCOME-TAX-EXPENSE> 91,400
<OTHER-OPERATING-EXPENSES> 841,263
<TOTAL-OPERATING-EXPENSES> 932,663
<OPERATING-INCOME-LOSS> 328,194
<OTHER-INCOME-NET> (11,030)
<INCOME-BEFORE-INTEREST-EXPEN> 317,164
<TOTAL-INTEREST-EXPENSE> 178,215
<NET-INCOME> 138,949
3,984
<EARNINGS-AVAILABLE-FOR-COMM> 134,965
<COMMON-STOCK-DIVIDENDS> 79,370
<TOTAL-INTEREST-ON-BONDS> 174,461
<CASH-FLOW-OPERATIONS> 329,392
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.40
</TABLE>
