UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 23, 1999
Commission Registrant; State of
File Incorporation; Address; IRS Employer
Number and Telephone Number Identification Number
---------- -------------------------- ---------------------
1-13739 UNISOURCE ENERGY CORPORATION 86-0786732
(An Arizona Corporation)
220 West Sixth Street
Tucson, AZ 85701
(520) 571-4000
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On July 23, 1999, UniSource Energy Corporation
(UniSource Energy) completed the sale of its holdings of
NewEnergy, Inc. (NewEnergy), formerly New Energy Ventures,
Inc., to The AES Corporation (AES). UniSource Energy had
owned a 50% interest in NewEnergy through its wholly-owned
subsidiary, MEH Corporation (MEH).
Under the terms of the sale, MEH received approximately
$50 million in consideration, consisting of 473,918 shares
of AES common stock having a market value as of July 23,
1999 of approximately $27.0 million, and secured promissory
notes issued by NewEnergy totaling $22.8 million, payable
over two years. UniSource Energy expects to recognize a pre-
tax gain on the transaction of approximately $34 million in
the third quarter of 1999.
Item 7. Financial Statements and Exhibits
---------------------------------
(b) Pro forma financial information.
Schedule 1 hereto.
(c) Exhibits.
Exhibit 2 - Agreement and Plan of Merger, dated as of
June 17, 1999 among The AES Corporation, NV Acquisition
Corporation, New Energy Ventures, Inc., and the stockholders
of New Energy Ventures, Inc.
<PAGE>
Schedule 1
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
- --------------------------------------------------------------------------
The following pro forma financial information illustrates the estimated
effect of the NewEnergy sale on the historical income statements and
balance sheet. The Pro Forma Statements of Income (Loss) for the three
months ended March 31, 1999 and the year ended December 31, 1998 give the
pro forma effect of the NewEnergy sale as if it occurred on December 31,
1997. The Pro Forma Balance Sheet at March 31, 1999 gives the pro forma
effect of the NewEnergy sale as if it had occurred on March 31, 1999. The
Pro Forma Financial Statements do not purport to show the results of
operations or financial position of UniSource Energy that would have
actually been obtained had such transactions been completed as of the
assumed periods and for the period presented or which may be obtained in
the future. The pro forma adjustments are described in the accompanying
notes and are based upon available information and assumptions that we
believe are reasonable. The Pro Forma Financial Statements should be read
in conjunction with UniSource Energy's 1998 Form 10-K.
<PAGE>
UNISOURCE ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF LOSS
Three Months Ended March 31, 1999
---------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
- Thousands of Dollars -
Operating Revenues
Retail Customers $ 128,651 $ 128,651
Sales for Resale 31,859 31,859
--------- ---------
Total Operating Revenues 160,510 160,510
--------- ---------
Operating Expenses
Fuel and Purchased Power 54,919 54,919
Capital Lease Expense 25,461 25,461
Amortization of Springerville
Unit 1 Allowance (8,729) (8,729)
Other Operations 23,623 23,623
Maintenance and Repairs 9,637 9,637
Depreciation and Amortization 23,081 23,081
Taxes Other Than Income Taxes 12,154 12,154
Income Taxes (2,559) (2,559)
--------- ---------
Total Operating Expenses 137,587 137,587
--------- ---------
Operating Income 22,923 22,923
--------- ---------
Other Income (Deductions)
Income Taxes (232) (232)
Interest Income 1,638 1,638
Unregulated Energy Businesses - Net (2,793) $719 (1) (2,074)
Other 658 658
--------- --------- ---------
Total Other Income (Deductions) (729) 719 (10)
--------- --------- ---------
Interest Expense
Long-Term Debt 16,325 16,325
Interest Imputed on Losses Recorded at
Present Value 8,748 8,748
Other 2,649 2,649
--------- ---------
Total Interest Expense 27,722 27,722
--------- --------- ---------
Net Loss $ (5,528) $719 $ (4,809)
========= ========= =========
Average Shares of
Common Stock Outstanding (000) 32,287 32,287
========= =========
Basic and Diluted Loss per Share $ (0.17) $ (0.15)
========= =========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
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UNISOURCE ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
----------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
- Thousands of Dollars -
Operating Revenues
Retail Customers $ 625,407 $ 625,407
Sales for Resale 143,269 143,269
--------- ---------
Total Operating Revenues 768,676 768,676
--------- ---------
Operating Expenses
Fuel and Purchased Power 255,527 255,527
Capital Lease Expense 104,045 104,045
Amortization of Springerville
Unit 1 Allowance (30,522) (30,522)
Other Operations 109,170 109,170
Maintenance and Repairs 36,143 36,143
Depreciation and Amortization 90,358 90,358
Taxes Other Than Income Taxes 50,395 50,395
Income Taxes 18,372 18,372
--------- ---------
Total Operating Expenses 633,488 633,488
--------- ---------
Operating Income 135,188 135,188
--------- ---------
Other Income (Deductions)
Income Taxes 4,537 4,537
Interest Income 10,866 10,866
Unregulated Energy Businesses - Net (8,109) $10,473 (1) 2,364
Other 3,150 3,150
--------- --------- ---------
Total Other Income (Deductions) 10,444 10,473 20,917
--------- --------- ---------
Interest Expense
Long-Term Debt 72,672 72,672
Interest Imputed on Losses
Recorded at Present Value 34,179 34,179
Other 10,749 10,749
--------- ---------
Total Interest Expense 117,600 117,600
--------- --------- ---------
Net Income $ 28,032 $10,473 $ 38,505
========= ========= =========
Average Shares of
Common Stock Outstanding (000) 32,178 32,178
========= =========
Basic Earnings per Share $ 0.87 $ 1.20
========= =========
Diluted Earnings per Share $ 0.87 $ 1.19
========= =========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
UNISOURCE ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
--------------
Historical Adjustments Pro Forma
---------- ----------- ---------
- Thousands of Dollars -
ASSETS
Utility Plant
Plant in Service $2,250,056 $2,250,056
Utility Plant Under Capital Leases 886,902 886,902
Construction Work in Progress 82,007 82,007
---------- ----------
Total Utility Plant 3,218,965 3,218,965
Less Accumulated Depreciation
and Amortization (1,310,511) (1,310,511)
---------- ----------
Total Utility Plant - Net 1,908,454 1,908,454
Investments and Other Property 116,070 $35,579(1) 151,649
Current Assets 243,369 243,369
Deferred Debits 304,761 304,761
---------- ---------- ----------
Total Assets $2,572,654 $35,579 $2,608,233
========== ========== ==========
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
Common Stock $ 641,089 $ 641,089
Accumulated Deficit (399,522) $21,383(2) (378,139)
---------- ---------- ----------
Common Stock Equity 241,567 21,383 262,950
Capital Lease Obligations 869,649 869,649
Long-Term Debt 1,183,198 1,183,198
---------- ---------- ----------
Total Capitalization 2,294,414 21,383 2,315,797
Current Liabilities 144,669 144,669
Deferred Credits and Other Liabilities 133,571 14,196(3) 147,767
---------- ---------- ----------
Total Capitalization and
Other Liabilities $2,572,654 $35,579 $2,608,233
========== ========== ==========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------
Notes to the Pro Forma Condensed Consolidated Statements of Income (Loss):
- --------------------------------------------------------------------------
(1) The adjustment of $719,000 and $10,473,000 for the three months ended
March 31, 1999 and for the year ended December 31, 1998, respectively:
- Removes the NewEnergy losses recorded, net of tax, amounting to $550,000
and $9,171,000 for the three months ended March 31, 1999 and for the year
ended December 31, 1998, respectively.
- Includes the interest income on the promissory notes from NewEnergy
amounting to $281,000 and $2,166,000 for the three months ended March 31,
1999 and for the year ended December 31, 1998, respectively. The
promissory notes are payable to MEH. The activity of MEH is included in
Unregulated Energy Businesses - Net on the income statements.
- Reflects the income taxes associated with the interest income on the
promissory notes from NewEnergy. The income taxes amount to $112,000 and
$864,000 for the three months ended March 31, 1999 and for the year ended
December 31, 1998, respectively.
Notes to the Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1999:
- --------------------------------------------------------------------------
(1) The adjustment of $35,579,000:
- Removes the $14,234,000 investment in NewEnergy and related notes
receivable.
- Records the consideration received from the sale of NewEnergy consisting
of:
- - $22,800,000 of secured promissory notes from NewEnergy payable over
two years.
- - $27,013,000 of AES stock valued as of July 23, 1999, the actual sale
date.
(2) The adjustment of $21,383,000 reflects the after-tax gain on sale of
NewEnergy as if NewEnergy had been sold at March 31, 1999.
(3) The adjustment of $14,196,000 adjusts deferred income taxes to reflect
the sale of NewEnergy.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
UNISOURCE ENERGY CORPORATION
----------------------------
(Registrant)
Date: August 9, 1999 /s/ Ira R. Adler
----------------------------
Ira R. Adler
Executive Vice President and
Principal Financial Officer
Exhibit 2
AGREEMENT AND PLAN OF MERGER
dated as of June 17, 1999
among
The AES Corporation
NV Acquisition Corporation
and
New Energy Ventures, Inc.
<PAGE>
TABLE OF DEFINED TERMS
Cross Reference
Terms in Agreement
- ----- ---------------
Acquisition Proposal Section 6.3
Agreement Preamble
Certificate of Merger Section 1.2
Buyer Preamble
Buyer Disclosure Schedule Article V
Buyer Material Adverse Effect Section 5.1
Buyer SEC Reports Article V
Claim Section 9.4(a)
Claim Notice Section 9.4(a)
Closing Date Section 1.3
Closing Section 1.3
Code Preamble
Company Preamble
Company Common Stock Section 2.1(a)
Company Disclosure Schedule Section 3.1
Company Material Adverse Effect Section 3.6
Company Options Section 2.3
Company Permits Section 3.10
Company Stock Option Plan Section 2.3
Confidentiality Agreement Section 6.5
Contracts Section 3.8
Damages Section 9.1(a)
DGCL Section 1.1
Effective Time Section 1.2
Financial Statements Section 3.4
GAAP Section 3.4
Governmental Approvals Section 6.6(a)
Governmental Entity Section 3.3(c)
HSR Act Section 3.3(c)
Indemnified Parties Section 6.8(a)
IRS Section 3.7(b)
Merger Preamble
Merger Consideration Section 2.1(a)
<PAGE>
Merger Sub Preamble
Notifying Party Section 6.6(a)
Returns Section 3.7(b)
Subsidiary Section 3.1
Surviving Corporation Section 1.1
Taxes Section 3.7(a)
Voting Debt Section 3.2(b)
1998 Plan Section 2.3
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
June 17, 1999, by and among The AES Corporation, a Delaware
corporation ("Buyer"), NV Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Buyer ("Merger
Sub"), New Energy Ventures, Inc., a Delaware corporation
("Company"), MEH Corporation, an Arizona corporation ("MEH") and
New Energy Holdings, L.L.C., a limited liability company formed
under the laws of Delaware ("NEH", and, with MEH, the
"Stockholders").
WHEREAS, the Board of Directors of Company has determined
that the merger of Merger Sub with and into Company, upon the
terms and subject to the conditions set forth in this Agreement
(the "Merger"), is fair to, and in the best interests of, Company
and its stockholders;
WHEREAS, the Boards of Directors of Buyer and Merger Sub
have determined that the Merger is in the best interests of Buyer
and Merger Sub and their respective stockholders;
WHEREAS, for federal income tax purposes, it is intended
that the Merger shall qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and this Agreement is intended to be and is adopted as a
plan of reorganization;
WHEREAS, the Boards of Directors of Buyer, Merger Sub and
Company have each approved and adopted this Agreement and
approved the Merger and the other transactions contemplated
hereby;
WHEREAS, the Stockholders, constituting holders of all of
the outstanding common stock of Company, are, by executing this
Agreement, approving the Merger; and,
WHEREAS, except where the context requires otherwise, the
"Company" shall include all of its predecessor entities;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth below, the parties agree as follows:
1
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the
provisions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), at the
Effective Time (as defined in Section 1.2), Merger Sub shall be
merged with and into Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation (the
"Surviving Corporation").
1.2 Effective Time of the Merger. Subject to the
provisions of this Agreement (including Article VII hereof), a
certificate of merger with respect to the Merger in such form as
is required by the DGCL (the "Certificate of Merger") shall be
duly prepared, executed and acknowledged and thereafter delivered
to the Secretary of State of the State of Delaware for filing, as
provided in the DGCL, as early as practicable on the Closing Date
(as defined in Section 1.3). Subject to applicable law, the
Merger shall become effective upon the date of filing of the
Certificate of Merger (the "Effective Time").
1.3 Closing. The closing of the Merger (the "Closing")
shall take place on the first business day after the date that
all of the conditions set forth in Article VII have been
satisfied (the "Closing Date"), unless another date is agreed to
by Buyer and Company.
1.4 Effect of the Merger; Tax Treatment. Upon becoming
effective, the Merger shall have the effects set forth in the
DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all properties, rights,
privileges, powers and franchises of Merger Sub and Company shall
vest in the Surviving Corporation, and all debts, liabilities and
duties of Merger Sub and Company shall become the debts,
liabilities and duties of the Surviving Corporation. For federal
income tax purposes, it is intended that the Merger will qualify
as a reorganization within the meaning of Section 368(a)(1)(A)
and Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended (the "Code").
1.5 Certificate of Incorporation and Bylaws of the
Surviving Corporation. At the Effective Time, the Certificate of
Incorporation and Bylaws of the Surviving Corporation shall be
amended to be identical to the Certificate of Incorporation and
Bylaws, respectively, of Merger Sub as in effect immediately
prior to the Effective Time (except that the name of the
Surviving Corporation shall be "New Energy Ventures, Inc." unless
otherwise renamed NewEnergy, Inc. prior to the Effective Time),
in each case until duly amended in accordance with applicable
law.
1.6 Directors and Officers of the Surviving
Corporation. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the
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Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving
Corporation. The officers of Company immediately prior to the
Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving
Corporation.
1.7 Approval of Stockholders of Company. The Merger having
been recommended to the Stockholders by the Board of Directors of
Company, by executing this Agreement the Stockholders hereby
consent to and approve the Merger for all purposes, including
without limitation all purposes under the DGCL. Execution of
this Agreement by the Stockholders is the execution of a written
consent pursuant to Section 228 of the DGCL. Each Stockholder
agrees that it will execute any and all additional documents
necessary or desirable to give effect to the provisions of this
Section 1.7.
1.8 Alternative Structure. Notwithstanding anything to the
contrary contained in this Agreement, Buyer may specify that,
before the Effective Date, Buyer, Buyer Sub, Company and the
Stockholders and any other subsidiary or affiliate shall enter
into transactions other than those described in this Article I in
order to effect the purposes of this Agreement, and Company and
Buyer shall take all action necessary and appropriate to effect,
or cause to be effected, such transactions, provided, however,
that no such specification may (a) materially and adversely
affect the timing of the consummation of the transactions
contemplated herein or (b) adversely affect the tax effect or
economic benefits of the Merger to the holders of Company Common
Stock.
ARTICLE II
EFFECT OF THE MERGER ON SECURITIES OF THE
CONSTITUENT CORPORATIONS
2.1 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of any of
the parties hereto or the holders of any of the following:
(a) Company Common Stock. Each share of common stock, par
value $0.001 per share, of Company ("Company Common Stock")
issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled in accordance with Section
2.1(d)), together with all rights in respect thereto, shall be
converted into the right to receive such number of shares of the
common stock of the Buyer as is equal to the quotient of (A) the
quotient of (x) the Equity Purchase Price divided by (y) the
average of the Closing Price of the Buyer's common stock for each
of the ten (10) consecutive New York Stock Exchange, Inc.
("NYSE") trading days ending on the trading day two trading days
prior to the Closing Date (the "Exchange Price"); provided
3
<PAGE>
however, that in the event the Exchange Price as calculated above
is greater than $63.67, the Exchange Price for purposes of this
Agreement shall be $63.67, and in the event the Exchange Price as
calculated above is less than $38.20, the Exchange Price for
purposes of this Agreement shall be $38.20, divided by (B) the
number of shares of Company Common Stock issued and outstanding
on the Closing Date. The "Equity Purchase Price" shall mean
Eighty Six Million Dollars ($86,000,000) less the Price
Adjustment determined pursuant to Section 2.1(b). The number of
shares of Buyer Common Stock to be received by holders of Company
Common Stock for each share of Company Common Stock as a result
of the Merger is sometimes hereinafter referred to as the "Merger
Consideration". The holders of Company Common Stock shall
receive the Merger Consideration as set forth in Section 2.2
below. All shares of Buyer Common Stock issued as Merger
Consideration shall be validly issued, fully-paid and non-
assessable. As of the Effective Time, all shares of Company
Common Stock upon which the Merger Consideration is payable
pursuant to this Section 2.1(a) shall no longer be outstanding
and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such
shares shall cease to have any ownership or other rights with
respect thereto, except the right to receive the Merger
Consideration in exchange for such shares upon the surrender of
the certificate or certificates evidencing shares of Company
Common Stock as provided in Section 2.2. The Merger
Consideration shall be subject to adjustment as provided in
Section 2.1(b) and (c).
(b) Price Adjustment. The Price Adjustment shall consist
of (A) $5.15 million owed to DLJ by the Company in respect of the
Merger less: (i) prepaid fees as of the date hereof made by the
Company to DLJ; and (ii) fees owed by the Company to DLJ in an
amount not exceeding $750,000 for replacing the Company's
existing California utility distribution company credit facility
prior to the Closing, (B) all expenses, costs, fees and other
amounts incurred by the Company in connection with this
Agreement, the transactions contemplated thereby including but
not limited to attorneys fees, accounting fees and other costs,
to the extent such exceed $300,000 in the aggregate, (C) all
third party expenses (including without limitation outside legal
and accounting fees) incurred by the Buyer up to $400,000 in
preparing, negotiating, executing and delivering this Agreement
and consummating the transactions contemplated hereby (the
"Closing Expenses") and (D) any third party indebtedness of
Company or any Subsidiary (as defined in Section 3.1 of this
Agreement) for borrowed money outstanding on the Closing Date,
including without limitation all amounts owing to Energy Funding,
Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, under the Bridge Loan Agreement dated as of August
8, 1998, as amended (including fees and expenses thereunder) and
to MEH or Millenium Energy Holdings, Inc. in the amounts
described in Section 2.1(f), but excluding any indebtedness
incurred pursuant to Section 6.11.
4
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(c) Adjustments to Number of Shares. If at any time during
the period between the date of this Agreement and the Effective Time,
any change in the outstanding shares of common stock of the Buyer
shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a
record date during such period, the number of shares of Buyer
common stock constituting the Merger Consideration shall be
appropriately adjusted to reflect fully the effect of any such
change in the common stock of the buyer as a result thereof.
(d) Cancellation of Treasury Stock. All shares of Company
Common Stock that are owned by Company as treasury stock shall be
canceled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(e) Capital Stock of Merger Sub. Each issued and
outstanding share of the common stock, par value $.01 per share,
of Merger Sub shall be converted into and become one fully paid
and nonassessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
(f) Closing Payments. On the Closing Date, Buyer will
repay, or cause the Company to repay, the indebtedness to Energy
Funding, Inc. referred to in Section 2.1(b). The indebtedness to
Millenium Energy Holdings, Inc. shall be evidenced by two
promissory notes each in the amount of $11.4 million, to be
issued by the Company in the form of Exhibits A-1 and A-2, and,
to the extent the actual indebtedness to such entity exceeds
$22.8 million, such excess shall be contributed to the capital of
the Company immediately prior to the Effective Time or otherwise
released by the lender.
2.2 Payment for Shares. At the Closing, upon surrender of
certificates representing a holder's share of Company Common
Stock for cancellation to Buyer, together with any other required
documents, the holder of such certificates shall, subject to
Section 2.3 below, receive for each of the Shares represented by
such certificates his, her or its pro rata portion of the Merger
Consideration and cash in lieu of fractional shares of Common
Stock and the certificates so surrendered shall forthwith be
canceled. Certificates representing the Merger Consideration
shall be restricted and shall bear the legends set forth in
Section 4.3.
2.3 Company Compensation Plans and Employment
Agreements. Schedule 2.3 lists all outstanding options to
purchase Company Common Stock or equity interests in the
Subsidiaries (the "Company Options") heretofore granted under any
stock option or other stock based incentive plan, program or
arrangement of Company or any Subsidiary, including without
limitation Company's 1998 Stock Incentive Plan (the "1998 Plan",
and, with any other such plan the "Company Stock Option
Plan(s)"). Buyer agrees to make available to employees of
Company options on terms and conditions consistent with Buyer's
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existing options plan and practice ("New Options") to purchase up
to $6.0 million of Buyer Common Stock (mutually determined by
Company and Buyer of the Closing Date) following the cancellation
or termination by Company on terms satisfactory to Buyer on or
prior to the Closing Date of all Company Options, stock
appreciation rights or performance units granted under all
option, purchase, and equity incentive plans of the Company or
under any other agreement, (collectively, the "Old Options").
Allocation of all New Options among such employees shall be
subject to review and approval by Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Company represents and warrants to Buyer and Merger Sub on
the date hereof as follows:
3.1 Organization of Company and its Subsidiaries. Each of
Company and its Subsidiaries (as defined below) is duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has all requisite
corporate, partnership or limited liability company power and
authority to carry on its business as now being conducted. Each
of Company and its Subsidiaries is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary except where the failure to be so qualified, licensed
or in good standing would not have a material adverse effect on
the business, properties, conditions (financial or otherwise) or
results of operation of Company and its Subsidiaries, taken as a
whole. Company has delivered to Buyer a true and correct copy of
the Certificate of Incorporation and Bylaws of Company and
corresponding constituent documents of each Subsidiary, in each
case as amended to the date of this Agreement. Neither the
Certificate of Incorporation of Company nor the organizational
documents of any of its Subsidiaries contain any provision that
would limit or otherwise restrict the ability of Buyer, following
the Effective Time, from owning or operating such entities as
contemplated by this Agreement. Except as disclosed in Section
3.1 of the Company Disclosure Schedule attached hereto (the
"Company Disclosure Schedule"), neither Company nor any of its
Subsidiaries directly or indirectly owns (other than ownership
interests in Company or in one or more of its Subsidiaries) any
equity or similar interest in, or any interest convertible into
or exchangeable or exercisable for, any corporation, partnership,
joint venture or other business association or entity. As used
in this Agreement, the word "Subsidiary" means, with respect to
any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any
other Subsidiary of such party is a general partner or managing
member, or (ii) at least 50% of the securities or other interests
having by their terms ordinary voting power to elect a majority
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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 and/or
by any one or more of its Subsidiaries. Except as identified in
Section 3.1 of the Company Disclosure Schedule, all Subsidiaries
of Company are wholly owned by Company, directly or indirectly.
3.2 Capitalization.
(a) The authorized capital stock of Company consists of
20,000,000 shares of Company Common Stock, $0.001 par value per
share. As of the date hereof, (i) 10,000,000 shares of Company
Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and (ii) no shares
of Company Common Stock were held in the treasury of Company or
by Subsidiaries of Company. Section 3.2(a)(i) of the Company
Disclosure Schedule sets forth the number of shares of Company
Common Stock reserved for future issuance upon exercise of
Company Options granted and outstanding as of the date hereof and
under the Company Stock Option Plans. Section 3.2(a)(i) of the
Company Disclosure Schedule also sets forth as of the date
hereof, for each Company Stock Option Plan, the dates on which
Options under such plan were granted, the number of Options
granted on each such date and the exercise price thereof. Except
as disclosed in Section 3.2(a)(i) of the Company Disclosure
Schedule, since August 31, 1998 through the date of this
Agreement, Company has not made any grants under any of the
Company Stock Option Plans. Except as disclosed in Section
3.2(a), as of the date of this Agreement, Company has not granted
any contractual rights the value of which is derived from the
financial performance of Company or the value of shares of
Company Common Stock. Except as disclosed in Section 3.2(a)(ii)
of the Company Disclosure Schedule, there are no obligations
contingent or otherwise, of Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock or ownership interests of any
Subsidiary or to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank
obligations or indebtedness for borrowed money of Subsidiaries
entered into in the ordinary course of business. All of the
outstanding shares of capital stock (including shares which may
be issued upon exercise of outstanding options) or other
ownership interests of each of Company's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and,
except as disclosed in Section 3.2(a)(iii) of the Company
Disclosure Schedule all such shares and ownership interests are
owned by Company or another Subsidiary of Company free and clear
of all security interests, liens, claims, pledges, agreements,
limitations on Company's voting rights, charges or other
encumbrances or restrictions on transfer of any nature.
(b) Except as disclosed in Section 3.2(b) of the Company
Disclosure Schedule, there are no bonds, debentures, notes or
other indebtedness having voting rights
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(or convertible into securities having such rights) ("Voting
Debt") of Company or any of its Subsidiaries issued and outstanding.
Except as set forth in Section 3.2(a) or in this Section 3.2(b) or
as reserved for future grants of options under the Company Stock
Option Plans, as of the date hereof, (i) there are no shares of
capital stock of any class of Company, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding; (ii) there are no options, warrants,
equity securities, calls, rights, commitments or agreements of
any character to which Company or any of its Subsidiaries is a
party or by which it is bound obligating Company 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
ownership interests (including Voting Debt) of Company or any of
its Subsidiaries or obligating Company or any of its Subsidiaries
to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity security, call, right, commitment or
agreement; and (iii) there are no voting trusts, proxies or other
voting agreements or understandings with respect to the shares of
capital stock of Company. All shares of Company Common Stock
subject to issuance as specified in this Section 3.2(b) are duly
authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby by Company have been duly authorized by all
necessary corporate action on the part of Company including the
unanimous written consent of all Stockholders of Company. This
Agreement has been duly executed and delivered by Company and
constitutes the valid and binding obligation of Company,
enforceable against Company in accordance with its terms
(subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting creditors' rights, and, with respect to the remedy
of specific performance, equitable doctrines applicable thereto).
(b) Other than as disclosed in Section 3.3(b) of the
Company Disclosure Schedule, the execution and delivery of this
Agreement by Company does not, and the consummation of the
transactions contemplated hereby will not, (i) conflict with, or
result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of Company or the comparable
charter or organizational documents of any of its Subsidiaries,
(ii) result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give rise
to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a
consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease,
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contract or other agreement, instrument or obligation to which
Company or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, other
than any such violation, breach, default or failure to obtain a
consent or waiver which would not have a material adverse effect
on Company or any Subsidiary or (iii) subject to the governmental
filings and other matters referred to in Section 3.3(c),
materially conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Company or any of its
Subsidiaries or any of its or their properties or assets.
(c) Except as disclosed in Section 3.3(c) of the Company
Disclosure Schedule, no consent, approval, order or authorization
of, or registration, declaration or filing with, any court,
administrative agency, commission, energy industry authority or
other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Company or any of its
Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the pre merger
notification report under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), (ii) the filing
of the Articles of Merger with respect to the Merger with the
Secretary of State of the State of Delaware or (iii) filings
required to be made in particular states only after consummation
of the Merger, and which would not, if not filed, prevent the
Company or its Subsidiaries from conducting their respective
businesses or otherwise have a material adverse effect on Company
or any Subsidiary.
3.4 Financial Statements. Company has delivered to Buyer
prior to the date hereof the audited consolidated financial
statements of Company (and all predecessor entities that
transferred substantially all of their assets to Company) as of
and for the years ended December 31, 1997 and December 31, 1998
and all notes related thereto reported on without qualification
by PriceWaterhouseCoopers LLP, independent certified public
accountants, and quarterly consolidated financial statements of
Company for the quarter ended March 31, 1999 (the "Financial
Statements"). Each of the Financial Statements (including,
without limitation, all notes, comments, schedules and
supplemental data contained in or annexed to such statements) are
accurate, complete and in accordance with the books and records
(or the relevant predecessor) of Company and its Subsidiaries and
present fairly in all material respects the consolidated
financial position and assets and liabilities of Company (or the
relevant predecessor) and its Subsidiaries of their consolidated
operations for the periods then ended, in conformity with
generally accepted accounting principles ("GAAP") as applied on a
consistent basis.
3.5 No Undisclosed Liabilities. Except as disclosed in the
Financial Statements or in Section 3.5 of the Company Disclosure
Schedule, and except for liabilities and obligations incurred
since the date of the Financial Statements in the ordinary course
of business consistent with past practices, neither Company nor
its Subsidiaries have any
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liabilities of any type, whether accrued, contingent or otherwise,
and whether due or to become due.
3.6 Absence of Certain Changes or Events. Except as
disclosed in Section 3.6 of the Company Disclosure Schedule,
since March 31, 1999, Company and its Subsidiaries have conducted
their businesses only in the ordinary course and in a manner
consistent with past practice and there has not been any material
adverse change (or any development that is reasonably likely to
result in a material adverse change) in the business, assets,
condition (financial or otherwise), results of operations or
prospects of Company ("Company Material Adverse Effect").
Without limiting the generality of the foregoing, since March 31,
1999, neither Company nor any Subsidiary has, except as disclosed
in Section 3.6 of the Company Disclosure Schedule (i) declared or
paid any dividend or made any other distribution to its
stockholders whether or not upon or in respect of any shares of
its capital stock, (ii) redeemed or otherwise acquired any shares
of its capital stock or issued any capital stock or any option,
warrant or right relating thereto or any securities convertible
into or exchangeable for any shares of capital stock, (iii)
adopted or amended any Company employee benefit or plan, except
as required by law, or entered into or amended any employment,
severance or consulting agreement, contract or similar
arrangement, (iv) granted to any director, officer or employee
any increase in compensation or benefits, except for increases
for any such director, officer or employee in the ordinary course
of business consistent with past practice or as may be required
under existing agreements, (v) incurred or assumed any liability,
obligation or indebtedness for borrowed money or guaranteed any
such liability, obligation or indebtedness other than such as
were incurred, assumed or guaranteed to, or by, Unisource Energy
Corporation, any of its affiliates or subsidiaries and/or DLJ in
the ordinary course of business consistent with past practice,
(vi) permitted, allowed or suffered any of its assets to become
subject to any mortgage, security interest, lien or other similar
restriction of any nature whatsoever, (vii) canceled any
indebtedness or waived any claims or rights of substantial value,
except for customer trade accounts in the ordinary course of
business that do not exceed $250,000 individually or $500,000 in
the aggregate, or (viii) entered into, or modified, amended,
terminated or permitted the lapse of, any lease of real property
or other material agreement relating to real property.
3.7 Taxes.
(a) Definition of Taxes.
For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means (i) any and all federal, state,
local, foreign and other taxes, assessments and other governmental
charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
capital stock, severance, withholding, payroll,
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recapture, employment, excise, unemployment insurance, social
security, business license, occupation, business organization,
stamp, environmental and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts
(ii) any liability for the payment of any
amounts described in clause (i ) as a result of being a successor
to or transferee of any individual or entity or a member of an
affiliated, consolidated or unitary group for any period
(including pursuant to Treas. Reg. 1.1502-6 or comparable
provisions of state, local or foreign tax law); and (iii) any
liability for the payment of amounts described in clause (i) or
clause (ii) as a result of any express or implied obligation to
indemnify any person or as a result of any obligations under
agreements or arrangements with any person. For purposes of this
Agreement, "Taxes" also includes any obligations under any
agreements or arrangements with any other person with respect to
Taxes of such other person and including any liability for Taxes
of any predecessor entity.
Further, for purposes of this Section 3.7, the term
"Company" includes all predecessors of Company and all
predecessor entities that transferred substantially all of their
assets to Company.
(b) Tax Returns and Tax Obligations.
(i) Company and each of its Subsidiaries have timely
filed all Tax returns, estimates, information statements and
reports ("Returns") required to be filed by them prior to Closing
(taking into account all proper extensions), and such Returns are
true and correct and completed in accordance with applicable law.
The Disclosure Schedules list all jurisdictions in which Returns
are required to be filed by Company and its Subsidiaries (or have
been required since the inception of Company) and the types of
Returns required to be filed in each such jurisdiction.
(ii) Except as disclosed in Section 3.7(b)(ii) of the
Company Disclosure Schedule, Company and each of its Subsidiaries
have (A) timely paid all Taxes due and payable by them, (B) have
timely paid all Taxes for which a notice of assessment or
collection has been received (other than amounts properly accrued
on the Financial Statements, described in paragraph (iii), below,
and being contested in good faith by appropriate proceedings),
and (C) have accrued on the Financial Statements all Taxes
attributable to periods covered by such statements that are not
yet due and payable.
(iii) Neither the Internal Revenue Service (the
"IRS") nor any other taxing authority has asserted any claim for
Taxes in writing, or to the actual knowledge of the executive
officers of Company, is threatening to assert any claims for
Taxes. No Tax deficiency notice or notice of assessment of
collection has been received in writing by Company except as
described on the Disclosure Schedules. No audit or other
examination of any Return of Company or any of its Subsidiaries
is presently in progress,
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<PAGE>
nor have Company or any of its Subsidiaries been notified in
writing of any request for such an audit or other examination.
No power of attorney to deal with Tax matters or waiver of any
statute of limitations with respect to Taxes has been granted by
Company or its Subsidiaries. Except as described on the Disclosure
Schedules (i) the relevant statute of limitations for the assessment
or proposal of a deficiency against the Company or its Subsidiaries
for federal income Taxes has expired for all taxable years of the
Company or its Subsidiaries ending before 1996 and (ii) the relevant
statute of limitations for the assessment or proposal of a deficiency
against the Company or its Subsidiaries for state income taxes
has expired for all taxable years of the Company or its
Subsidiaries ending prior to 1996.
(iv) Company and its Subsidiaries have withheld or
collected and paid over to the appropriate governmental
authorities (or are properly holding for such payment) all Taxes
required by law to be withheld or collected with respect to their
operations, including withholdings on payments to Company or its
Subsidiaries for electricity or payments by Company or its
Subsidiaries to employees or independent contractors on account
of federal, state, and foreign income Taxes, the Federal
Insurance Contribution Act, and the Federal Unemployment Tax Act.
(v) Neither Company nor any of its Subsidiaries has
made an election under Section 341(f) of the Code.
(vi) There are no liens for Taxes upon the assets of
Company or any of its Subsidiaries (other than liens for Taxes
that are not yet due or delinquent).
(vii) Neither Company nor any of its Subsidiaries
is or has been a member of an affiliated group of corporations
filing a consolidated federal income tax return (or a group of
corporations filing a consolidated, combined or unitary income
tax return under comparable provisions of state, local or foreign
tax law) other than a group the common parent of which is or was
Company.
(viii) Neither Company nor any of its Subsidiaries
has any obligation under any agreement or arrangement with any
other person with respect to Taxes of such other person
(including pursuant to Treas. Reg. 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including any
liability for Taxes of any predecessor entity.
(ix) Company has made available to Buyer true copies of
all Returns that Company or its Subsidiaries have filed since
their inception and true copies of all correspondence and other
written submissions to or communications with any Tax
authorities.
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(x) There is no contract, plan or arrangement to which
Company or any of its Subsidiaries is a party that, individually
or collectively, would give rise to the payment of any amount
that would not be deductible pursuant to Sections 280G, 404, or
162(m) of the Code.
(xi) None of the assets of Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xii) Company has not agreed to make, nor is it
required to make, any adjustment under Section 481 of the Code by
reason of a change in accounting method or otherwise.
(xiii) Except as set forth in the Disclosure
Schedules, Company is not and has not been a party to any joint
venture, partnership, or other profit-sharing arrangement or
contract.
(xiv) None of Company or its Subsidiaries has
indemnified any person against Tax in connection with any
arrangement for the leasing of real or personal property, except
for indemnity with respect to acts of Company or its
Subsidiaries.
(xv) No indemnity for any Tax liability has been given
by the Company or any Subsidiary to any Stockholder (or former
stockholder) of the Company or a Subsidiary.
3.8 Agreements, Contracts and Commitments. Except as set
forth in Section 3.8 of the Company Disclosure Schedule, neither
Company nor any Subsidiary is a party to or otherwise bound by
any:
(a) employment, severance or consulting agreement, contract or
other arrangement;
(b) covenant not to compete or covenant restricting the
development, marketing or distribution of the products and
services of Company or any Subsidiary;
(c) agreement, contract or other arrangement with (A) any
Stockholder or any affiliate or any Stockholder, or (B) any
current or former officer, director or employee of Company, any
Stockholder or any affiliate of Company;
(d) lease, sublease or similar agreement or other arrangement
with any person under which Company or any Subsidiary makes
available for use to any person, (A) any leased property or (B)
any portion of any premises otherwise occupied by Company or any
Subsidiary;
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<PAGE>
(e) lease or similar agreement or other arrangement with
any person under which (A) Company is lessee of, or holds or uses,
any machinery, equipment, vehicle or other non-computer related
tangible personal property owned by any person or (B) Company or
any Subsidiary is a lessor or sublessor of, or makes available
for use by any person, any tangible personal property owned or
leased by Company, in any such case which has an aggregate future
liability or receivable, as the case may be, in excess of
$100,000 and is not terminable by Company or any Subsidiary by
notice of not more than 60 days.
(f) agreement, contract or other instrument or arrangement
under which Company or any Subsidiary has borrowed any money from, or
issued any note, bond, debenture, guarantee or other evidence of
indebtedness to, any person;
(g) agreement, contract or other instrument or arrangement
under which Company or any Subsidiary has, directly or indirectly,
made or committed to make any advance, loan, extension of credit or
capital contribution to, or other investment in, any person
(collectively, "Advances"), under which any Advance is currently
outstanding;
(h) agreement, contract or other instrument or arrangement
providing for indemnification of any person with respect to
liabilities relating to any current or former business of
Company, any Subsidiary or any predecessor person;
(i) other agreements, contracts or arrangements to which
Company or Subsidiary is a party or by which any of the properties or
assets are bound which have an aggregate future liability or
receivable to or from any person in excess of $250,000 or is not
terminable by Company or such Subsidiary by notice of not more
than 60 days for a cost of less than $250,000.
Section 3.8 of the Company Disclosure Schedule sets forth
(a) the twenty largest contracts of Company for the sale of
electric power and (b) all contracts for the purchase of electric
power.
Except as set forth in Section 3.8 of the Company Disclosure
Schedule, all agreements, contracts, leases, subleases, licenses,
options, instruments or arrangements of Company and its
Subsidiaries listed in the Schedules hereto (collectively, the
"Contracts") are valid, binding and in full force and effect and
are enforceable by Company or such Subsidiary, as the case may
be, in accordance with their terms. Except as set forth in
Section 3.11 of the Company Disclosure Schedule, Company and its
Subsidiaries have performed all material obligations required to
be performed by them to date under the Contracts and they are not
(with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder
and, to the best of Company's knowledge, no other party to any of
the Contracts is (with or without
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the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder.
3.9 Litigation. Except as disclosed in Section 3.9 of the
Company Disclosure Schedule, there is no action, suit or
proceeding, claim, arbitration or investigation against Company
or any of its Subsidiaries pending, or as to which Company or any
of its Subsidiaries has received any written notice of assertion
against or affecting, Company or any of its Subsidiaries or any
property or asset of Company or any of its Subsidiaries, before
any court, arbitrator, or administrative, governmental or
regulatory authority or body, domestic or foreign. There is not
in existence any judgment, order or decree of any Governmental
Entity which has been published or as to which Company or any of
its subsidiaries has received any written notice, enjoining or
prohibiting Company or any of its Subsidiaries from taking, or
requiring Company or any of its Subsidiaries to take, any action
of any kind or to which Company or any of its Subsidiaries or any
of their respective properties or assets are subject or bound.
Neither Company nor any Subsidiary is in violation in any
material respect of any judgment, order or decree of any
Governmental Entity.
3.10 Compliance. Except as disclosed in Section 3.10 of the
Company Disclosure Schedule, each of Company and its Subsidiaries
hold all permits, registrations, findings of suitability,
licenses, variances, exemptions, certificates of occupancy,
orders and approvals of all Governmental Entities, necessary to
conduct the business and operations of Company and each of its
Subsidiaries as currently conducted, each of which is in full
force and effect (the "Company Permits"). Except as disclosed in
Section 3.10 of the Company Disclosure Schedule, the businesses
of Company and its Subsidiaries are not being conducted in
violation of any material aspect of any law, ordinance or
regulation of any Governmental Entity. Except as set forth in
Section 3.10 of the Company Disclosure Schedule, none of Company
or any of its Subsidiaries has received any written communication
from any Governmental Entity that alleges that Company or any
Subsidiary is not in compliance in any material respect with any
applicable law, ordinance or regulation.
3.11 Brokers. None of Company, any of its Subsidiaries, or
any of their respective officers, directors or employees have
employed any broker, financial advisor or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement,
except that Company has retained Donaldson, Lufkin & Jenrette
Securities Corporation as its financial advisor and will pay to
such firm at closing a fee as described in Section 3.11 of the
Company Disclosure Schedule.
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3.12 Accounting Records.
(a) Each of Company and its Subsidiaries maintains records
that accurately, validly and fairly reflect its transactions and
dispositions of assets and maintains a system of internal
accounting controls, policies and procedures sufficient to make
it reasonable to expect that (i) such transactions are executed
in accordance with its management's general or specific
authorization, (ii) such transactions are recorded in conformity
with GAAP and in such a manner as to permit preparation of
financial statements in accordance with GAAP and any other
criteria applicable to such statements and to maintain
accountability for assets, (iii) access to assets is permitted
only in accordance with management's general or specific
authorization, (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences, and
(v) except as set forth in the Company Disclosure Schedule,
records of such transactions are retained, protected and
duplicated in accordance with prudent banking practices and
applicable regulatory requirements.
(b) Company has delivered to Buyer or its representatives
true, correct and complete copies of all annual management letters
and opinions, and has made available to Buyer for inspection all
reviews, correspondence, and other documents in the files of
Company and its Subsidiaries, prepared by any certified public
accounting firm and delivered to Company or its Subsidiaries
since January 1, 1996.
3.13 Proprietary Trading and Risk Management. All proprietary
trading and risk management activities are conducted in the
ordinary course of business without material deviation from
established risk management policies and protocols as amended
from time to time (in accordance with Section 6.1(xi) of this
Agreement) and as set forth on Schedule 3.13 (the "Risk
Protocols").
3.14 Full Disclosure. No representations and warranties of
Company contained in this Agreement and the schedules hereto,
made by or on behalf of Company or any of its representatives
contains or shall contain any untrue statement of a material
fact, or shall omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading
when taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS.
Each Stockholder severally represents and warrants to the
Buyer and Merger Sub as follows:
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4.1 Organization and Standing; Authority. Such Stockholder
has all legal capacity and requisite power and authority to enter
into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. All acts and
other proceedings required to be taken by such Stockholder to
authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and properly taken. The Agreement has been
duly executed and delivered by such Stockholder and constitutes a
legal, valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms
(subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting creditors' rights, and, with respect to the remedy
of specific performance, equitable doctrines applicable thereto).
4.2 Ownership of Capital Stock of Stockholder. Section 4.2
of the Company Disclosure Schedule sets forth accurately and
completely the record and beneficial holdings of shares of
Company Common Stock of such Stockholder. Such Stockholder has
good and valid title to such shares held of record, in each case
free and clear of any liens, charges or encumbrances of any kind.
4.3 Investment Representation. Such Stockholder represents that
it is acquiring the Merger Consideration for its own account for
investment only and not with a view towards the distribution or
resale (except in compliance with applicable securities laws) and
agrees not to sell, transfer, pledge, hypothecate or otherwise
dispose of, or offer to dispose of, the Merger Consideration
unless the Merger Consideration has been registered under the
Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws or such registration is not
required. Such Stockholder understands that any sale of the
Merger Consideration made in reliance upon Rule 144 promulgated
under the Securities Act can be made only in accordance with the
terms and conditions of said Rule and further, that in case such
Rule is not applicable to any sale of the Merger Consideration,
resale thereof may require compliance with another exemption
under the Securities Act prior to resale. Such Stockholder
understands and acknowledges that certificates representing the
Merger Consideration issued pursuant to this Agreement shall bear
the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER SUCH
ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT AN EXEMPTION FROM REGISTRATION FOR SUCH SALE,
OFFER, TRANSFER, HYPOTHECATION OR OTHER
17
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ASSIGNMENT IS AVAILABLE UNDER SUCH ACT. THE SECURITIES
REPRESENTED HEREBY ARE HELD SUBJECT TO AN AGREEMENT AND
PLAN OF MERGER DATED AS OF JUNE 17, 1999, WHICH PROVIDES
FOR CANCELLATION OF SUCH SECURITIES IN CERTAIN EVENTS.
4.4 Information. Such Stockholder represents he or it has such
knowledge and experience in financial and business affairs that
it is capable of evaluating, alone, the merits and risks of an
investment in Buyer. Such Stockholder represents that he or it
has received and reviewed copies of the Buyer SEC Reports
described in Section 5.4. Such Stockholder represents that he or
it has had an opportunity to ask questions and receive answers
concerning the terms of this Agreement and the foregoing
information provided by the Stockholder and to obtain any other
information from the Buyer such Stockholder deems necessary or
appropriate in connection with evaluation the merits of an
investment in the Buyer.
4.5 Entity Representation. If such Stockholder is an entity, it
was either (A) not organized for the specific purpose of holding
Company Securities within the meaning of Rule 501 of Regulation
D, or (B) each equity owner of such entity shall confirm, as to
such person, the accuracy of the representations set forth in
this Article IV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
Buyer and Merger Sub jointly and severally represent and
warrant to Company and the Stockholders that the statements
contained in this Article V are true and correct except as set
forth herein and in the disclosure schedule delivered by Buyer
and Merger Sub to Company on or before the date of this Agreement
(the "Buyer Disclosure Schedule"), all reports, forms and
documents filed by Buyer with the Securities and Exchange
Commission (the "Buyer SEC Reports") or as otherwise expressly
contemplated by this Agreement.
5.1 Organization. Each of Buyer and its Subsidiaries is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all
requisite corporate, partnership and limited liability company
power and authority to carry on its business as now being
conducted. Each of Buyer and its Subsidiaries is duly qualified
or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to
be so qualified, licensed or in good standing would not have a
material adverse effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of
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<PAGE>
Buyer and its Subsidiaries, taken as a whole (a "Buyer Material
Adverse Effect"). Buyer has delivered to Company true and
correct copies of the Certificate of Incorporation and Bylaws of
each of Buyer and Merger Sub, in each case as amended to the date
of this Agreement.
5.2 Authority; No Conflict; Required Filings and Consents.
(a) Buyer and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby by Buyer and Merger Sub have
been duly authorized by all necessary corporate action on the
part of Buyer and Merger Sub. This Agreement has been duly
executed and delivered by Buyer and Merger Sub and constitutes
the valid and binding obligation of Buyer and Merger Sub,
enforceable against each of them in accordance with its terms.
(b) Other than or as disclosed in Section 5.2(b) of the
Buyer Disclosure Schedule, the execution and delivery of this
Agreement by Buyer and Merger Sub does not, and the consummation
of the transactions contemplated hereby will not, (i) conflict
with, or result in any violation or breach of any provision of
the Certificate of Incorporation or Bylaws of Buyer or the
comparable charter or organizational documents of any of its
Subsidiaries, (ii) result in any violation or breach of or
constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to
which Buyer or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or
(iii) subject to the governmental filings and other matters
required to be disclosed in Section 3.3(b) and (c) of the Company
Disclosure Schedule, conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of its or their properties or assets.
(c) Except as disclosed in Section 5.2(c) of the Buyer
Disclosure Schedule, no consent, approval, order or authorization
of or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Buyer or any of its
Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby except for (i) the filing of the pre merger
notification report under the HSR Act, (ii) the filing of the
Articles of Merger with respect to the Merger with the Secretary
of State of the State of Delaware, and (iii) filings required to
be identified in Section 3.3(c) of the Company Disclosure Schedule.
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5.3 No Reliance. Except for the representations and warranties
set forth in this Article V, neither the Company nor any
Shareholder is relying on any representation or warranty of Buyer
or Buyer Sub or any of the officers, directors, employees or
agents in deciding to enter into this Agreement or consummate the
transactions contemplated hereby.
5.4 Brokers. None of Buyer, any of its Subsidiaries, or
any of their respective officers, directors or employees have
employed any broker, financial advisor or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
5.5 No Operations or Liabilities of Merger Sub. Other than
in connection with the transactions contemplated by this
Agreement, since its date of incorporation, Merger Sub has not
conducted any business, has not owned, leased or operated any
real property and has not incurred, and is not subject to, any
liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise.
ARTICLE VI
COVENANTS
6.1 Conduct of Business. Except as disclosed in Section
6.1 of the Company Disclosure Schedule, during the period from
the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Company
agrees as to itself and its Subsidiaries (except to the extent
that the Buyer shall otherwise consent in writing) to carry on
its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its
debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform its other obligations when due,
and, to the extent consistent with such business, use all
commercially reasonable efforts consistent with past practices
and policies to preserve intact its present business
organization, keep available the services of its present officers
and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with
it. Company shall not take any action that would, or that could
reasonably be expected to, result in (A) any of the
representations and warranties of Company set forth in this
Agreement becoming untrue or incorrect in any material respect
were they to be required to be made at Closing, or (B) any of the
conditions to the Merger set forth in Article VII not being
satisfied. Company shall not change any method of accounting for
Tax purposes, change or make for the first time any material Tax
election, or extend the statute of limitations for any Return,
without the reasonable consent of Buyer.
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Without limiting the generality of the foregoing, and except
as otherwise expressly provided in this Agreement or in Section
6.1 of the Company's Disclosure Schedule, neither Company nor any
Subsidiary of Company, without the prior written consent of
Buyer, will:
(i) issue, sell or pledge, or authorize or
propose the issuance, sale or pledge of: (A)
additional shares of capital stock of any class
(including the Shares), or securities convertible
into any such shares, or any rights, warrants or
options to acquire any such shares or other
convertible securities, or grant or accelerate any
right to convert or exchange any securities of
Company for shares, other than (1) Shares issuable
pursuant to the terms of outstanding stock
options, the Company Stock Option Plan and
commitments disclosed in Section 3.2(a) or
specifically disclosed in the Company Disclosure
Schedule related to Section 3.2(a) thereto, or (2)
issuance of shares of capital stock to Company by
a wholly-owned Subsidiary of Company, or (B) any
other securities in respect of, in lieu of or in
substitution for Shares outstanding on the date
thereof or split, combine or reclassify any of
Company's capital stock;
(ii) purchase, redeem or otherwise acquire, or
propose to purchase or otherwise acquire, any of
its outstanding securities (including the Shares);
(iii) declare, set aside or pay any dividend
or other distribution on any shares of capital
stock of Company, except that a direct or indirect
wholly-owned Subsidiary of Company may pay a
dividend or distribution to its parent;
(iv) make any acquisition of any corporation or
similar entity or a material amount of the stock
or assets of any corporation or similar entity,
except in the ordinary course of business, or sell
or dispose a material amount of its assets;
(v) except in the ordinary course of business
consistent with past practice and in an amount
less than $100,000, (A) incur any indebtedness for
borrowed money or guarantee any such indebtedness
of another person or (B) make any loans, advances
of capital contributions to or investments in, any
other Person, other than to Company or any direct
or indirect wholly-owned Subsidiary of Company;
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(vi) propose or adopt any amendments to the
certificate of incorporation or bylaws of Company
or any Subsidiary;
(vii) except in the ordinary course of
business, enter into any new employment, severance
or termination agreements with, or grant any
increase in severance or termination pay to, any
officers, directors or key employees or grant any
increases in the compensation or benefits to
officers, directors and key employees;
(viii) change any accounting methods,
principles or practices materially affecting their
assets, liabilities or business, except insofar as
may be required by a change in GAAP, including
without limitation any method of accounting for
book purposes which is inconsistent with GAAP in
determining current assets and current liabilities
as set forth in the Company's March 31, 1999
Financial Statements;
(ix) make any material Tax election or settle or
compromise any material Tax liability;
(x) compromise or settle or consent to any entry
of judgment with respect to any suit, action or
proceeding pending or, to the knowledge of
Company, threatened against Company or any
Subsidiary before any court or arbitrator or by
any governmental body, agency, or official;
(xi) conduct any proprietary trading or risk
management activities other than in the ordinary
course of business and in accordance with the Risk
Protocols or change or modify any of the Risk
Protocols in any manner; or
(xii) agree in writing or otherwise to take
any of the foregoing actions.
6.2 Cooperation; Notice; Cure. Subject to compliance with
applicable law, from the date hereof until the Effective Time,
Company shall confer on a regular basis as reasonably requested
by Buyer with one or more representatives of the Buyer to report
on the general status of ongoing operations of Company and its
Subsidiary. Each of Company and Buyer shall promptly notify the
other in writing of, and will use all commercially reasonable
efforts to cure before the Closing Date, any event, transaction
or circumstance, as soon as practical after it becomes known to
such party, that causes or will cause any covenant or agreement
of Company or Buyer under this Agreement to be
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breached in any material respect or that renders or will render
untrue in any material respect any representation or warranty of
Company or Buyer contained in this Agreement. No notice given
pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement
for purposes of determining satisfaction of any condition
contained herein.
6.3 No Solicitation. From and after the date hereof,
Company and the Stockholders shall cease (and shall direct and
cause their respective officers, directors, employees, agents,
and representatives, to immediately cease) and all discussions or
negotiations with any parties that may be ongoing with respect to
an Acquisition Proposal (as hereinafter defined). From and after
the date hereof, neither Company nor any Stockholder shall (and
they shall use the best efforts to present their affiliates
from), directly or indirectly, through any officer, director,
employee, financial advisor, representative or agent of such
party (i) soliciting, initiating, or encouraging (including by
way of furnishing information) or taking any other action to
facilitate knowingly any inquiries or proposals that constitute,
or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including
without limitation by way of a tender or exchange offer) or
similar transaction involving Company or any of its Subsidiaries,
other than the transactions contemplated by this Agreement (any
of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engaging in
negotiations or discussions with any person (or group of persons)
other than Buyer or its respective affiliates concerning, or
provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agreeing to or
recommend any Acquisition Proposal.
6.4 Interim Financial Statements. Company will furnish to
the Buyer, in each case certified by the chief financial officer
of Company, all financial statements and financial reports
prepared by Company in the ordinary course of business, if any.
Any such financial statements shall be, and all other financial
statements shall to the best of Company's knowledge be, complete
and accurate, in accordance with the books and records of Company
and its Subsidiaries and prepared in conformity with generally
accepted accounting principles consistently applied (except in
each case as described in the notes thereto) and on that basis
fairly present the financial condition and results of operations
of Company and its Subsidiary's as of the dates thereof and for
the periods indicated.
6.5 Access to Information. Upon reasonable notice, Company
(and each of its Subsidiaries) shall, during the period prior to
the Effective Time, permit representatives of Buyer to have
reasonable access during normal business hours, and in a manner
so as not to unreasonably interfere with the normal business
operations of Company or its Subsidiaries, to all its personnel,
properties, books, contracts, commitments, records,
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monthly development reports (if any), documents filed or received
by it during such period pursuant to the requirements of federal or
state law, and all other information concerning its business,
properties and personnel as Buyer may reasonably request. The
Buyer will hold any such information furnished to it by Company
and its Subsidiaries which is nonpublic in confidence in
accordance with the confidentiality agreement between Buyer and
Company effective as of February 17, 1999 (the "Confidentiality
Agreement"). No information or knowledge obtained in any
investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to
consummate the Merger.
6.6 Governmental Approvals.
(a) The parties hereto shall cooperate with each other and
use their best efforts to promptly prepare and file (and to cause
their affiliates to prepare and file, as necessary) all necessary
documentation, to effect all applications, notices, petitions and
filings, to obtain as promptly as practicable all permits,
registrations, licenses, findings of suitability, consents,
variances, exemptions, orders, approvals and authorizations of
all third parties and Governmental Entities which are necessary
or advisable to consummate the transactions contemplated by this
Agreement ("Governmental Approvals"). Each of the parties hereto
and their respective officers, directors and affiliates shall use
their best efforts to promptly file after the date hereof, all
required initial applications and documents in connection with
obtaining the Governmental Approvals and shall act reasonably and
promptly thereafter in responding to additional requests in
connection therewith. Company and Buyer shall have the right to
review in advance, and to the extent practicable each will
consult the other on, in each case subject to applicable laws
relating to the exchange of information, all the information
relating to Company or to Buyer, as the case may be, and any of
their respective Subsidiaries, directors, officers and
stockholders which appear in any filing made with, or written
materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this
Agreement. Without limiting the foregoing, each of Company and
Buyer (the "Notifying Party") will notify the other reasonably
promptly of the receipt of material comments or requests from
Governmental Entities relating to Governmental Approvals, and
will supply the other party with copies of all material
correspondence between the Notifying Party or any of its
representatives and Governmental Entities with respect to
Governmental Approvals; provided, however, that it shall not be
required to supply the other party with copies of correspondence
relating to the personal applications of individual applicants
except for evidence of filing.
(b) Company and Buyer shall promptly advise each other upon
receiving any communication from any Governmental Entity whose
consent or approval is required for consummation of the
transactions contemplated by this Agreement which causes such
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party to believe that there is a reasonable likelihood that any
approval needed from a Governmental Entity will not be obtained
or that the receipt of any such approval will be materially
delayed. Company and Buyer shall take any and all actions
reasonably necessary to vigorously defend, lift, mitigate and
rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions
contemplated hereby or thereby, including, limitation, promptly
appealing any adverse court or administrative order or injunction
to the extent reasonably necessary for the foregoing purposes.
(c) Without limiting the foregoing provision of this
Section 6.6, the parties shall prepare and file the notification
required under the HSR Act by June 30, 1999.
6.7 Publicity. Company and Buyer shall agree on the form
and content of the initial press release regarding the
transactions contemplated hereby and thereafter shall consult
with each other before issuing, and use all reasonable efforts to
agree upon, any press release or other public statement with
respect to any of the transactions contemplated hereby and shall
not issue any such press release or make any such public
statement prior to such consultation, except as may be required
by law the case of Buyer, including without limitation applicable
securities laws.
6.8 Directors and Officers Indemnification.
(a) From and after the Effective Time, Buyer agrees that
it will, and will cause the Surviving Corporation to, indemnify,
defend and hold harmless each present and former director,
officer, employee and agent of Company, its Subsidiaries and its
affiliates (including, for purposes of this section, predecessors
thereof) ( the "Indemnified Parties"), against any costs or
expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities or amounts paid in settlement
incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing
or occurring at or prior to the Effective Time, whether asserted
or claimed prior to, at or after the Effective Time, to the
fullest extent that Company, its Subsidiaries and its affiliates
would have been permitted under applicable law and their
respective Articles of Incorporation or Bylaws in effect on the
date hereof to indemnify such Indemnified Party.
(b) For a period of six years after the Effective Time,
Buyer shall maintain or shall cause the Surviving Corporation to
maintain in effect a directors' and officers' liability insurance
policy covering those persons who are currently covered by
Company's directors' and officers' liability insurance policy
(copies of which have been heretofore delivered by Company to
Buyer) with coverage in amount and scope at least as favorable as
Company's and/or its Subsidiaries and its affiliates existing
coverage;
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provided that in no event shall Buyer or the Surviving
Corporation be required to expend in the aggregate in excess of
175% of the annual premium currently paid by Company and/or its
Subsidiaries and its affiliates for such coverage; and if such
premium would at any time exceed 175% of such amount, then Buyer
or the Surviving Corporation shall maintain insurance policies
which provide the maximum and best coverage available at an
annual premium equal to 175% of such amount.
(c) The provisions of this Section 6.8 are intended to
be an addition to the rights otherwise available to the current
officers, directors, members, employees and agents of Company,
its Subsidiaries and its affiliates by law, charter, statute,
bylaw or agreement, and shall operate for the benefit of, and
shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
6.9 Employee Benefits.
(a) Employees of the Company and its Subsidiaries will be
eligible to participate in all Buyer employee benefit plans. For
purposes of determining eligibility to participate, vesting and
accrual or entitlement to benefits where length of service is
relevant under any corresponding existing employee benefit plan
or arrangement of Buyer or the Surviving Corporation, employees
of Company and its Subsidiaries as of the Effective Time shall
receive service credit for service with Company and any of its
Subsidiaries to the same extent such service was granted under
existing Company employee plans subject to offsets for previously
accrued benefits and no duplication of benefits. Employees of
Company and its Subsidiaries shall receive credit under the
applicable Buyer Plan for deductibles already paid to date under
existing Company employee plans.
(b) Upon request of the Buyer, all Company employee benefit
and welfare plans, including without limitation, 401(k) plans, stock
option plans and agreements, shall be terminated prior to Closing
to the extent similar plans are made available by Buyer.
(c) Nothing in this Agreement is intended to create any
right of employment for any person or to create any obligation
for Buyer or the Surviving Corporation to continue any employee
benefit plan of Company or of Buyer following the Effective Time.
(d) Except to the extent renegotiated as contemplated by
Sections 2.3 and 7.3(c), Surviving Corporation shall honor all
written employment, severance and termination agreements
(including change in control provisions) of the employees of the
Company and its Subsidiaries provided to Buyer on or prior to the
date of this Agreement.
6.10 Further Assurances and Actions.
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(a) Subject to the terms and conditions herein, each of
the parties hereto agrees to use its reasonable best efforts to take,
or cause to be taken, all appropriate action, and to do, or cause
to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including,
without limitation, (i) using their respective reasonable best
efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental
Entities and parties to contracts with each party hereto as are
necessary for consummation of the transactions contemplated by
this Agreement, and (ii) to fulfill all conditions precedent
applicable to such party pursuant to this Agreement.
(b) In case at any time after the Effective Date any
further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals,
immunities, franchises of any of the parties to the Merger, the
proper officers and/or directors of Buyer, Company and the
Surviving Corporation shall take all such necessary action.
6.11 Interim Funding and Commitments. Buyer shall make available
to Company up to $25,000,000 of financing as required by Company
in the ordinary course after the date hereof and before the
Effective Time. Any such financing provided or arranged by Buyer
shall, at Buyer's request, be guaranteed on a non-recourse basis
by the Stockholders, who shall pledge all of their stock in the
Company as collateral for any such financing. Any sums advanced
shall bear interest at a rate of 9.5% per annum, and shall be due
and payable, with accrued interest, on December 31, 1999. Sums
not paid when due shall bear interest at a rate of 11.5%. Any
financing provided pursuant to this Section 6.11 shall be senior
to any indebtedness to any Stockholder or affiliate of any
Stockholder, and pari passu with other Company indebtedness,
(provided, that, after Closing, such subordination and non-
recourse guaranty and pledge shall be released without further
documentation and such indebtedness shall be subordinate to any
indebtedness of the Company to any Stockholder). The proceeds of
any financing hereunder will be used only for general business
purposes of the Company. Any financing provided pursuant to this
Section shall be provided pursuant to customary documentation
consistent with this Section agreed to by the parties in good
faith. Company and the Stockholders shall cause Unisource Energy
to maintain in place and continue to provide the existing
guarantees and surety bonds (or replacement guarantees and bonds
upon their renewal on the same terms and conditions) for a period
of at least 120 days from the date hereof to Company to support
Company's wholesale and retail electricity purchases and sales
activities; provided, that Unisource may charge a commercially
competitive fee for providing such guarantees (not to exceed 300
basis points) from and after the Effective Time. To the extent
commercially required, Buyer agrees to provide or cause to be
provided additional guarantees and surety bonds to
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support such activities as soon as practicable following the date
hereof, provided, however, that if consummation of the Merger has
not occurred by December 31, 1999, Company and/or Unisource Energy
shall assume or cause a third party to assume and/or replace such
Buyer guarantees and surety bonds.
6.12 Tax Treatment of Reorganization. From and after the date
hereof and until the Effective Time, neither Company nor Buyer,
nor any of their respective Subsidiaries or other Affiliates
shall knowingly take any action, or knowingly fail to take any
action, that is reasonably likely to jeopardize the treatment of
the Merger as a reorganization described in Section 368(a) of the
Code.
6.13 Registration Statement. Not later than the time set by the
Registration Rights Agreement, Buyer shall prepare and file with
the SEC a registration statement (the "Registration Statement")
under the Securities Act to register with the SEC for resale the
shares of Buyer Common Stock to be received in the Merger,
including any amendments thereto required to be filed prior to
the Effective Time. Buyer shall make all necessary filings with
respect to the Merger under the Securities Act, the Exchange Act,
applicable state blue sky laws and the rules and regulations
thereunder. Buyer shall prepare and submit to the NYSE a listing
application covering the shares of Buyer Common Stock to be
issued in the Merger, and shall use its best efforts to cause
such shares to be approved for listing and trading on the NYSE
not later than the effective date of the Registration Statement.
Such listing application shall be submitted promptly to the NYSE
following the filing of the Registration Statement. In the event
that the Registration Statement becomes effective after the
Closing Date and the closing price of Buyer Common Stock as
reported on the NYSE composite tape on the trading day
immediately preceding the day on which the Registration Statement
becomes effective (the "Effective Price") is not equal to the
closing price of such stock on the Closing Date (the "Closing
Price") the following provisions shall apply:
(a) If the Effective Price is lower than the Closing
Price, Buyer shall issue to each Stockholder a number of
additional shares of Buyer Common Stock equal to (A) the
difference between the Closing Price and the Effective Price,
multiplied by (B) the number of shares of Buyer Common Stock
issued to such Stockholder on the Closing Date, divided by (C)
the Effective Price.
(b) If the Effective Price is higher than the Closing
Price, each Stockholder shall surrender to Buyer for
cancellation, and Buyer is authorized to cancel, that number of
shares of Buyer Common Stock issued on the Closing Date to each
Stockholder equal to (A) the difference between the Effective
Price and the Closing Price multiplied by (B) the number of
shares of Buyer Common Stock issued to such Stockholder on the
Closing Date, divided by (C) the Effective Price.
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ARTICLE VII
CONDITIONS TO MERGER
7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this
Agreement to effect the Merger shall be subject only to the
satisfaction or waiver by each party prior to the Effective Time
of the following conditions:
(a) No Injunctions. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any order, executive
order, stay, decree, judgment or injunction or statute, rule,
regulation which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the
Merger.
(b) Governmental Approvals. All Governmental Approvals
required to consummate the transactions contemplated by this Agreement
shall have been obtained, all such approvals shall remain in full
force and effect, all statutory waiting periods in respect
thereof (including, without limitation, under the HSR Act) shall
have expired and no such approval shall contain any conditions,
limitations or restrictions which the Buyer reasonably determines
in good faith will have or would reasonably be expected to have a
material adverse effect on the Buyer and on Company or its
Subsidiaries taken as a whole.
7.2 Additional Conditions to Obligations of Company. The
obligation of Company to effect the Merger is subject to the
satisfaction of each of the following conditions prior to the
Effective Time, any of which may be waived in writing exclusively
by Company:
(a) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date, and Company shall have received a certificate signed on
behalf of Buyer by an officer of Buyer to such effect.
(b) Registration Rights Agreement. Buyer shall have
executed the Registration Rights Agreement in substantially the form
attached as Exhibit B hereto.
7.3 Additional Conditions to Obligations of Buyer. The
obligations of Buyer and Merger Sub to effect the Merger are
subject to the satisfaction of each of the following conditions
prior to the Effective Time, any of which may be waived in
writing exclusively by Buyer:
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(a) Performance of Obligations of Company. Company shall
have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing
Date. Buyer shall have received a certificate signed on behalf
of Company by an officer of Company to each such effect.
(b) Opinion. Buyer shall have received the opinion of
Morgan, Lewis & Bockius, LLP, counsel to Company and New Energy
Holdings, LLC (and/or, as to certain matters, including matters
pertaining to MEH, such other counsel acceptable to Buyer) as to
the matters set forth in Exhibit C.
(c) Change in Control Provisions. The employment agreements
of certain key employees of Company identified in a letter from
Buyer to Company of even date herewith shall have been terminated
on terms satisfactory to Buyer.
(d) Registration Rights Agreement. The Stockholders shall
have executed the Registration Rights Agreement in substantially the
form of Exhibit B.
(e) DLJ shall extend its existing utility distribution
company credit facility in California until the first to occur of
(a) July 31, 1999 and (b) the date a replacement credit facility is
secured by the Company from CIGNA Property & Casualty Co.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of Company and Buyer; or
(b) by Buyer at any time prior to the Closing Date in the
event Company or the Stockholders have breached any covenant
contained in this Agreement, Buyer has notified Company and the
Stockholders of the breach, and the breach has continued without
cure for a period of 10 days after the notice of breach, but only
if the breach would have a Company Material Adverse Effect; or
(c) by Company at any time prior to the Closing Date in
the event Buyer has breached any covenant contained in this Agreement
in any material respect, Company has notified Buyer of the
breach, and the breach has continued without cure for a period of
10 days after the notice of breach, but only if the breach would
have a Buyer Material Adverse Effect; or
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(d) by Company or Buyer if the Merger shall not have been
consummated by December 31, 1999; or
(e) by either Buyer or Company if a court of competent
jurisdiction or other Governmental Entity shall have issued an
order, decree or ruling or taken any other final action, in each
case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger.
8.2 Effect of Termination. In the event of termination of
this Agreement as provided in Section 8.1, this Agreement shall
immediately become void and there shall be no liability or
obligation on the part of Buyer, Merger Sub or Company, or their
respective officers, directors, stockholders or Affiliates,
except that such termination shall not limit liability of any
party for a breach of this Agreement; provided that the
provisions of this Section 8.2 and Section 10.9 of this Agreement
and the Confidentiality Agreements shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended only by an
instrument signed by the parties hereto.
ARTICLE IX
INDEMNIFICATION
9.1 By the Stockholders.
(a) Each of the Stockholders severally (on a pro rata basis
as provided herein), but not jointly, agrees to indemnify and hold
Buyer and its affiliates harmless from and against any and all
losses, claims, demands, liabilities, obligations, damages,
deficiencies, assessments, judgments, payments, penalties, costs
and expenses (including without limitation reasonable attorneys'
fees, any amounts paid in investigation, defense or settlement of
any of the foregoing and interest) (herein, "Damages") incurred
in connection with, arising out of, resulting from or incident
to, any breach of any representation or warranty made by Company
or the Stockholders in this Agreement. Notwithstanding the
foregoing, Buyer may not receive any indemnification in
connection with Damages (x) arising from breaches or inaccuracies
pursuant to this Section 9.1(a) unless the aggregate of such
Damages indemnified against shall exceed $3 million, in which
event such indemnification shall be effective with respect to all
Damages in excess of such amount. The total liability of the
Stockholders under clause (i) of this Section 9.1(a) shall not
exceed $20 million.
(b) Each of Stockholders severally but not jointly, agrees
to indemnify and hold Buyer and its affiliates harmless from and
against any and all Damages incurred in
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connection with, arising out of, resulting from or incident to, any
breach of the representations and warranties relating to such
Stockholder contained in Article IV hereof, without limitation of
any kind.
(c) In addition to the indemnification provided by Section
9.1(a), the Stockholders shall reimburse the Company, without
regard to the limitations that would apply to a Claim under
Section 9.1(a), for any sum paid by the Company to any person in
connection with any other transaction evaluated by the Company
contemporaneously with the transaction contemplated hereby,
including without limitation any retainer or break up fee,
expense reimbursement or similar payment, to the extent the total
of all such payments by the Company exceeds $500,000.
9.2 By Buyer. Buyer agrees to indemnify and hold each of the
Stockholders and their respective affiliates including Company
and its Subsidiaries harmless from and against any and all
Damages incurred in connection with, arising out of, resulting
from or incident to, (i) any breach of any representation,
warranty or covenant made by Buyer or Merger Sub in this
Agreement, (ii) operation of the business of Company and the
Subsidiaries after the Closing Date.
9.3 Damages. The term "Damages" as used in this Article IX is
not limited to matters asserted by third parties against any
indemnified party, but includes damages incurred or sustained by
any indemnified party in the absence of third party claims. Any
claims otherwise due and payable under this Article IX shall be
(i) decreased to the extent of any reduction of Tax liability
that is realizable by the indemnified party upon payment of an
indemnifiable loss and (ii) increased to the extent of an
indemnity payment pursuant to this Article IX. In addition,
Damages shall be determined net of any insurance recoveries by
any indemnified party.
9.4 Defense of Claims.
(a) If a claim for Damages (a "Claim") is to be made by a
party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes
aware of any fact, condition or event which may give rise to
Damages for which indemnification may be sought under this
Article IX. Such Claim Notice shall specify the nature and
amount of the Claim asserted, if actually known to the party
entitled to indemnification hereunder. If any lawsuit or
enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be
given to the indemnifying party as promptly as practicable (and
in any event within fifteen (15) calendar days after the service
of the citation or summons). The failure of any indemnified
party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent
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that the indemnifying party demonstrates actual damage caused by
such failure. After such notice, if the indemnifying party shall
acknowledge in writing to the indemnified party that the
indemnifying party shall be obligated under the terms of its
indemnity hereunder in connection with such lawsuit or action,
then the indemnifying party shall be entitled, if it so elects at
its own cost and expense, (A) to take control of the defense and
investigation of such lawsuit or action, (B) to employ and engage
attorneys of its own choice to handle and defend the same unless
the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified
party has been advised in writing by counsel that there may be
one or more legal defenses available to such indemnified party
that are different from or additional to those available to the
indemnifying party, in which event the indemnified party shall be
entitled, at the indemnifying party's cost and expense, to
separate counsel of its own choosing, and (C) to compromise or
settle such claim, which compromise or settlement shall be made
only with the written consent of the indemnified party, such
consent not to be unreasonably withheld. If the indemnifying
party fails to assume the defense of such claim within thirty
(30) calendar days after receipt of the Claim Notice, the
indemnified party against which such claim has been asserted will
(upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and
expense, the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the indemnifying party;
provided however, that such Claim shall not be compromised or
settled without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld. In the event
the indemnified party assumes the defense of the claim, the
indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or
settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance
with this Article IX and for any final judgment (subject to any
right of appeal), and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment.
(b) In the case of any enforcement action involving a Tax,
the contest rights of the indemnifying party set forth in the fourth
sentence of Section 9.4(a) shall not apply to such action unless
the action is limited to matters which solely affect liability in
respect of a Pre-Closing Tax Period. In any action involving a
Tax which is not so limited, the indemnified party shall be
entitled at its own expense (A) to take control of the defense
and investigation of such action, (B) to employ and engage
attorneys of its own choice to handle and defend the same, and
(C) to compromise or settle such action, which compromise or
settlement shall be made only with the written consent of the
indemnifying party, such consent not to be unreasonably withheld.
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(c) In the event that any action, suit, proceeding or
investigation relating hereto or to the transactions contemplated
by this Agreement is commenced, the parties hereto agree to
cooperate to defend against and respond thereto and make
available to each other such personnel, witnesses, books,
records, documents or other information within its control.
(d) Exclusive Remedy. Except as set forth in Section
9.1(b) and Section 10.10, the rights of indemnification provided to
Buyer and the Stockholders in this Article IX are intended to be
the sole remedies of such parties for any claim by either Buyer
against the Stockholders or by the Stockholders against Buyer,
and the parties intend, to the maximum possible extent, to
preclude any other claims, on whatever cause of action
predicated. WITHOUT LIMITING THE FOREGOING, IT IS THE INTENTION
OF THE PARTIES THAT, ONCE THE SURVIVAL PERIOD FOR REPRESENTATIONS
AND WARRANTIES SET FORTH HEREIN (IN SECTION 10.1) HAS PASSED,
THIS TRANSACTION SHALL BE, SAVE ONLY FOR PROPERLY MADE CLAIMS
BROUGHT HEREUNDER, "AS IS" WITH RESPECT TO THE CONDITION OF THE
COMPANY AND THE SUBSIDIARIES OR THE BUYER OR THEIR RESPECTIVE
ASSETS, BUSINESS, CONDITION (FINANCIAL OR OTHERWISE) OR
PROPERTIES.
9.5 Certain Waivers. The parties intend the obligations of
the Stockholders under this Article IX to be primary obligations
of the Stockholders, and not those of a guarantor or surety.
However, if such obligations are construed as those of a
guarantor or surety, then each Stockholder waives, to the maximum
extent possible, all defenses to the enforcement of the
Stockholder's obligations under this Article IX that might be
afforded to Stockholder by virtue of the obligations being
treated as those of a guarantor or surety, including without
limitation any defenses that would otherwise be available under
Title 13 of Part 4 of Division 3 of the California Civil Code.
Each Stockholder further waives any right of subrogation,
reimbursement, indemnification or contribution it might have
against the Company or any other person (other than other
Stockholders) arising from any payments made by Stockholder
pursuant to this Article IX.
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties. The parties
hereto agree that, other than the representations set forth in
Article IV, which survive until expiration of the applicable
statute of limitations, the representations and warranties, and
the covenants and agreements contained in this Agreement or in
any certificate, document or instrument delivered in connection
herewith, shall survive the execution and delivery of this
Agreement and the Closing hereunder, regardless of any
investigation made by the parties
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hereto; provided, however, that, except for claims or actions with
respect to Article IV and claims or actions for breach of Section 3.7,
(which shall survive until the lapse of any applicable statute of
limitations), any claims or actions with respect thereto shall
terminate unless on or before March 31, 2000 written notice of such
claims or actions is given to the Stockholders Representative, in the
case of claims made pursuant to Section 9.1, or to Buyer in the case
of claims or actions made pursuant to Section 9.2, or such actions
are commenced within such period; and provided further that
nothing in this Section 10.1 shall (a) limit the indemnification
obligations of the parties under Article IX with respect to
claims timely made or actions timely commenced under the
provisions of this Section 10.1 or (b) limit Buyer's obligations
pursuant to Section 6.7 of this Agreement.
10.2 Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any
party shall be in writing and shall be validly given or made to
another party if served personally, or by facsimile or air
courier, or deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such
notice, demand or other communications be served personally, or
by facsimile or air courier, service shall be conclusively deemed
made at the time of such service. If such notice, demand or
other communications be given by mail, it shall be conclusively
deemed given three (3) days after the deposit thereof in the
United States mail, addressed to the party to whom such notice,
demand or other communication is to be given as herein after set
forth:
if to Company, to:
New Energy Ventures, Inc.
1000 Wilshire Blvd., Suite 500
Los Angeles, California 90017
Attn. Jeffrey W. Martin, Esq.
with a copy to its attorney:
Morgan, Lewis & Bockius, LLP
300 South Grand Avenue, Twenty-Second Floor
Los Angeles, California 90071-3132
Attn. Peter Wallace, Esq.
with a copy to:
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Millenium Energy Holdings, Inc.
200 West 6th Street
Tucson, AZ 85701
Attn. General Counsel
if to Buyer or Merger Sub, to:
The AES Corporation
1001 No. 19th Street, Suite 2000
Arlington, Virginia 22209
Attn. Jonathon Moore, Esq.
with a copy to its attorney:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104-2878
Attn. James C. Olson, Esq.
10.3 Interpretation. Interpretation. When a reference is made
in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement
they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if
requested by the party to whom such information is to be made
available. For purposes of determining the accuracy of any
representation and warranty hereunder, any matter disclosed in
any portion of a party's disclosure schedules shall be treated as
disclosed for all purposes.
10.4 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 two or more
counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement and all documents and instruments referred to herein
(a) constitute the entire agreement and
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supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof, and
(b) except as provided in Section 6.8, are not intended to confer upon
any person other than the parties hereto any rights or remedies
hereunder; provided that the Confidentiality Agreements shall
survive the execution and delivery of this Agreement. Each party
hereto agrees that, except for the representations and warranties
contained in this Agreement, none of Buyer, Merger Sub or Company
makes any other representations or warranties, and each hereby
disclaims any other representations and warranties made by itself
or any of its officers, directors, employees, agents, financial
and legal advisors or other representatives, with respect to the
execution and delivery of this Agreement or the transactions
contemplated hereby, notwithstanding the delivery or disclosure
to any of them or their respective representatives of any
documentation or other information with respect to any one or
more of the foregoing.
10.6 Governing Law. This Agreement shall be governed and
construed, and the obligations, rights and remedies of the
parties hereunder shall be determined, in accordance with the
laws of the State of Delaware without reference to the conflicts
of law or choice of law doctrine of such state.
10.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that
Merger Sub may assign its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary of Buyer; provided
that no such assignment shall relieve Buyer of its obligations
hereunder. 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.
10.8 Severability; Enforcement. The invalidity of any portion
hereof shall not affect the validity, force or effect of the
remaining portions hereof. If it is ever held that any covenant
hereunder is too broad to permit enforcement of such covenant to
its fullest extent, each party agrees that a court of competent
jurisdiction may enforce such covenant to the maximum extent
permitted by law, and each party hereby consents and agrees that
such scope may be judicially modified accordingly in any
proceeding brought to enforce such covenant.
10.9 Costs and Expenses. In the event that the Merger is not
effected each party hereto shall, except as otherwise herein
provided, bear its own costs.
10.10 Specific Performance. The parties hereto agree that
the remedy at law for any breach of this Agreement will be
inadequate and that any party by whom this Agreement is enforceable
shall be entitled to specific performance in addition to any
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other appropriate relief or remedy. Such party may, in
its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunctive or such other relief as
such court may deem just and proper in order to enforce this
Agreement or prevent any violation hereof and, to the extent
permitted by applicable laws, each party hereto waives any
objection to the imposition of such relief.
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IN WITNESS WHEREOF, Buyer, Inc., Buyer Sub Corp.,
Company, Inc. and Stockholders have caused this Agreement to be
signed by their respective duly authorized officers as of the
date first written above.
THE AES CORPORATION,
a Delaware corporation
By: _________________________
Its: _________________________
Date: ________________________
NV ACQUISITION CORPORATION,
a Delaware corporation
By: _________________________
Its: _________________________
Date:_________________________
NEW ENERGY VENTURES, INC.,
a Delaware corporation
By: _________________________
Its: _________________________
Date:_________________________
MEH CORPORATION
Its: _________________________
Date:_________________________
NEW ENERGY HOLDINGS, L.L.C.,
a Delaware limited liability
company
By: _________________________
Its: _________________________
Date:_________________________
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