-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KdHY2YterzFHrPtmyMOi5hkYYyL9OiKnZXB0QOF1pZqldjWEIlGL4xPBsW8GSKDV T9gf4PQrTTe7KAGG/8zLYA== 0000950116-00-001256.txt : 20000517 0000950116-00-001256.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950116-00-001256 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS UTILITIES CO CENTRAL INDEX KEY: 0000020520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 060619596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-11001 FILM NUMBER: 636313 BUSINESS ADDRESS: STREET 1: HIGH RIDGE PK BLDG 3 STREET 2: P O BOX 3801 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033298800 MAIL ADDRESS: STREET 1: HIGH RIDGE PARK BLDG NO 3 CITY: STAMFORD STATE: CT ZIP: 06905 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to__________ Commission file number 001-11001 CITIZENS UTILITIES COMPANY (Exact name of registrant as specified in its charter) Delaware 06-0619596 - ------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3 High Ridge Park P.O. Box 3801 Stamford, Connecticut 06905 - --------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 614-5600 ---------------- NONE ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No ----- The number of shares outstanding of the registrant's class of common stock as of April 28, 2000 were 263,679,242. Item 6. Exhibits and Reports on Form 8-K a) Exhibits: 27* Financial data schedule for the periods ended March 31, 2000 and restated March 31, 1999. 10.28 Asset Purchase Agreement between Citizens Utilities Company and GTE Incorporated dated December 16, 1999. 10.29 Asset Purchase Agreements between Citizens Utilities Company and Cap Rock Energy Corp. dated February 11, 2000. 10.30 Asset Purchase Agreement between Citizens Utilities Company and Kauai Island Utility CO-OP dated February 11, 2000. b) Reports on Form 8-K: We filed on Form 8-K dated February 15, 2000 under Item 5 "Other Events" and Item 7 "Exhibits," a press release announcing that we will sell all of our electric utility operations. We filed on Form 8-K dated March 22, 2000 under Item 7 "Exhibits," a press release announcing financial results for the year ended December 31, 1999 and certain operating data. *Previously filed. SIGNATURES 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. CITIZENS UTILITIES COMPANY (Registrant) By: /s/ Robert J. DeSantis ---------------------------------------------- Robert J. DeSantis Vice President and Chief Financial Officer By: /s/ Livingston E. Ross ---------------------------------------------- Livingston E. Ross Vice President and Chief Accounting Officer Date: May 12, 2000 EX-10.28 2 EXHIBIT 10.28 ================================================================================ ASSET PURCHASE AGREEMENT Between GTE NORTH INCORPORATED and GTE SOUTH INCORPORATED and CITIZENS UTILITIES COMPANY December 16, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS..................................................................................1 1.1 Terms..........................................................................................1 1.2 Interpretation................................................................................10 ARTICLE 2 PURCHASE AND SALE OF ASSETS.................................................................10 2.1 Purchase and Sale of Assets...................................................................10 2.2 Purchased Property............................................................................10 2.3 Excluded Property.............................................................................10 2.4 Assumption of Liabilities.....................................................................11 2.4.1 Assumed Liabilities..................................................................11 2.4.2 Retained Liabilities.................................................................13 2.5 No Assignment Without Consent.................................................................13 ARTICLE 3 PURCHASE PRICE..............................................................................14 3.1 Purchase Price................................................................................14 3.2 Closing Date Estimate.........................................................................14 3.3 Closing Date Statement........................................................................15 ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS..............................................16 4.1 State Regulatory Approval.....................................................................16 4.2 Debtholder Consents...........................................................................16 4.3 Landlord and Other Consents...................................................................16 4.4 FCC Consents..................................................................................16 4.5 HSR Act Review................................................................................16 4.6 GTE/Bell Atlantic Merger......................................................................17 ARTICLE 5 PRE-CLOSING COVENANTS.......................................................................17 5.1 Investigation by Buyer........................................................................17 5.2 Operation of the Business in the Ordinary Course..............................................18 5.2.1 Preservation of Business.............................................................18 5.2.2 No Material Changes..................................................................18 5.3 Satisfaction of Conditions....................................................................19 5.4 Approvals.....................................................................................19
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Page 5.5 Audit or Review of Financial Statements......................................................19 5.6 Cooperation with Respect to Like-Kind Exchange................................................20 5.7 Interconnection Agreements....................................................................21 5.8 Leased Vehicles; Capital Leases...............................................................21 5.9 Delivery of Interim Information...............................................................21 ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING.........................................................21 6.1 Conditions Precedent to Obligations of Buyer..................................................21 6.1.1 No Misrepresentation or Breach of Covenants and Warranties...........................21 6.1.2 Documents............................................................................21 6.1.3 HSR..................................................................................21 6.1.4 No Legal Obstruction.................................................................22 6.1.5 No Material Adverse Effect...........................................................22 6.2 Conditions Precedent to Obligations of Seller.................................................22 6.2.1 No Misrepresentation or Breach of Covenants and Warranties...........................22 6.2.2 Documents............................................................................22 6.2.3 Purchase Price.......................................................................22 6.2.4 HSR..................................................................................22 6.2.5 No Legal Obstruction.................................................................22 ARTICLE 7 THE CLOSING.................................................................................23 7.1 The Closing...................................................................................23 7.2 Seller's Obligations at Closing...............................................................23 7.3 Buyer's Obligations at Closing................................................................24 ARTICLE 8 REPRESENTATIONS AND WARRANTIES..............................................................24 8.1 Representations and Warranties of Seller......................................................24 8.1.1 Authorization and Effect of Agreement................................................24 8.1.2 No Restrictions Against Sale of the Purchased Property...............................24 8.1.3 Consents and Approvals of Governmental Authorities...................................25 8.1.4 No Material Violations...............................................................25 8.1.5 Corporate Organization...............................................................25
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Page 8.1.6 Brokers..............................................................................25 8.1.7 Title to Owned Real Property.........................................................25 8.1.8 Real Property Leases.................................................................26 8.1.9 Tangible Assets......................................................................26 8.1.10 No Material Adverse Change...........................................................26 8.1.11 Material Contracts...................................................................26 8.1.12 Insurance............................................................................27 8.1.13 Taxes................................................................................28 8.1.14 No Material Claims or Suits..........................................................28 8.1.15 Tariffs; FCC Licenses................................................................28 8.1.16 Employee Matters.....................................................................29 8.1.17 Schedules of Telephone Plant.........................................................31 8.1.18 Schedule of Real Property Interests..................................................32 8.1.19 Compliance with Existing Environmental Requirements..................................32 8.1.20 Environmental Permits................................................................32 8.1.21 Financial Statements.................................................................32 8.1.22 Year 2000 Compliance.................................................................33 8.1.23 Native American and Federal Consents.................................................34 8.1.24 Loss of Major Customer...............................................................34 8.1.25 Records..............................................................................34 8.2 Representations and Warranties of Buyer.......................................................34 8.2.1 Corporate Organization...............................................................34 8.2.2 Authorization and Effect of Agreement................................................35 8.2.3 No Restrictions Against Purchase of the Purchased Properties.........................35 8.2.4 No Violation of Law..................................................................35 8.2.5 Financial Capacity...................................................................35 8.2.6 Brokers..............................................................................35 8.2.7 Consents and Approvals of Governmental Authority.....................................36
-iii- TABLE OF CONTENTS (continued)
Page ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS.............................................................36 9.1 Transition Services Agreement.................................................................36 9.2 Optional Services Agreement...................................................................36 9.3 Directory Publishing..........................................................................36 9.3.1 Assumption of Certain Directory Publishing Agreement Rights and Obligations..........36 9.3.2 Co-Bound Directories Acknowledgement.................................................37 9.3.3 Meeting to Discuss Directory Publication.............................................37 9.4 GTE Supply Relationship.......................................................................37 9.5 GTE Telecom Agreements.............................................................. 37 ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES.........................................................38 10.1 Intellectual Property.........................................................................38 10.1.1 No License...........................................................................38 10.1.2 Infringement.........................................................................38 10.1.3 Trademark Phaseout...................................................................38 10.1.4 Third Party Software.................................................................39 10.2 Effect of Due Diligence and Related Matters...................................................40 10.3 Confidentiality...............................................................................40 10.4 Further Assurances............................................................................40 10.5 Prorations....................................................................................41 10.6 Cost Studies/NECA Matters.....................................................................41 10.6.1 Prior to Closing.....................................................................41 10.6.2 From and After Closing...............................................................41 10.7 Customer Deposits.............................................................................42 10.8 Access to Books and Records...................................................................42 10.9 Purchase Price Allocation.....................................................................43 10.10 Owned Real Property Transfers.................................................................43 10.11 Transaction Taxes.............................................................................44 10.12 Bulk Sales Laws...............................................................................44
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Page 10.13 Prepaid Non-Regulated Maintenance Agreements..................................................44 10.14 Vehicle Registration..........................................................................45 10.15 Carrier Access Billing and Accounts Receivable Transition.....................................45 10.16 End-User Billing and Accounts Receivable Transition...........................................45 10.17 Tariff Changes Resulting from the ICC Merger Order..............................46 10.18 Evaluation and Repair of Certain Tangible Property ..............................46 ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS..............................................................47 11.1 Employment of Transferred Employees...........................................................47 11.1.1 Assumption of Collective Bargaining Agreement Obligations............................48 11.1.2 Assumption of Employment and Other Agreements........................................48 11.1.3 Recognition of Transferred Employee Service..........................................48 11.1.4 Assumption of Obligation to Pay Bonuses..............................................48 11.1.5 No Duplicate Benefits................................................................48 11.1.6 Affiliate Employees..................................................................48 11.2 Transferred Employee Benefit Matters..........................................................49 11.2.1 Defined Benefit Plans................................................................49 11.2.2 Savings Plans........................................................................55 11.2.3 Welfare Plans........................................................................57 11.3 Miscellaneous Benefits........................................................................60 11.3.1 Vacation.............................................................................60 11.3.2 Transferred Employee Statements......................................................61 11.4 Employee Rights...............................................................................61 11.5 WARN Act Requirements.........................................................................61 11.6 Indemnification...............................................................................61 11.6.1 Indemnification of Seller............................................................61 11.6.2 Indemnification of Buyer.............................................................62 ARTICLE 12 INDEMNIFICATION.............................................................................62 12.1 Survival of Representations...................................................................62
-v- TABLE OF CONTENTS (continued)
Page 12.2 Indemnification...............................................................................63 12.3 Limitations on Liability......................................................................64 12.4 Defense of Claims.............................................................................65 12.5 No Indemnifiable Claims Resulting From Governmental Authority Action..........................67 ARTICLE 13 TERMINATION.................................................................................67 13.1 Termination Rights............................................................................67 13.2 Goodfaith Performance.........................................................................68 13.3 Effect of Termination.........................................................................68 ARTICLE 14 MISCELLANEOUS...............................................................................69 14.1 Notices.......................................................................................69 14.2 Information Releases..........................................................................70 14.3 Expenses......................................................................................70 14.4 Successors and Assigns........................................................................70 14.5 Amendments....................................................................................70 14.6 Captions......................................................................................71 14.7 Entire Agreement..............................................................................71 14.8 Waiver........................................................................................71 14.9 Third Parties.................................................................................71 14.10 Counterparts..................................................................................71 14.11 Governing Law.................................................................................71 14.12 Further Assurances............................................................................72 14.13 Severability..................................................................................72 14.14 Representation by Counsel; Interpretation.....................................................72
-vi- INDEX OF SCHEDULES Schedule* Title 1.1-A Assigned Contracts 1.1-B Excluded Contracts 1.1-C Purchased Exchanges 1.1-D License Agreement 2.3(g) Other Excluded Property 4.4 FCC Consents / Waivers 5.2.1 Operation of the Business 5.2.2(c) Material Increase to Transferred Employee Benefits 5.2.2(d) Dispositions 6.1.1 Seller's Closing Certificate 6.2.1 Buyer's Closing Certificate 7.2(a) Bill of Sale and Assignment and Assumption Agreement 7.2(b) Legal Opinion of Seller's Counsel 7.2(g) Affidavit as to Status of Foreign Person 7.3(c) Legal Opinion of Buyer's Counsel 8.1.4 Violation of Law 8.1.7(a) Owned Real Property 8.1.7(b) Bondholders 8.1.8 Real Property Leases 8.1.9 Exceptions to Good Repair of Tangible Property and Exceptions to Title of Tangible Assets and Notices of Violations of Building / Zoning Ordinances 8.1.10 Material Adverse Changes 8.1.11(a-j) Material Contracts 8.1.13 Exceptions to Tax Return Filings 8.1.14 State and Federal Claims/Suits 8.1.15(a) Tariff Proceedings 8.1.15(b) FCC Licenses 8.1.16(a) Employee Matters - Seller Employee Benefit Plans 8.1.16(b) Employee Matters - Seller Material Liabilities under ERISA 8.1.16(c) Employee Matters - Seller ERISA Plans - Compliance 8.1.16(d) Employee Matters - Seller Multiemployer Plans 8.1.16(e) Employee Matters - Seller Union Representation 8.1.17 Telephone Plant 8.1.18 Real Property Interests List 8.1.19 Exceptions to Compliance with Existing Environmental Requirements 8.1.20 Environmental Permits 8.1.21(a-c) Financial Statements 8.1.23 Native American Authorizations 8.1.24 Loss of Major Customer 9.1 Transition Services Agreement 9.2 Optional Services Agreement 9.3.1 Directory Publishing Agreements 9.3.2 Co-Bound Directory Agreements 9.5 GTE Telecom Agreements 11.1.2 Employees and Employee Matters - Employment Agreement Obligation Exceptions 11.3.1 Employees and Employee Matters - Vacation * The Schedule numbers refer to the appropriate Section within the Agreement. -vii- ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 16th day of December, 1999, by and between Citizens Utilities Company, a Delaware corporation ("Buyer"), and GTE North Incorporated, a Wisconsin corporation and GTE South Incorporated, a Virginia corporation (collectively "Seller"). RECITALS WHEREAS, Seller is in the business of providing regulated local exchange telephone service in certain areas of the state of Illinois; and WHEREAS, Seller desires to sell, convey, assign, transfer and deliver to Buyer, and Buyer desires to purchase and accept from Seller, certain of its telephone properties and related assets used in the provision of such service, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS 1.1 Terms. For purposes of this Agreement and any amendment hereto, the following terms are defined as set out below or in the Section referenced below: "Accounts Receivable Settlement Statement" is defined in Section 10.16(b). "Accounts Payable" means accounts payable owed by Seller arising primarily from the operation of the Business. "Active Employees" is defined in Section 11.1. "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. "Allocation" is defined in Section 10.9. "Ancillary Documents" means the Transition Services Agreement, the Optional Services Agreement, the License Agreement, and the Bill of Sale and Assignment and Assumption Agreement. "Assigned Contracts" means Contracts to which Seller or any of its Affiliates is a party (i) which relate primarily to the operation of the Business, other than the Excluded Contracts, Real Property Interests, Real Property Leases and Third Party Intellectual Property Contracts, and (ii) any other contract to which Seller is a party and is listed on Schedule 1.1-A. -1- "Assigned Permits" means, to the extent assignable, all permits, licenses, franchises, approvals and authorizations of Seller or any of its Affiliates issued or granted by any Governmental Authority that relate primarily to the operation of the Business, other than the FCC Licenses and the Excluded Permits. "Assumed Liabilities" is defined in Section 2.4.1 "Automated Assets" is defined in Section 8.1.22(c). "Bargained Welfare Plans" is defined in Section 11.2.3(a). "BIA" is defined in Section 8.1.23. "Base Purchase Price" is defined in Section 3.1. "Bill of Sale and Assignment and Assumption Agreement" is defined in Section 7.2(a). "Bondholders" means the Persons listed on Schedule 8.1.7(b). "Business" means the business of providing in the geographic area comprising the Purchased Exchanges (i) local exchange, exchange access and intra-LATA toll telecommunications services to end users, (ii) exchange access telecommunications services to interexchange carriers and other local exchange carriers, (iii) retail sales of telephone equipment and products, and (iv) non-tariffed public communications (pay telephones), commercial telecommunications services facilities leasing and other non-regulated services and products. "Buyer Pension" is defined in Section 11.2.1(c)(iii)(B). "Buyer Pension Plan" and "Buyer Pension Plans" are defined in Section 11.2.1(b). "Buyer Savings Plan" and "Buyer Savings Plans" are defined in Section 11.2.2(b). "Buyer Welfare Plans" is defined in Section 11.2.3(a). "Buyer's Actuary" is defined in Section 11.2.1(d)(ii). "Buyer's Closing Certificate" is defined in Section 6.2.1. "Calendar-Related" is defined in Section 8.1.22(c). "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. -2- "Closing" is defined in Section 7.1. "Closing Date" is defined in Section 7.1. "Closing Date Amount" is defined in Section 3.2(b) "Closing Date Statement" is defined in Section 3.3 "Confidentiality Agreement" means the Confidentiality Agreement dated as of November 20, 1998, among Buyer, Seller and certain Affiliates of Seller. "Construction Advances" means advances collected by Seller or any Affiliate for the future performance of non-regulated construction in the Purchased Exchanges. "Contracts" means all contracts, leases, indentures, agreements, and other legally binding arrangements. "Customer Advances" means amounts arising from the operation of the Business that have been billed and collected by Seller as of the Closing Date but that are unearned because they relate to the provision of service after the Closing Date. "Customer Deposits" is defined in Section 10.7. "Date Data" is defined in Section 8.1.22(c). "Direct Claim" is defined in Section 12.4(b). "Due Diligence Documents" means those documents contained in the nine volumes of information delivered to Buyer in connection with its review of the Purchased Property. "Earned End-User Accounts Receivable" means accounts receivable arising primarily from the operation of the Business that have been earned by Seller's provision of service on or before the Closing Date excluding amounts billed through the carrier access billing system to interexchange carriers. "Earned End-User Accounts Receivable Amount" means the aggregate amount of all Earned Unbilled Accounts Receivable as of the Closing Date, less a discount for anticipated uncollectible Earned End-User Accounts Receivable in an amount equal to the Uncollectible Factor multiplied by Earned End-User Accounts Receivable as of the Closing Date. "Employment Agreements" is defined in Section 8.1.16(a). "Environmental Requirements" means all federal, state, interstate and local government or agency Laws relating to pollution or protection of human health and safety or the environment (including, without limitation, air, surface water, ground water, land surface and subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Regulated Materials; or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation or handling of Regulated Materials. -3- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Plans" is defined in Section 8.1.16(a). "Estimated Non-Regulated Construction Work in Process Amount" is defined in Section 3.2(a). "Estimated Regulatory Obligation Amount" is defined in Section 3.2(a). "Evaluation Material" is defined in the first paragraph of the Confidentiality Agreement. "Excluded Contracts" means (i) all billing and collection agreements, interconnection agreements, national account agreements, billing media agreements, vehicle leasing agreements, capital leases, Contracts between Seller and Affiliates of Seller, except to the extent expressly listed on Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B. "Excluded Marks" means all trademarks, applications for trademark registration, service marks, applications for service mark registration, trade names, domain names and related registrations owned by Seller or an Affiliate of Seller, or licensed to Seller or an Affiliate of Seller by any Person, and any derivations of the foregoing. "Excluded Permits" means the permits, licenses, franchises, approvals and authorizations of Seller or any Affiliates by Governmental Authorities that relate to the Excluded Property. "Excluded Property" is defined in Section 2.3. "Executive Officer" of an entity means (i) in the case of Seller, the regional president of the region that includes the Purchased Exchanges, the general manager of infrastructure provisioning for the Purchased Exchanges and the general manager of customer operations for the Purchased Exchanges, and (ii) the case of Buyer, the executive officer(s) in charge of the transactions contemplated by this Agreement. "Existing Environmental Requirements" means those applicable provisions of any Environmental Requirements that are both in effect and required to be met by Seller prior to the Closing Date. "Expiration Date" is defined in Section 12.1(a). "FCC" means the Federal Communications Commission. "FCC Consents" is defined in Section 4.4. -4- "FCC Licenses" means all licenses, certificates, permits or other authorizations granted to Seller or any Affiliates by the FCC that are used primarily in the operation of the Business. "Financial Statements" is defined in Section 8.1.21. "Final Order" shall mean action by any governmental or regulatory authority as to which (i) no request for stay by any Governmental Authority of the action is pending, no such stay is in effect, and if any deadline for any such request is designated by statute or regulation, such deadline is passed; (ii) no petition for rehearing or reconsideration of the action is pending before any Governmental Authority, and the time for filing any such petition has passed; (iii) the Governmental Authority does not have the action under reconsideration or its own motion and the time for such reconsideration has passed; and (iv) no appeal to a court, or request to stay by a court, of the Governmental Authority's action is pending or in effect and, if any deadline of filing any such appeal or request is designated by statute or rule, it has passed. "FRP" is defined in Section 11.2.3(f). "Future Capital Expenditure Obligations" is defined in Section 2.4.1(h). "Future Regulatory Obligations" is defined in Section 2.4.1(g). "GAAP" means United States generally accepted accounting principles. "GATT Grandfathered Participant" is defined in Section 11.2.1(c)(ii)(C). "Governmental Authority" means any court or any federal, state or foreign governmental, legislative or regulatory body, agency, department, authority or instrumentality. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "ICC" is defined in Section 4.1 "Indemnifiable Losses" is defined in Section 12.3(a). "Indemnification Payment" is defined in Section 12.3(a). "Indemnifying Party" is defined in Section 12.3(a). "Indemnitee" is defined in Section 12.3(a). "Intellectual Property" means all inventions (whether patentable or not and whether or not such inventions are described or claimed in any patent or patent application), designs (useful or ornamental), and works subject to copyright protection, invention disclosures, specifications, manuals, drawings, functional or system block diagrams, flow charts, circuit diagrams, design or user documentation, engineering notebooks, schematics, test programs, documented procedures, documented processes, documented flows, devices, software (in any form), or firmware, and all intellectual property rights therein or based thereon, including patents, patent applications (including continuations, continuations-in-part, divisions, reissues), reexamined patents and extensions thereof, copyrights (whether registered or unregistered), and trade secrets. -5- "Interim Capital Expenditure Obligations" is defined in Section 2.4.1(h). "IRC" means the Internal Revenue Code of 1986, as amended. "IRS" means the Internal Revenue Service. "Law" or "Laws" means any statute, rule, regulation, ordinance, judgment, order or decree of any Governmental Authority. "Leased Real Property" means the real property leased to Seller or its Affiliates under the Real Property Leases. "License Agreement" means the license agreement attached hereto as Schedule 1.1-D pursuant to which Seller grants to Buyer certain rights and licenses under Licensed Intellectual Property. "Licensed Intellectual Property" means Intellectual Property owned by Seller or its Affiliates, and Third Party Intellectual Property licensed to Seller or its Affiliates which Seller or its Affiliates can sublicense to Buyer without the payment of compensation or other consideration to any Person, and which Intellectual Property and Third Party Intellectual Property are required for the use or maintenance (to the extent not provided by the owner or licensor of the Third Party Intellectual Property) of or are included in or with the Purchased Property in the operation of the Business as of the Closing; provided that Licensed Intellectual Property shall at all times be Excluded Property. "Lien" means any lien, charge, pledge, option, mortgage, security interest or other encumbrance. "Material Adverse Effect" means a materially adverse effect on the Business or the Purchased Property, taken as a whole, other than effects relating to or arising from (i) the execution of this Agreement, (ii) the United States economy generally or the state of Illinois in particular, or (iii) events or circumstances that affect the Business in the same manner and to the same extent as other businesses in the industry generally. "Material and Supply Inventory" is defined in the FCC's Part 32 Uniform System of Accounts. "Material Contracts" is defined in Section 8.1.11. "Material Permits" is defined in Section 8.1.15(b). "Merger" means the proposed merger involving GTE Corporation and Bell Atlantic Corporation and their respective Subsidiaries. -6- "Native American Authorizations" is defined in Section 8.1.23(a). "Non-Regulated Construction Work in Process Amount" means the total amount expended but not yet billed by Seller for non-regulated construction work not completed prior to the Closing Date, minus any Construction Advances outstanding as of the Closing Date. The Non-Regulated Construction Work in Process Amount shall be billable by Buyer to third parties after the Closing Date under open customer orders or other agreements. "Non-Union Welfare Plans" is defined in Section 11.2.3(a). "Optional Services Agreement" is defined in Section 9.2. "Owned Real Property" means the real property owned in fee by Seller or its Affiliates and used primarily in the operation of the Business, including all land, buildings, structures, appurtenances and improvements located thereon. "PBGC" means the Pension Benefit Guaranty Corporation. "Pension Assets" is defined in Section 11.2.1(d)(i). "Periodic Taxes" is defined in Section 10.5. "Permitted Encumbrances" means (i) liens for current taxes and assessments not yet delinquent, or the amount or validity of which is being contested in good faith by appropriate proceedings during which collection or enforcement against the relevant property is stayed, (ii) standard utility easements, and covenants, conditions and restrictions of record that do not individually or in the aggregate materially interfere with the operation of the present Business on, or materially detract from the value of, the Owned Real Property affected thereby, (iii) mechanics', carriers', workers', repairers' and other statutory liens, (iv) existing zoning or similar laws or ordinances that do not interfere with the operation of the Business, (v) leases otherwise disclosed herein, and (vi) any other Liens and, in the case of Owned Real Property, any title defects or exceptions, that do not materially interfere with the operations of the Purchased Property in a manner consistent with the current use by Seller or that do not materially detract from the value of, or materially impair the marketability of, the Purchased Property affected. "Person" means an individual, corporation, partnership, trust, association, limited liability company or similar entity or organization. "Plans" is defined in Section 8.1.16(a). "Pole Attachment Agreement" is defined in Section 8.1.11(j). "Proration Periods" is defined in Section 10.5. "Purchase Price" is defined in Section 3.3(c). "Purchased Exchanges" means the telephone exchanges listed in Schedule 1.1-C and any cross-border community served from any such exchange. -7- "Purchased Property" is defined in Section 2.2. "Real Property Interests" means all easements, rights of way, licenses or other interests in real property of Seller or its Affiliates that are used primarily in the operation of the Business, other than Owned Real Property or Leased Real Property. "Real Property Leases" means the Leases set forth on Schedule 8.1.8. "Regulated Material" means (i) any "hazardous substance" as defined in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other pollutant, waste, contaminant, or other substance regulated under Environmental Requirements. "Regulatory Approvals" is defined in Section 4.1. "Regulatory Obligation Amount" is defined in Section 3.1. "Retained Books and Records" means, collectively, all corporate records and stock books of Seller and its Affiliates, the general ledger, all records required by Law to be retained by Seller and all books and records relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii) attorney work product, and (iv) the Retained Liabilities. "Retained Future Regulatory Obligations" is defined in Section 2.4.1(g). "Retained Liabilities" is defined in Section 2.4.2. "SEC Financial Statements" is defined in Section 5.5. "Seller Hourly Pension Plan" is defined in Section 11.2.1(a)(ii). "Seller Pension" is defined in Section 11.2.1(c)(iii)(B). "Seller Pension Plan" and "Seller Pension Plans" are defined in Section 11.2.1(a)(ii). "Seller Salaried Pension Plan" is defined in Section 11.2.1(a)(i). "Seller Savings Plans" are defined in Section 11.2.2(a). "Seller Welfare Plans" is defined in Section 11.2.3(a). "Seller's Actuary" is defined in Section 11.2.1(d)(ii). "Seller's Closing Certificate" is defined in Section 6.1.1. "Switch Software" shall mean software currently used by Seller to operate telecommunications switching equipment that is part of the Telephone Plant. "System Date" is defined in Section 8.1.22(c). -8- "Tax Returns" means a report, return or other information statement required to be supplied to or filed with a Governmental Authority with respect to Taxes. "Tax(es)" means any foreign, federal, state, county or local income, sales, use, transfer, excise, franchise, stamp duty, custom duty, real and personal property, gross receipt, capital stock, business and occupation, disability, employment, payroll, recording, ad valorem, unemployment compensation, profits, registration, social security, estimated, add-on, minimum, or withholding tax relating to the Business or the Purchased Exchanges and any interest and penalties and additions to such taxes (civil or criminal) related thereto or to the nonpayment thereof and related notarial fees. "Telephone Plant" means (i) Owned Real Property, (ii) Real Property Interests, and (iii) the machinery, equipment, inventory, vehicles and all other assets and properties used primarily in the operation of the Business, including all plant, systems, structures, construction work in progress, telephone cable (whether in service or under construction), microwave facilities (including frequency spectrum assignment), telephone line facilities, machinery, furniture, fixtures, tools, implements, conduits, stations, substations, equipment (including central office equipment, subscriber station equipment and other equipment in general), instruments and house wiring connections. Without limiting the generality of the foregoing, Telephone Plant includes the assets used primarily in the operation of the Business that would be properly included in the fixed assets referenced in Part 32 of the FCC Rules and Regulations (47 CFR, Part 32), as such accounts are reflected in Schedule 8.1.17. "Third Party Claim" is defined in Section 12.4(a). "Third Party Intellectual Property" means Intellectual Property owned by any Person, other than Seller, without regard as to whether Seller has any rights therein or the right to assign such rights to Buyer. "Third Party Intellectual Property Contracts" is defined in Section 10.1.4. "Total Service Pension" is defined in Section 11.2.1(c)(iii)(B). "Transaction Taxes" is defined in Section 10.11. "Transferred Books and Records" means all of Seller's or its Affiliates' customer or subscriber lists and records, accounts and billing records, plans, blueprints, specifications, drawings, surveys, engineering reports, personnel records of Transferred Employees (where applicable) and all other documents, computer data and records, in each case relating primarily to the operation of the Business, except for the Retained Books and Records. "Transferred Employees" is defined in Section 11.1. "Transition Services Agreement" is defined in Section 9.1. "Uncollectible Factor" is defined in Section 10.16(b). "Year 2000 Compliant" is defined in Section 8.1.22(c). -9- 1.2 Interpretation. (a) Unless the context otherwise requires, (i) all references to Sections, Articles or Schedules are to Sections, Articles or Schedules of or to this Agreement, (ii) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (iii) all references to the "knowledge" of Seller are deemed to refer to the actual knowledge of the Executive Officers of Seller, (iv) all references to the "knowledge" of Buyer or "knowledge" obtained by Buyer are deemed to refer to the actual knowledge of the Executive Officers of Buyer, except as otherwise provided herein, (v) the term "primarily" means primarily or exclusively, and (vi) the term "including" means including without limitation. (b) No provision of this Agreement will be interpreted in favor of or against either of the parties by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft of such provision or of this Agreement. ARTICLE 2 PURCHASE AND SALE OF ASSETS 2.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions of this Agreement, Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and accept from Seller, in each case effective as of the Closing, all of Seller's and each of its Affiliates' right, title and interest in and to the Purchased Property. 2.2 Purchased Property. The term "Purchased Property" means all the following business, properties, assets and rights of Seller and its Affiliates on the Closing Date, other than the Excluded Property: (i) Telephone Plant; (ii) Earned End-User Accounts Receivable; (iii) Material and Supply Inventories; (iv) Non-Regulated Construction Work in Process; (v) FCC Licenses and Assigned Permits; (vi) Assigned Contracts; (vii) Transferred Books and Records; (viii) Real Property Leases; and (ix) all other business, property, assets, work in process and rights of Seller on the Closing Date not described above that relate primarily to the Purchased Exchanges. 2.3 Excluded Property. For purposes of this Agreement, "Excluded Property" means the following: (a) Cash, cash equivalents and investments; -10- (b) All rights of Seller and its Affiliates under this Agreement, the Ancillary Documents and the certificates and other documents delivered to Seller by Buyer in connection with this Agreement; (c) All records prepared in connection with the sale of the Business, including bids received from third parties and analysis relating to the Business; (d) All rights related to the Retained Liabilities; (e) The Retained Books and Records; (f) Seller's and its Affiliates' interests in any business other than the Business, including the provision of wireless service (cellular and PCS), long distance and internet service or internet related services, air-to-ground communications (air phone service), and any Excluded Permits related thereto, and all assets of Seller and its Affiliates used in connection with any such business or related thereto, and all assets used by Seller and its Affiliates in rendering corporate services to Seller or the Business that are located outside the geographic area comprising the Purchased Exchanges; (g) Such other assets (i.e., encryption decoder devices, AWAS terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g); (h) The Excluded Contracts; (i) The Excluded Marks; (j) All Intellectual Property, including the Licensed Intellectual Property and Third Party Intellectual Property (except for such rights to possess and use Third Party Intellectual Property as may be assigned in accordance with Section 10.1.4); and (k) All of Seller's and its Affiliates' insurance proceeds arising in connection with the operation of the Business or the Purchased Property prior to the Closing. 2.4 Assumption of Liabilities. 2.4.1 Assumed Liabilities. Upon the terms and subject to the conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing Date, and agrees to pay, perform and discharge when due, all liabilities, responsibilities and obligations, beginning on the day following the Closing Date, relating to the Purchased Property other than the Retained Liabilities (subject to any different allocation of liability set forth in clauses (b), (c), (g) and (h) below) (the "Assumed Liabilities"), including the following: (a) Ordinary Course. All liabilities, responsibilities and obligations (including Taxes), arising out of or accruing or resulting from the use or ownership of the Purchased Property in the ordinary course after the Closing Date; (b) Employment Matters. All liabilities, responsibilities and obligations of Buyer as provided in Article 11 with respect to Transferred Employees; -11- (c) Assigned Contracts, Real Property Interests and Real Property Leases. All liabilities, responsibilities and obligations that arise in connection with the performance of the Assigned Contracts, Real Property Interests and the Real Property Leases, other than performance obligations of Seller that mature prior to the Closing Date; (d) Joint Construction Projects. All liabilities, responsibilities and obligations to third parties that relate to arrangements and commitments between Seller and a third party for the construction of mutual transmission facilities between various switching points included in the Purchased Exchanges; (e) Construction in Progress. All liabilities, responsibilities and obligations relating to post-Closing engineering and construction required to complete scheduled construction and other capital expenditure projects for the Purchased Exchanges; (f) Customer Deposits and Construction Advances. All liabilities, responsibilities and obligations relating to Customer Advances, Customer Deposits and Construction Advances; (g) Future Regulatory Obligations. All liabilities, responsibilities and obligations, other than Future Capital Expenditure Obligations, related to the Purchased Exchanges arising out of any rule, regulation, law, mandate, decision or order of the FCC or the ICC after the Closing Date regardless of whether the action taken by such Governmental Authority is or purports to be based on conduct or actions that occurred at any time prior to the Closing Date ("Future Regulatory Obligations"); provided that Buyer shall not be liable for any such Future Regulatory Obligation arising directly out of any intentional misconduct or material misstatement to the ICC by Seller that occurred prior to the Closing Date, except for such statements as may be based on reasonable interpretations of existing ICC regulations and current industry practice ("Retained Future Regulatory Obligations"); (h) Future Capital Expenditure Obligations. All liabilities, responsibilities and obligations related to the Purchased Exchanges arising out of any rule, regulation, law, mandate, decision or order of the FCC or the ICC (i) issued at any time and requiring any capital expenditure after the Closing Date, regardless of whether the action taken by such Governmental Authority is or purports to be based on conduct, facts or actions that occurred at any time prior to the Closing Date ("Future Capital Expenditure Obligations"); and (ii) issued after the date of this Agreement and requiring any capital expenditure after the date of this Agreement, regardless of whether the action taken by such Governmental Authority is or purports to be based on conduct, facts or actions that occurred at any time prior to the date of this Agreement ("Interim Capital Expenditure Obligations"); provided that (i) Seller shall retain liability for Interim Capital Expenditure Obligations incurred prior to Closing to the extent related to (A) FCC or ICC orders that impose capital expenditure obligations as a result of Seller's overearnings, (B) Seller's efforts to comply with FCC or ICC rules, regulations, laws, mandates, decisions or orders existing as of the date of this Agreement, or (C) capital expenditures already planned by Seller; and (ii) Seller shall retain liability for all other Interim Capital Expenditure Obligations to the extent Seller is fully reimbursed by Buyer at Closing for such obligations. Prior to the Closing Date, Seller shall notify Buyer of all potential Future or Interim Capital Expenditure Obligations within a reasonable time after publication of said obligations by a Governmental Authority; and -12- (i) Litigation and Claims. All liabilities and obligations arising out of (i) litigation and claims that arise out of an occurrence after the Closing Date, (ii) litigation and claims in respect of Future Regulatory Obligations (other than Retained Future Regulatory Obligations) regardless of when filed, and (iii) claims of a Governmental Authority arising from or related to a Future Regulatory Obligation (other than Retained Future Regulatory Obligations). Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed Liabilities" shall not include any liabilities, responsibilities or obligations expressly included in Retained Liabilities pursuant to Section 2.4.2. 2.4.2 Retained Liabilities. Seller shall retain and shall pay, perform and discharge when due, the following liabilities, responsibilities and obligations of Seller (the "Retained Liabilities"): (a) Subject to Section 10.5, all trade payables and other accrued payment obligations of Seller as of the Closing Date; (b) All long-term debt of Seller (including indebtedness to the Bondholders) and debt of Seller owed to any one or more of its Affiliates; (c) Subject to Section 10.5, all Taxes relating to the operation of the Business on or before the Closing Date or the use, ownership or operation of the Purchased Property on or before the Closing Date; (d) Except to the extent otherwise provided in Article 11, all liabilities and obligations arising on or before the Closing Date with respect to the Transferred Employees, including (i) all liabilities responsibilities and obligations arising on or before the Closing Date relating to collective bargaining agreements or other union contracts, and (ii) any such liabilities or obligations that arise after the Closing Date to the extent that such liabilities and obligations relate to facts, circumstances or conditions arising or occurring on or before the Closing Date, but excluding any Future Regulatory Obligations with respect to the Transferred Employees; (e) All liabilities, responsibilities and obligations arising out of litigation and claims that arise out of an occurrence prior to the Closing Date other than litigation and claims in respect of Future Regulatory Obligations (other than Retained Future Regulatory Obligations); (f) Any Retained Future Regulatory Obligations; and (g) All liabilities, responsibilities and obligations with respect to the Excluded Property and the Excluded Contracts. 2.5 No Assignment Without Consent. Notwithstanding anything to the contrary contained in this Agreement, to the extent that the sale, conveyance, transfer, assignment or delivery or attempted sale, conveyance, transfer, -13- assignment or delivery to Buyer of any Purchased Property (including any Contract) is prohibited by any applicable Law or would require any governmental or third-party authorizations, approvals, consents or waivers and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, this Agreement shall not constitute a sale, conveyance, transfer, assignment or delivery, or an attempted sale, conveyance, transfer, assignment or delivery thereof, if any of the foregoing would constitute a breach of applicable Law or the rights of any third party; provided, however, that, except to the extent that a condition to Closing set forth in Article 6 relating to the foregoing shall not be satisfied, the Closing shall occur notwithstanding the foregoing without any adjustment to the Purchase Price on account of such required authorization. Following the Closing, the parties shall use their commercially reasonable efforts, and shall cooperate with each other, to obtain promptly such authorizations, approvals, consents or waivers; provided, however, that neither Seller nor Buyer nor any of their respective Affiliates shall be required to pay any consideration therefor, other than filing, recordation or similar fees payable to any Governmental Authority, which fees shall be shared equally by Seller and Buyer. Pending or in the absence of such authorization, approval, consent or waiver, the parties shall cooperate with each other in any reasonable and lawful arrangements to provide to Buyer the benefits and liabilities of use of such Purchased Property, including, if permitted by the terms of any Real Property Lease or applicable Material Contract, through a sublease or subcontract in accordance with Section 4.3. If such authorization, approval, consent or waiver for the sale, conveyance, transfer, assignment or delivery of any such Purchased Property is obtained, Seller shall promptly convey, transfer, assign and deliver, or cause to be conveyed, transferred, assigned and delivered, such Purchased Property to Buyer. ARTICLE 3 PURCHASE PRICE 3.1 Purchase Price. The purchase price for the Purchased Property shall be the sum of (i) Three Hundred and Three Million dollars ($303,000,000) (the "Base Purchase Price"), (ii) amounts expended by Seller to comply with Interim Capital Expenditure Obligations (the "Regulatory Obligation Amount"), and (iii) the Non-Regulated Construction Work in Process Amount. Payments from Buyer to Seller for Earned End-User Accounts Receivable and from Seller to Buyer for Customer Advances and Customer Deposits will occur subsequent to Closing in accordance with Article 10. 3.2 Closing Date Estimate. (a) Not less than three (3) business days prior to the Closing Date, Seller will give to Buyer a notice, setting forth Seller's good faith estimate as of the Closing Date of (i) the Regulatory Obligation Amount (the "Estimated Regulatory Obligation Amount") and (ii) the Non-Regulated Construction Work in Process Amount (the "Estimated Non-Regulated Construction Work in Process Amount"). (b) On the Closing Date, Buyer shall pay to Seller the sum of (i) the Base Purchase Price, (ii) the Estimated Regulatory Obligation Amount, and (iii) the Estimated Non-Regulated Construction Work in Process Amount, (the "Closing Date Amount"). The Closing Date Amount shall be paid by delivery on the Closing Date of immediately available funds in U.S. dollars by wire transfer to an account that Seller shall designate to Buyer at least two (2) business days prior to the Closing Date. -14- 3.3 Closing Date Statement. (a) Within sixty (60) days after Closing Date, Seller shall prepare and deliver to Buyer a written statement of the Base Purchase Price, Regulatory Obligation Amount and the Non-Regulated Construction Work in Process Amount ("Closing Date Statement"). (b) Within fifteen (15) days after receipt of the Closing Date Statement, Buyer shall, in a written notice to Seller, either accept the Closing Date Statement or describe in reasonable detail any proposed adjustments to the Closing Date Statement and the reasons therefore. If Seller shall not have received a notice of proposed adjustments within such fifteen (15) day period, Buyer will be deemed irrevocably to have accepted such Closing Date Statement. (c) Upon the acceptance of any Closing Date Statement by Buyer, the parties shall, based thereupon, calculate the amount equal to the sum of the Base Purchase Price, Regulatory Obligation Amount and Non-Regulated Construction Work in Process Amount (collectively, the "Purchase Price"). If the Purchase Price as finally determined above is greater than the Closing Date Amount, Buyer shall promptly, but no later than three (3) business days after such acceptance, pay to Seller the amount of such difference. If the Purchase Price as determined above is less than the Closing Date Amount, Seller shall promptly, but no later than three (3) business days after such acceptance, pay to Buyer the amount of such difference. (d) Seller and Buyer shall negotiate in good faith to resolve any disputes over any proposed adjustments to the Closing Date Statement, provided that if any such dispute is not resolved within thirty (30) days following Seller's receipt of the proposed adjustments, Buyer and Seller jointly shall select an independent public accounting firm that is nationally recognized in the United States to resolve such disputes in accordance with the standards set forth in this Section 3.3, which resolution shall be final and binding. The fees and expenses of such accounting firm shall be shared by Buyer and Seller in inverse proportion to the relative amounts of the disputed amount determined to be for the account of Buyer and Seller, respectively. (e) If Buyer disputes any portion of the Closing Date Statement, the parties shall calculate the portion of the Closing Statement that is not the subject of any dispute or proposed adjustment. If the undisputed portion of the Closing Statement (A) is greater than the respective estimated amounts paid on the Closing Date, Buyer shall promptly pay Seller the amount of such difference, or (B) is less than the respective estimated amounts paid on the Closing Date, Seller shall promptly pay Buyer the amount of such difference. Payments with respect to any undisputed portions of these adjustments shall be made no later than three (3) business days after delivery of notice of the proposed adjustments. Upon resolution of any dispute over any proposed adjustments as described above in Section 3.3(d), a party which is determined to owe the other party an amount shall pay that amount promptly, but no later than three (3) business days after resolution. -15- (f) Any amount paid pursuant to this Section 3.3 after the Closing Date shall bear interest from the Closing Date through but excluding the date of payment, at a rate of eight percent (8%) per annum. Such interest shall accrue daily on the basis of a year of three hundred sixty-five (365) days and the actual number of days for which due and shall be payable together with the amount payable pursuant to this Section 3.3. All amounts payable pursuant to this Section 3.3 shall be paid by delivery of immediately available funds in U.S. dollars by wire transfer to, in the case of amounts payable by Buyer, the account identified by Seller as described in 3.2 above or to an alternate account that Seller may designate on the Closing Date Statement and, in the case of amounts payable by Seller, to such account of Buyer as Buyer shall designate in writing to Seller. ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS 4.1 State Regulatory Approval. Promptly after the date of this Agreement, Buyer and Seller shall file the appropriate applications and notices with the Illinois Commerce Commission (collectively, the "ICC"), seeking orders permitting the transfer of service in the Purchased Exchanges to Buyer (collectively, the "Regulatory Approvals"). Buyer will be responsible for establishing the tariff for its post-Closing operations in the Purchased Exchanges. Each party agrees to use its commercially reasonable efforts to obtain the Regulatory Approvals and the parties agree to cooperate fully with each other and with the applicable regulatory agency to obtain the Regulatory Approvals at the earliest practicable date. 4.2 Debtholder Consents. Seller shall use its commercially reasonable efforts to obtain from its Bondholders the termination or release, at Closing, of all security agreements, mortgages and financing statements relating to the Purchased Property (such termination or release being hereinafter referred to as the "Debtholder Consents"). 4.3 Landlord and Other Consents. Promptly after the date hereof, the parties shall use their commercially reasonable efforts to mutually seek the consent of (i) the lessor to any Leased Real Property that requires consent as a condition to an assignment of the lease (which consents are identified in Schedule 8.1.8) and (ii) the applicable third party with respect to certain Material Contracts that require consent as a condition to assignment of such Material Contract (which consents are identified on Schedule 8.1.11). If a lessor refuses to consent to such an assignment, and if the applicable lease or Material Contract permits a sublease or subcontract without the consent of the lessor or other third party, the parties hereto shall, effective as of the Closing, enter into a sublease or subcontract upon terms and conditions as similar and comparable to an assignment of the lease or Material Contract as is reasonably feasible. 4.4 FCC Consents. Promptly after the date of this Agreement, the parties shall use their commercially reasonable efforts to obtain (i) the FCC's consent to the transfer of the FCC Licenses from Seller to Buyer, and (ii) the FCC waivers set forth on Schedule 4.4 (all such consents or waivers are collectively referred to as the "FCC Consents"). 4.5 HSR Act Review. Within thirty (30) days after the date hereof, or such later date as the parties may mutually agree, the parties will make such filings as may be required by the HSR Act with respect to the transactions -16- contemplated by this Agreement. Thereafter, the parties will file as promptly as practicable all reports or other documents required or requested by the U.S. Federal Trade Commission or the U.S. Department of Justice pursuant to the HSR Act or otherwise and will comply promptly with any requests by the Federal Trade Commission or the U.S. Justice Department for additional information concerning such transactions, so that the waiting period specified in the HSR Act will expire as soon as reasonably possible after the execution and delivery of this Agreement. Without limiting the foregoing, Seller and Buyer agree to use their commercially reasonable efforts to cooperate and oppose any preliminary injunction sought by any Governmental Authority preventing the consummation of the transactions contemplated by this Agreement. Buyer agrees to pay all application fees required in connection with any filings under the HSR Act. Seller and Buyer shall cause their respective counsel to furnish each other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions under the provisions of the HSR Act. Seller and Buyer will cause their respective counsel to supply to each other copies of all correspondence, filings or written communications by such party or its Affiliates with any Governmental Authority or staff members thereof, with respect to the transactions contemplated by this Agreement and any related or contemplated transactions, except for documents filed pursuant to Item 4(c) of the Hart-Scott-Rodino Notification and Report Form or communications regarding the same documents or information submitted in response to any request for additional information or documents pursuant to the HSR Act which reveal Seller's or Buyer's negotiating objectives or strategies or purchase price expectations. 4.6 GTE/Bell Atlantic Merger. Notwithstanding anything else contained in this Agreement, but without modification of the rights of Buyer under Sections 6.1, 11.6.2, 12.2(a) or 13.1, Seller shall not be obligated to take any action that would violate the terms of its agreements regarding the Merger, or that would interfere with, delay or prevent the consummation of the Merger. In the event that the Closing does not occur as a direct result of the Merger, and not through any fault of Buyer, Seller's liability to Buyer under this Agreement shall be limited to the amount of Buyer's reasonable out-of-pocket expenses incurred in connection with this Agreement. ARTICLE 5 PRE-CLOSING COVENANTS 5.1 Investigation by Buyer. Prior to the Closing, upon reasonable notice from Buyer to Seller given in accordance with this Agreement and subject to approval by Seller's appointed representative, Seller will afford to the authorized representatives of Buyer reasonable access during normal business hours to the Transferred Books and Records, the Owned Real Property the Leased Real Property and the other Purchased Property so as to afford Buyer the opportunity to make such review, examination and investigation of the Business and the Purchased Property as Buyer may reasonably request; provided, however, that no environmental sampling or other testing shall be performed without Seller's prior written consent, which consent may be given or withheld in Seller's sole discretion. Buyer will not contact any employee, customer or supplier of Seller with respect to this Agreement, the matters involved herein or the Purchased Property without the prior written consent of Seller. Nothing -17- herein will obligate Seller to take actions that would unreasonably disrupt the normal course of the business of Seller or violate the terms of any applicable Law or any Contract to which Seller or any of its Affiliates is a party or to which any of its assets is subject. Any information or documentation provided to Buyer or acquired by Buyer during this investigation shall be deemed "Evaluation Material" as that term is defined in the Confidentiality Agreement and shall be subject in all cases to the terms of the Confidentiality Agreement. 5.2 Operation of the Business in the Ordinary Course. 5.2.1 Preservation of Business. Except as contemplated on Schedule 5.2.1 or as otherwise consented to by Buyer prior to the Closing, from the date of this Agreement until the Closing Seller shall: (a) Conduct the Business in the ordinary course consistent with past practice and shall keep available to the Business its services and the services of its Affiliates to the same extent generally available on the date hereof; (b) Operate the Business in substantially the same manner as it is presently being conducted, and, with respect to the Business, refrain from entering into any Contract that would be a Material Contract other than in the ordinary course of business; (c) Not institute any proceeding with respect to, or otherwise change, amend or supplement any of its tariffs or make any other filings with the ICC except in the ordinary course of business, and except as disclosed on Schedule 8.1.15(a); (d) Maintain the Purchased Property in good repair, order and condition, reasonable wear and use excepted, and maintain the Materials and Supply Inventory in the ordinary course of business consistent with past practice; (e) Maintain insurance with respect to the Purchased Property consistent with past practice; (f) Make capital expenditures sufficient to support normal maintenance and customer growth in the Purchased Exchanges in a manner consistent with established regulatory performance objectives, which expenditures from January 1, 1999 through the Closing Date shall not be less than $6,000,000 plus $500,000 per month for each full month of the year 2000 which has elapsed prior to the Closing Date; and (g) Maintain the books and records of the Business substantially in accordance with prior practice, except as changes are mandated by Governmental Authorities or required by GAAP. 5.2.2 No Material Changes. Except as contemplated by this Agreement or as otherwise consented to by Buyer prior to the Closing, from the date of this Agreement until the Closing, Seller will not: (a) Make any material change in the general nature of the Business; -18- (b) Sell, lease or dispose of, or make any Contract for the sale, lease or disposition of any Purchased Property, other than in the ordinary course of business; (c) Increase the benefit provided under any plans concerning employee benefits or increase the general rates of compensation of its Transferred Employees, except (i) as required by Law, (ii) pursuant to any Contract to which Seller is a party existing on the date hereof and listed on Schedule 5.2.2(c), (iii) increases in base pay in the ordinary course of business of Seller and in amounts consistent with the recent past practices of Seller, or (iv) as listed or described on Schedule 5.2.2(c); (d) (i) Materially amend, modify or terminate any Material Contract or permit any of the foregoing to occur other than in the ordinary course of business; or (ii) sell, transfer or otherwise dispose of any Purchased Property other than in the ordinary course of business or as listed or described on Schedule 5.2.2(d), or encumber any Purchased Property, except for Permitted Encumbrances; or (e) Enter into any new written employment agreement, or union agreement with, or commitment to, the Transferred Employees (including any new commitment to pay retirement or other benefits or other amendments to Seller's retirement plans), provided that Seller may enter into new union agreements to the extent the new union agreements succeed any union agreement that expires prior to the Closing. Prior to finalizing any such new union agreement, Seller shall advise Buyer of its material terms and following the execution of any such agreement, Seller shall deliver a copy to Buyer. 5.3 Satisfaction of Conditions. Without limiting the generality or effect of any provision of Article 6, the parties will use their commercially reasonable efforts to satisfy promptly all the conditions required to be satisfied prior to the Closing. 5.4 Approvals. (a) Between the date of this Agreement and the Closing Date, Buyer and Seller will (i) cooperate with one another and take all reasonable steps to obtain, as promptly as practicable, all consents, approvals, authorizations, waivers and permits of any Governmental Authorities required of either party to consummate the transactions contemplated by this Agreement and (ii) provide such other information and communications to any Governmental Authority as may be reasonably requested. (b) To the extent that any consents, approvals, authorization or waiver of a third party with respect to any (i) Assigned Contract, (ii) Assigned Permit or (iii) any Pole Attachment Agreement, government grant or railroad crossing agreement listed on Schedule 8.1.18, is required in connection with the transactions contemplated by this Agreement, Seller shall use its commercially reasonable efforts to obtain such authorization, consent, approval or waiver prior to the Closing Date. 5.5 Audit or Review of Financial Statements. To the extent Buyer requires an additional audit or review of financial statements with respect to the Business in order to comply with the reporting requirements of the Securities and Exchange Commission under Regulations S-K and S-X, Seller will -19- cooperate with the independent auditors chosen by Buyer to audit or review the Financial Statements delivered by Buyer in accordance with Section 8.1.21 and such other financial statements as may be required by Buyer to comply with Regulations S-K and S-X (collectively, the "SEC Financial Statements"). Seller's cooperation will include such access to workpapers and other supporting documents used in the preparation of the SEC Financial Statements and delivery of one or more representation letters from Seller to such auditors as may be reasonably required by such auditors to perform an audit in accordance with generally accepted auditing standards or a review in accordance with AICPA standards and to render an opinion acceptable to the SEC with respect to the audit or review of the SEC Financial Statements, it being understood that such representation letters shall acknowledge (i) Seller's extensive use of estimates and allocations in the preparation of the SEC Financial Statements, and (ii) Seller's belief that the SEC Financial Statements represent the financial condition and results of operations of the Business, in accordance with GAAP, and that such estimates and allocations were made on a reasonable basis and in accordance with GAAP. However, Buyer acknowledges that because the Business represents only a portion of Seller, Buyer is not acquiring significant support elements located outside the Purchased Exchanges, and Buyer will operate under new tariffs, carrier contracts and other conditions that will significantly impact the future revenues of the Business, the Financial Statements may not be representative of the financial performance of the Business during future periods. Seller will bear the cost of the preparation of its financial statements, including the SEC Financial Statements. Buyer will bear the cost of the preparation of any other financial statements that it will be required to file with the SEC, as well as the cost of the audit or review of the SEC Financial Statements. Buyer acknowledges that the SEC Financial Statements and any supporting documentation have been made available as an indication of the historical financial performance and condition of the Business. Except to the extent that the SEC Financial Statements reflect intentional misrepresentation or fraud, Buyer agrees not to make any claim related to the performance of the Business after the date of the SEC Financial Statements on the basis of a comparison to the SEC Financial Statements. 5.6 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that Seller's transfer of the Purchased Property may, at Seller's election, be accomplished in a manner enabling such transfer to qualify as part of a like-kind exchange of property covered by Section 1031 of the IRC. If Seller so elects, Buyer shall cooperate with Seller (but without being required to incur any out-of-pocket costs in the course thereof) in connection with Seller's efforts to effect such like-kind exchange, which cooperation shall include, without limitation, taking such actions as Seller requests in order to enable Seller to qualify such transfer as part of a like-kind exchange of property covered by Section 1031 of the IRC (including any actions required to facilitate the use of a "qualified intermediary" within the meaning of the United States Treasury Regulations), and Buyer agrees that Seller may assign all or part of its rights (but no obligations) under this Agreement to a person or entity acting as a qualified intermediary to qualify the transfer of the Purchased Property as part of a like-kind exchange of property covered by Section 1031 of the IRC. Buyer and Seller agree in good faith to use reasonable efforts to coordinate the transactions contemplated by this Agreement with any other transactions engaged in by either Buyer or Seller; provided that such efforts are not required to include an unreasonable delay in the consummation of the transactions contemplated by this Agreement. -20- 5.7 Interconnection Agreements. Seller shall furnish to Buyer such necessary information as Buyer may reasonably request in connection with Buyer's replacement of the interconnection agreements relating to the Purchased Exchanges, including supplying to Buyer copies of such interconnection agreements to the extent permissible. 5.8 Leased Vehicles; Capital Leases. Seller or its Affiliates, as applicable, will pay the remaining balances on any vehicle leases or any capital leases relating to assets included in the Purchased Property and at Closing will deliver to Buyer title to such vehicles and assets, free and clear of all Liens. 5.9 Delivery of Interim Information. From the date of this Agreement until the Closing, Seller shall furnish Buyer monthly reports concerning the operating performance of the Business. Such reports shall contain such data as are typically reported to GTE management with respect to the Purchased Exchanges, including access line counts and service measures. Seller shall provide Buyer reasonable access to Seller's management in order to discuss such data. In the event of any significant deterioration in operating performance, Seller shall consult with Buyer concerning its response. All information provided in accordance with this Section 5.9 shall be subject to the Confidentiality Agreement and to compliance with applicable antitrust Laws. ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING 6.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer to consummate the Closing shall be subject to the satisfaction or waiver by Buyer, at or prior to the Closing, of each of the following conditions, any one or more of which may be waived at the option of Buyer: 6.1.1 No Misrepresentation or Breach of Covenants and Warranties. Seller shall have complied in all material respects with its covenants to be performed in whole or in part prior to the Closing, and the representations and warranties of Seller in Section 8.1 shall be true and correct as of the Closing, except for (i) such representations or warranties that are made expressly as of an earlier date, which shall have been true and correct as of such date except as would not have a Material Adverse Effect, and, (ii) to the extent that any breach of such representations and warranties has not, individually or in the aggregate, had a Material Adverse Effect; and Seller shall have delivered to Buyer a certificate ("Seller's Closing Certificate") in the form attached as Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of Seller, certifying each of the foregoing, or specifying those respects in which such covenants have not been performed or such representations and warranties are not true and correct. 6.1.2 Documents. Seller shall have delivered to Buyer all documents required by Section 7.2. 6.1.3 HSR. All required waiting periods under the HSR Act shall have expired or been terminated. -21- 6.1.4 No Legal Obstruction. Each of the required Debtholder Consents shall have been obtained, and each of the required Regulatory Approvals and FCC Consents shall have been obtained, free of any special term, condition, restriction, imposed liability or other provision that is reasonably likely to have a Material Adverse Effect, and the FCC and ICC shall not otherwise have taken any action with respect to the Purchased Property that is reasonably likely to have a Material Adverse Effect. For purposes of this Section 6.1.4, any tariff that is substantially similar in all material respects to the existing tariff with respect to the applicable Purchased Exchange shall be deemed not to have a Material Adverse Effect. For purposes of this Agreement, all such approvals and consents shall be deemed to have been obtained upon the granting of a Final Order. In addition, there shall not have been entered a preliminary or permanent injunction, temporary restraining order or other judicial or administrative order or decree in any competent jurisdiction, the effect of which prohibits the Closing. 6.1.5 No Material Adverse Effect. There shall not have occurred any event or condition which individually or in the aggregate has resulted in a Material Adverse Effect. 6.2 Conditions Precedent to Obligations of Seller. The obligations of Seller to consummate the Closing shall be subject to the satisfaction or waiver by Seller, at or prior to the Closing, of each of the following conditions: 6.2.1 No Misrepresentation or Breach of Covenants and Warranties. Buyer shall have complied in all material respects with its covenants to be performed in whole or in part prior to the Closing, and the representations and warranties of Buyer in Section 8.2 shall be true and correct in all material respects as of the Closing, except (i) for such representations or warranties made expressly as of and only as of an earlier date, which shall be true and correct as of such date except as would not have a Material Adverse Effect, and (ii) to the extent that any breach of such representations and warranties has not, individually or in the aggregate, had a Material Adverse Effect; and Buyer shall have delivered to Seller a certificate ("Buyer's Closing Certificate") in the form attached as Schedule 6.2.1, dated the Closing Date and signed by an Executive Officer of Buyer, certifying each of the foregoing or specifying those respects in which such covenants have not been performed or such representations and warranties are not true and correct. 6.2.2 Documents. Buyer shall have delivered to Seller all documents required by Section 7.3. 6.2.3 Purchase Price. Buyer shall have delivered to Seller, in the manner specified in Section 3.1, the Closing Date Amount. 6.2.4 HSR. All required waiting periods under the HSR Act shall have expired or been terminated. 6.2.5 No Legal Obstruction. Each of the required Debtholder Consents shall have been obtained, and each of the required Regulatory Approvals and FCC Consents shall have been obtained free of any special terms, conditions or restrictions that are materially adverse to Seller based upon good faith business concerns that are not commercially unreasonable (other than any such approvals or consents which, if not obtained, would not have a Material Adverse -22- Effect). For purposes of this Agreement, all such approvals and consents shall be deemed to have been obtained upon the granting of a Final Order. In addition, there shall not have been entered a preliminary or permanent injunction, temporary restraining order or other judicial or administrative order or decree in any jurisdiction, the effect of which prohibits the Closing. ARTICLE 7 THE CLOSING 7.1 The Closing. Subject to the terms and conditions of this Agreement, the closing of the purchase and sale of the Purchased Property and the assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M. local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving, Texas 75038, on the date agreed upon by the parties, provided such date shall be (i) the last business day of the month, and (ii) at least five (5) business days, but not more than ninety (90) days, after the date that all required Regulatory Approvals, Debtholder Consents and FCC Consents have been obtained, or at such other time and place as the parties may agree (the "Closing Date"). Such Closing shall be deemed to have occurred as of 11:59 p.m., local time, on the Closing Date. 7.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver to Buyer the following documents: (a) (i) Bill of Sale and Assignment and Assumption Agreement, (ii) subject to Permitted Encumbrances (except as provided in Section 10.10), special warranty deeds or their equivalent in respect of the Owned Real Property and assignments of Real Property Leases to the extent any required consents have been obtained pursuant to Section 4.3, and (iii) subject to Section 2.5, assignments of the Assigned Contracts, the Real Property Interests and the Assigned Permits. For purposes of this Agreement, the term "Bill of Sale and Assignment and Assumption Agreement" means the form attached hereto as Schedule 7.2(a) executed by Seller; (b) A legal opinion from William Mundy, general counsel for GTE Network Services, as counsel for Seller, dated as of the Closing Date and in the form of Schedule 7.2(b); (c) Seller's Closing Certificate; (d) Instruments of assignment or, to the extent set forth in Section 4.3, subleases for the Leased Real Property; (e) Mortgage satisfactions, UCC Form 3 Termination Statements and other instruments necessary to remove, release and terminate all security interests held by the Bondholders on the Purchased Property; (f) All of the documents and papers required of Seller as conditions to Closing pursuant to Section 6.1, including the Regulatory Approvals, Debtholder Consents and FCC Consents; -23- (g) A certificate substantially in the form of Schedule 7.2(g) certifying that Seller is not a "foreign person" within the meaning of Section 1445(b)(2) of the IRC; (h) The License Agreement; and (i) Such other documents and instruments as may be reasonably necessary to effect the transactions contemplated by this Agreement. 7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver to Seller the following: (a) The Closing Date Amount in the manner specified in Section 3.2.(b); (b) The Bill of Sale, Assignment and Assumption Agreement, executed by Buyer; (c) A legal opinion from L. Russell Mitten II, Vice President and General Counsel of Buyer dated as of the Closing Date and in the form of Schedule 7.3(c); (d) Buyer's Closing Certificate; (e) All other documents and papers required of Buyer as conditions of Closing pursuant to Section 6.2, including the Regulatory Approvals; and (f) Such other documents and instruments as may be reasonably necessary to effect the transactions contemplated by this Agreement. ARTICLE 8 REPRESENTATIONS AND WARRANTIES 8.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer as follows: 8.1.1 Authorization and Effect of Agreement. Seller has the requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform its obligations hereunder and thereunder. The execution and delivery by Seller of this Agreement and the Ancillary Agreements and the fulfillment of its obligations under this Agreement and the Ancillary Agreements have been duly authorized by all necessary corporate action on the part of Seller. This Agreement and the Ancillary Agreements have been duly executed and delivered by Seller and, assuming the due execution and delivery of this Agreement and the Ancillary Agreements by Buyer, constitute valid and binding obligations of Seller enforceable in accordance with their terms subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and subject to the exercise of judicial discretion in accordance with principles of equity. -24- 8.1.2 No Restrictions Against Sale of the Purchased Property. The execution and delivery of this Agreement and the Ancillary Agreements by Seller does not, and the fulfillment by Seller of its obligations under this Agreement and the Ancillary Agreements will not (i) conflict with or violate any provision of its certificate of incorporation or bylaws, (ii) subject to obtaining the approvals and or consents referred to in Section 2.5, Article 4 and Schedule 8.1.11(a-j), conflict with, violate or result in the breach of any provision of any Material Contract, or (iii) result in the creation of any Lien (other than Permitted Encumbrances) upon any of the Purchased Property under (a) any Material Contract or (b) any Law applicable to any of the Purchased Property, except in the case of clauses (ii) or (iii) for any such conflict, violation, breach or Lien that would not have a Material Adverse Effect. 8.1.3 Consents and Approvals of Governmental Authorities. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to Seller or in connection with the execution and delivery of this Agreement by Seller or the fulfillment by Seller of its obligations under this Agreement, except (i) FCC Consents and HSR Act clearance, (ii) the Regulatory Approvals, and (iii) any consent approval, order or authorization or registration declaration or filing, which if not obtained or made would not have a Material Adverse Effect. 8.1.4 No Material Violations. Except as indicated in Schedule 8.1.4 or as would not reasonably be expected to have a Material Adverse Effect, (a) the execution and delivery of this Agreement and the Ancillary Agreements and the fulfillment by Seller of its obligations under this Agreement and the Ancillary Agreements will not violate any applicable Law, and (b) Seller is not in violation of any Law relating to or affecting the operation, conduct or ownership of the Business or the Purchased Property. 8.1.5 Corporate Organization. Seller is composed of two corporations duly organized, validly existing and in good standing under the laws of the state of Wisconsin and Virginia, and are duly qualified to conduct business in those states respectively. Seller has full power and authority to own its properties and to carry on the Business as it is now being conducted and to own, or hold under lease the Purchased Property. Seller holds valid permits, licenses, franchises, approvals and authorizations issued or granted by any Governmental Authority and adequate for the operation of the Business as currently conducted, except to the extent absence of any such permit, license, franchise, approval or authorization would not have an Material Adverse Effect. 8.1.6 Brokers. Seller has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement in such a manner as to give rise to a valid claim against Buyer for any broker's or finder's fees or similar fees or expenses. 8.1.7 Title to Owned Real Property. Seller has good fee simple title to all of the Owned Real Property, free and clear of any Lien other than Permitted Encumbrances and Liens of the Bondholders identified on Schedule 8.1.7(b). As of the date hereof, the address and a general description of each item of Owned Real Property are set forth on Schedule 8.1.7(a). Seller represents that the only creditors that have a Lien (other than any Permitted Encumbrances) on any of the Owned Real Property are the Bondholders identified on Schedule 8.1.7(b). -25- 8.1.8 Real Property Leases. As of the date hereof, set forth on Schedule 8.1.8 is a list of the Real Property Leases. Each of the leases for the Leased Real Property is enforceable in accordance with its terms, subject to bankruptcy, insolvency and other similar laws affecting the rights of creditors generally and subject to the exercise of judicial discretion in accordance with the principles of equity, and except as otherwise disclosed in Schedule 8.1.8, there is not under any lease any material default or a material breach of covenant by Seller. 8.1.9 Tangible Assets. Except as set forth on Schedule 8.1.9, all of the tangible Purchased Property is in substantially good operating condition and repair, normal wear and tear excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement, Seller has good title to each item of tangible Purchased Property (other than Real Property Interests or office equipment or vehicles subject to leases) with a fair market value in excess of $5,000, free and clear of any Lien (other than Permitted Encumbrances). Except as set forth on Schedule 8.1.9, Seller has not received any written notice within the past twelve (12) months of a violation of any ordinances, regulations or building, zoning and other similar laws with respect to such assets that would have a Material Adverse Effect. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE PURCHASED PROPERTY AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY AGAINST INFRINGEMENT. 8.1.10 No Material Adverse Change. Except as disclosed in Schedule 8.1.10, between December 31, 1997 and the date of this Agreement there has not occurred (i) any event or condition that would have a Material Adverse Effect; (ii) any increase in compensation payable or to become payable by Seller to any of its Transferred Employees or agents, other than normal merit or promotional increases other than payment under the retention pay program announced in connection with the network business repositioning of Seller and its Affiliates; (iii) any amendment or termination of, or delivery of written notice to amend or terminate, any Material Contract; or (iv) any material change in any accounting method, practice or policy of Seller with respect to the Business. 8.1.11 Material Contracts. Except for the agreements set forth on Schedule 8.1.11 subparts (b) through (j), there is no Assigned Contract (other than the Assigned Contracts entered into after the date of this Agreement in the ordinary course of business) that is: (a) an agreement containing a non-compete agreement or other covenant that in either case would by its terms limit the freedom of Buyer following the Closing to compete in any material respect with respect to the Business with any third party; (b) an agreement granting a Lien (other than a Permitted Encumbrance); (c) an agreement for the sale of any material Purchased Property or grant of any preferential rights to purchase any material Purchased Property; (d) an agreement for the provision of telephone service at public pay telephone locations; -26- (e) an agreement made in the ordinary course of business other than as set forth above with respect to which the aggregate amount to be received or paid thereunder with respect to calendar year 1999 is expected to exceed $100,000 based on the terms of such agreement or on the payments which have been made under such agreement with respect to calendar year 1998, to the extent applicable; (f) an agreement not made in the ordinary course of business with respect to which the aggregate amount to be received or paid thereunder with respect to calendar year 1999 is expected to exceed $50,000 based on the terms of such agreement or on the payments which have been made under such agreement with respect to calendar year 1998, to the extent applicable; (g) an agreement with respect to 911 services or E911 services; (h) an agreement between Seller and a third party for the construction of mutual transmission facilities between various switching points included in the Purchased Exchanges; (i) an agreement between Seller and a third party for the third party's co-location of equipment in facilities included in the Purchased Property pursuant to which Seller is currently providing facilities or a request to provide facilities is currently pending; or (j) an agreement with a third party in which the owner of utility poles has agreed to allow the other party to attach its telecommunications equipment or facilities to the utility poles (a "Pole Attachment Agreement"). Except as set forth on Schedule 8.1.11, to the knowledge of Seller, each Assigned Contract referred to in any of the clauses (a) to (j) above (collectively the "Material Contracts") is valid, binding and in full force and effect and is enforceable by Seller or Seller's Affiliate, as applicable, in accordance with its terms, except for any such failure to be valid, binding, in full force and effect or enforceable that is not reasonably likely to have a Material Adverse Effect. Except as set forth on Schedule 8.1.11, to the knowledge of Seller, Seller and Seller's Affiliates have performed all material obligations required to be performed by them to date under the Material Contracts, and they are not (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder and, to the knowledge of Seller, no other party to any Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, in each case except for such noncompliance, breaches and defaults that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. As of the date hereof, neither Seller nor any Seller's Affiliate has, except as disclosed on Schedule 8.1.11, received or given any written notice of the intention of any party to terminate any Material Contract. Complete and correct copies of all the Material Contracts, together with all modifications and amendments thereto to the date of this Agreement by Closing will, have been made available to Buyer or its representatives. 8.1.12 Insurance. The Purchased Property of an insurable nature and of a character usually insured by companies carrying on similar businesses is insured under insurance policies or self insured in such amounts and against such losses or casualties as is usual in Seller's industry. On the Closing Date, the coverage under the insurance policies and programs applicable to the Purchased Property will be terminated, and Buyer will be responsible for providing all insurance coverage for the Purchased Property. -27- 8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax Returns required to be filed by Seller on or before the Closing Date have or will have been filed, and all Taxes shown as due and payable on such Tax Returns have been or will be paid by Seller when required by law; (ii) no deficiencies or assessments for any Taxes have been asserted in writing or assessed against Seller that remain unpaid and that individually or in the aggregate are material to the Business; (iii) Seller has withheld all required federal, state and local payroll taxes relating to the Business and has remitted or will remit all amounts required to be remitted to the appropriate taxing authorities; (iv) there are no tax liens upon any of the Purchased Property except for statutory liens covering taxes not yet due and payable; (v) Seller is not a "foreign person" within the meaning of Section 1445(b)(2) of the IRC and shall provide an appropriate certificate for purposes of Section 1445(b)(2) of the IRC and (vi) there are no material, current audits or material audits for which written notice has been received (in either case, specifically with respect to the Business). 8.1.14 No Material Claims or Suits. Except as disclosed in Schedule 8.1.14 or with respect to Taxes, there are no claims, actions, lawsuits or legal proceedings pending before any Governmental Authority, or, to the knowledge of Seller threatened against or affecting the Business or Purchased Property that in Seller's opinion, if determined adversely to Seller, would reasonably be expected to have a Material Adverse Effect on the Business or materially adversely affect ability of Seller to consummate the transactions contemplated hereby. 8.1.15 Tariffs; FCC Licenses. (a) The regulatory tariffs applicable to the Business stand in full force and effect on the date of this Agreement in accordance with all terms, and there is no outstanding notice of cancellation or termination or, to Seller's knowledge, any threatened cancellation or termination in connection therewith, nor is Seller subject to any restrictions or conditions applicable to its regulatory tariffs that limit or would limit the operation of the Business (other than restrictions or conditions generally applicable to tariffs of that type). Each such tariff has been duly and validly approved by Seller's regulatory agency. Seller is not in material default under the terms and conditions of any such tariff and there is no basis for any claim of default by Seller in any material respect under any such tariff. Except as disclosed on Schedule 8.1.15(a), there are no applications by Seller or petitions by others or proceedings pending or threatened before the state regulatory authority relating to the Business or its operations or the regulatory tariffs, other than such applications, petitions or proceedings as may be brought in the ordinary course of business or by end-users. To the knowledge of Seller, there are no material violations by subscribers or others under any such tariff. A true and correct copy of each tariff applicable to the Business has been delivered or made available to Buyer. (b) Listed on Schedule 8.1.15(b) are the FCC Licenses and other material Assigned Permits (the "Material Permits") held by Seller and used in the operation of the Business. Except as listed on Schedule 8.1.15(b), to Seller's knowledge, each such FCC License or Material Permit is in full force and effect on the date of this Agreement in accordance with its terms, and there -28- is no outstanding notice of cancellation or termination or, to Seller's knowledge, any threatened cancellation or termination in connection therewith, nor are any of such FCC Licenses or Material Permits subject to any restrictions or conditions that limit the operation of the Business (other than restrictions or conditions generally applicable to licenses or permits of that type). Subject to the Communications Act of 1934, as amended, and the regulations thereunder, the FCC Licenses are free from all security interests, liens, claims, or encumbrances of any nature whatsoever. There are no applications by Seller or petitions by others or proceedings pending or threatened before the FCC relating to the Business or the FCC Licenses that, in Seller's opinion, would reasonably be expected to have a Material Adverse Effect on the Business, other than such applications, petitions or proceedings as may be brought in the ordinary course of business or by end-users. 8.1.16 Employee Matters. (a) Schedule 8.1.16(a) lists (and identifies the sponsor of) each "Employee Pension Benefit Plan," as that term is defined in Section 3(2) of ERISA, each "Employee Welfare Benefit Plan," as that term is defined in Section 3(1) of ERISA (such plans being hereinafter referred to collectively as the "ERISA Plans"), and each other retirement, pension, profit-sharing, money purchase, deferred compensation, incentive compensation, bonus, stock option, stock purchase, severance pay, unemployment benefit, vacation pay, savings, medical, dental, post-retirement medical, accident, disability, weekly income, salary continuation, health, life or other insurance, fringe benefit, or other employee benefit plan, program, agreement, or arrangement maintained or contributed to by Seller or its Affiliates in respect of or for the benefit of any Transferred Employee or former employee of Seller, excluding any such plan, program, agreement, or arrangement maintained or contributed to solely in respect of or for the benefit of Transferred Employees or former employees employed or formerly employed by Seller outside of the United States, as of the date hereof (collectively, together with the ERISA Plans, referred to hereinafter as the "Plans"). Schedule 8.1.16(a) also includes a list of each written employment, severance, termination or similar-type agreement between Seller and its Affiliates and any Transferred Employee (the "Employment Agreements"). Seller has delivered to Buyer accurate and complete copies of all Plans and Employment Agreements (or representative samples in the case of form agreements) and, if applicable, summary plan descriptions with respect to such Plans and Employment Agreements and summary descriptions of any such Plan or Employment Agreement that is not otherwise in writing. Except for retention bonuses paid in connection with the closing of the transactions contemplated by this Agreement and except as otherwise disclosed on Schedule 8.1.16(a), the execution and delivery of this Agreement by Seller and the performance of this Agreement by Seller will not directly result now or at any time in the future in the payment to any Transferred Employee of any severance, termination, or similar-type payments or benefits being paid to any Transferred Employee. (b) Except as set forth on Schedule 8.1.16(b): (i) Neither Seller nor any of its Affiliates, any of the ERISA Plans, any trust created thereunder, or any trustee or administrator thereof, has engaged in any transaction as a result of which Seller or any of its Affiliates could be subject to any material liability pursuant to Section 409 of ERISA or to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed pursuant to Section 4975 of the IRC; and -29- (ii) Since the effective date of ERISA, no material liability under Title IV of ERISA has been incurred or is reasonably expected to be incurred by Seller or any of its Affiliates (other than liability for premiums due to the PBGC), unless such liability has been, or prior to the Closing Date will be, satisfied in full. (c) Except as set forth on Schedule 8.1.16(c), with respect to the ERISA Plans other than those ERISA Plans identified on Schedule 8.1.16(a) as "multiemployer plans": (i) the PBGC has not instituted proceedings to terminate any Plan that is subject to Title IV of ERISA (the "Retirement Plans"); (ii) none of the ERISA Plans has incurred an "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the IRC), whether or not waived, as of the last day of the most recent fiscal year of each of the ERISA Plans ended prior to the date of this Agreement; (iii) each of the ERISA Plans has been operated and administered in all material respects in accordance with its provisions and with all applicable laws; (iv) each of the ERISA Plans that is intended to be "qualified" within the meaning of Section 401(a) of the IRC and, to the extent applicable, Section 401(k) of the IRC, has been determined by the IRS to be so qualified, and nothing has occurred since the date of the most recent such determination (other than the effective date of certain amendments to the IRC, the remedial amendment period for which has not yet expired) that would adversely affect the qualified status of any of such ERISA Plans; (v) there are no pending material claims by or on behalf of any of the ERISA Plans, by any employee or beneficiary covered under any such ERISA Plan, or otherwise involving any such ERISA Plan (other than routine claims for benefits and routine expenses); (vi) each ERISA Plan which is a group health plan has been operated and administered in compliance with the continuation coverage provisions of Section 498B of the IRC and Part 6 of Title I of ERISA; (vii) all contributions and premiums that would normally be made or paid with respect to any ERISA Plan or Employment Agreement on behalf of Transferred Employees as of the Closing Date will have been made by the Closing Date; and (viii) as of the Closing Date no Transferred Employee will be excluded from coverage under any employee welfare benefit plan (as defined in Section 3(1) of ERISA) maintained or contributed to by Seller. -30- (d) Except as set forth on Schedule 8.1.16(d), none of the ERISA Plans is a "multiemployer Plan," as that term is defined in Section 3(37) of ERISA, and with respect to any such multiemployer plans (as so defined) listed in Schedule 8.1.16(d), Seller has not made or incurred a "complete withdrawal" or a "partial withdrawal," as such terms are respectively defined in Sections 4203 and 4205 of ERISA that would result in the incurrence of a material liability by Seller. Except as set forth on Schedule 8.1.16(d), neither Seller nor any Affiliates of Seller has made or incurred a "complete withdrawal" or a "partial withdrawal" (as such terms are defined in Sections 4203 and 4205, respectively, of ERISA) that would result in the incurrence of liability by Seller or its Affiliates, and the performance of this Agreement will not result in such withdrawal(s) or liability. (e) Except as set forth on Schedule 8.1.16(e), (i) none of the Transferred Employees are represented by a labor union or labor organization; (ii) Seller is not subject to any collective bargaining agreement covering any Transferred Employee; (iii) there are no current, or to the best knowledge of Seller, any pending or threatened strikes, slowdowns, picketing, or work stoppages affecting the Business or with respect to any Transferred Employee covered by collective bargaining; (iv) there is no pending lockout by Seller of any employees of the Business, and no such action is contemplated by Seller; (v) to the best knowledge of Seller, there is no pending or threatened organizing activity or petition for certification of a collective bargaining representative involving employees of the Business and there has been none within the twelve (12) months preceding the date of the Agreement; (vi) to the best knowledge of Seller, there is no pending or threatened charge, action, complaint, or proceeding of any nature against Seller relating to the violation of any applicable state or federal labor or employment law or regulation in connection with the Business, including any charge or complaint filed by any employee or labor organization with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any other administrative governmental agency, nor is there any other pending or threatened labor or employment dispute against or affecting Seller in connection with the Business; (viii) with respect to employees of the Business, Seller has complied in all respects with all laws relating to employment, equal employment opportunity, nondiscrimination, collective bargaining, wages, hours of work, employee benefits, occupational safety and health, immigration, and plant closings; and (ix) Seller shall provide employees of the Business with any required notices under any federal, state, or municipal law or regulation concerning the termination of their employment with Seller. Seller has delivered to Buyer accurate and complete copies of all collective bargaining agreements affecting any of the Transferred Employees. (f) This Agreement shall not result in any Transferred Employee becoming entitled to separation pay or severance which could be or become an obligation of Buyer. 8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth, as of June 30, 1999, a materially accurate summary of the book value of the Telephone Plant as reflected in Seller's continuing property records. Schedule 8.1.17 also sets forth a materially accurate list of the vehicles, trailers and other mobile tools and mobile equipment that are part of the Purchased Property as of October 28, 1999. -31- 8.1.18 Schedule of Real Property Interests. To the knowledge of Seller and as of the date of this Agreement, Schedule 8.1.18 sets forth a true and accurate list of all its Real Property Interests. 8.1.19 Compliance with Existing Environmental Requirements. Except as set forth in Schedule 8.1.19 or as would not have a Material Adverse Effect, to the knowledge of Seller: (a) Seller's operation of the Business and the Purchased Property has been and is presently in substantial compliance with Existing Environmental Requirements; (b) No environmental remediation is occurring on any parcel of Owned Real Property or Leased Real Property nor has Seller or any Affiliate issued a request for proposal or otherwise requested an environmental remediation contractor to begin plans for such environmental remediation; (c) No underground storage tanks ("USTs") or aboveground storage tanks ("ASTs") are located on the Owned Real Property or Leased Real Property; (d) None of the Owned Real Property or Leased Real Property is situated in a state or federal "superfund" site or study area; and (e) Seller has delivered, or within 60 days after the date of this Agreement will deliver, to Buyer complete copies of all reports and studies relating to Seller's liability under or non-compliance with any Existing Environmental Requirements in connection with Seller's operation of the Business or use or ownership of the Purchased Property. 8.1.20 Environmental Permits. Except as set forth in Schedule 8.1.20, to the knowledge of Seller, it has obtained or filed for all necessary environmental permits, authorizations and licenses required to operate the Business or the Purchased Property, except where failure to obtain or file such permits, authorizations and licenses would not have a Material Adverse Effect on the Business. 8.1.21 Financial Statements. Seller has furnished to Buyer its audited balance sheets as of December 31, 1997 and December 31, 1998 and the related statements of income and cash flows for the years ended December 31, 1997 and December 31, 1998 (collectively, the "Financial Statements"). The Financial Statements have been prepared based on the books and records of Seller. Such books and records have been maintained in accordance with GAAP, and where required by law, the applicable regulations of the FCC and ICC. However, because the Business represents only a portion of a larger entity, the Financial Statements are based on the extensive use of estimates and allocations. Seller believes these estimates and allocations have been performed on a reasonable basis in accordance with GAAP. However, Buyer acknowledges that because Buyer is not acquiring significant support elements located outside the Purchased Exchanges, and the Buyer will operate under new tariffs, carrier contracts and other conditions that will significantly impact the future revenues of the Business, the Financial Statements may not be representative of the financial performance of the Business during future periods. -32- 8.1.22 Year 2000 Compliance. (a) As of the Closing Date, Seller shall have caused the modification or remediation of the Automated Assets in accordance with applicable manufacturer or vendor recommendations such that the Automated Assets are Year 2000 Compliant; provided that any and all Buyer or third-party supplied computer software, computer firmware and computer hardware that directly interfaces with the Automated Assets, co-exists with the Automated Assets, or indirectly influences the operation of the Automated Assets are also demonstrated to be Year 2000 Compliant. (b) Seller shall be deemed to be in satisfaction of the requirements of subsection (a) of this Section 8.1.22 to the extent that Seller has (i) performed on or before the Closing Date any modification or remediation in accordance with applicable manufacturer or vendor recommendations for achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or before the Closing Date reasonable assurances from the applicable manufacturer or vendor that an Automated Asset, without modification or remediation, is Year 2000 compliant or Year 2000 ready. (c) When used in this Section 8.1.22, the following term shall have the respective meanings given below: "Automated Assets" means the computer software, computer firmware, computer hardware (whether general or special purpose), documentation, data, and other similar or related items of the automated, computerized, and/or software system(s) that are provided by Seller to Buyer as part of the Purchased Exchanges pursuant to this Agreement. "Calendar-Related" refers to the date values based on the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition, 1982, page 602, and to all uses in any manner of those date values, including without limitation manipulations, calculations, conversions, comparisons and presentations. "Date Data" means any Calendar-Related data in the inclusive range January 1, 1900 through December 31, 2050, which the Automated Assets use in any manner. "System Date" means any Calendar-Related data value in the inclusive range January 1, 1985 through December 31, 2035 (including the natural transition between such values) which the Automated Assets shall be able to use as their current date while operating. "Year 2000 Compliant" means: (i) As of the Closing Date, in connection with Calendar-Related data and Calendar-Related processing of Date Data or of any System Date, the Automated Assets will not malfunction, will not cease to function and will not produce incorrect results; and -33- (ii) As of the Closing Date, the Automated Assets will represent dates without ambiguity as to century when providing Calendar-Related data to and accepting Calendar-Related data from other automated, computerized and/or software systems and users by way of user interfaces, electronic interfaces and data storage. 8.1.23 Native American and Federal Consents. Except as set forth on Schedule 8.1.23 or as would not have a Material Adverse Effect, to the knowledge of the Seller: (a) Schedule 8.1.23 sets forth all material easements, rights-of-way, franchises, licenses, permits, consents, approvals, certificates and other authorizations of tribal authorities and the United States Bureau of Indian Affairs (the "BIA") (collectively, the "Native American Authorizations") held by Seller and relating to any Purchased Property located, or any operations of the Business conducted, on Native American reservations; (b) All such Native American Authorizations are in full force and effect and Seller is not in default thereunder; (c) There are no material claims, actions, lawsuits or other proceedings pending or threatened with respect to any of the Purchased Property located, or any operations of the Business conducted, on Native American reservations, and no tribal authority has given written notice of any cancellation, revocation, termination or material amendment or modification of any Native American Authorization; and (d) No material consent, approval or waiver from, or filing with, any tribal authority or the BIA is required to be obtained or made in connection with the execution and delivery by Seller of this Agreement, or Seller's fulfillment of its obligations under this Agreement. 8.1.24 Loss of Major Customer. Except as set forth on Schedule 8.1.24, since January 1, 1997, Seller has not suffered the loss of any customer of the Business for which Seller billed in excess of $50,000 annually during the years ended December 31, 1997 or 1998. 8.1.25 Records. The continuing property records and other records related to the Purchased Property maintained by Seller conform in all material respects with the applicable rules and regulations of the FCC and ICC. Seller has retained substantially all original cost documentation relating to the Purchased Property regarding the expenditures made by Seller for the Telephone Plant within the period required by applicable Law. 8.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller as follows: 8.2.1 Corporate Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and is or will be by Closing Date duly qualified to conduct business in Illinois and has the requisite corporate power and authority to own, lease or otherwise hold the assets owned, leased or held by it. -34- 8.2.2 Authorization and Effect of Agreement. Buyer has the requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements, to carry on the Business as presently conducted and to fulfill all other obligations of Buyer under this Agreement and the Ancillary Agreements. The execution and delivery by Buyer of this Agreement and the Ancillary Agreements, and the fulfillment by it of its obligations under this Agreement and the Ancillary Agreements have been duly authorized by all necessary corporate action on the part of Buyer. Buyer has the requisite legal capacity to purchase, own and hold the Purchased Property upon the consummation of the sale of the Purchased Property. This Agreement and the Ancillary Agreements have been duly executed and delivered by Buyer and, assuming the due execution and delivery of this Agreement and the Ancillary Agreements by Seller, constitute valid and binding obligations of Buyer enforceable in accordance with their terms subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and subject to the exercise of judicial discretion in accordance with principles of equity. 8.2.3 No Restrictions Against Purchase of the Purchased Properties. The execution and delivery of this Agreement and the Ancillary Agreements by Buyer do not, and the fulfillment by Buyer of its obligations under this Agreement and the Ancillary Agreements will not, conflict with, violate or result in the breach of any provision of the certificate of incorporation or bylaws of Buyer or, conflict with, violate or result in the breach of any contract to which Buyer is a party. No material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to Buyer in connection with the execution and delivery of this Agreement by Buyer or the fulfillment by Buyer of its obligations under this Agreement, except the filings and approvals described in Article 4. 8.2.4 No Violation of Law. The execution and delivery of this Agreement and the Ancillary Agreements and the fulfillment by Buyer of its obligations under this Agreement and the Ancillary Agreements will not violate any Law except to the extent any such violation would not have a material adverse effect on the ability of Buyer to fulfill its obligations hereunder and thereunder. 8.2.5 Financial Capacity. (a) Buyer has sufficient cash or other sources of funds to pay the Purchase Price in the manner specified in Section 3.1 and all related fees and expenses. (b) Buyer has sufficient financial resources to operate the Business after the Closing Date. Without limiting the generality of the foregoing, Buyer has sufficient financial resources to satisfy any applicable requirement relating to financial capacity or capital imposed by any Governmental Authority in any state in which the Business is conducted. Buyer is solvent, is able to pay its debts as they become due, and owns property that has both a fair value and a fair saleable value in excess of the amount required to pay its debts as they become due. -35- 8.2.6 Brokers. Buyer has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement in such a manner as to give rise to a valid claim against Seller for any broker's or finder's fees or similar fees or expenses. 8.2.7 Consents and Approvals of Governmental Authority. Subject to Article 4 with respect to Regulatory Approvals and FCC Consents, no consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority or regulatory authority is required in connection with the execution, delivery and performance of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated herein, except for filings with the Federal Trade Commission and Department of Justice pursuant to the HSR Act, if required. ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS 9.1 Transition Services Agreement. The parties agree to cooperate with each other to ensure that the transition of the ownership of the Purchased Property proceeds with minimal disruption to the services being provided to subscribers. The parties agree that it may be necessary for Seller to assist Buyer in converting Seller's systems and processes with respect to the Purchased Property to Buyer's systems and processes. Seller and Buyer agree to execute a separate "Transition Services Agreement" substantially in the form attached hereto as Schedule 9.1 for the provision of such services. 9.2 Optional Services Agreement. It is understood and agreed that Buyer may not have for a period of time after Closing Date, certain systems or processes necessary to provide some basic customer services. Attached hereto as Schedule 9.2 are Seller's standard form contracts for provision of several optional services (the "Optional Services"). Subject to negotiation of an agreement or agreements as described hereinafter, Seller will at Buyer's request provide any or all of the Optional Services at the fees indicated in Schedule 9.2. To the extent Buyer requests such services, the parties agree to negotiate in good faith separate agreements, on commercially reasonable terms similar to those in Schedule 9.2. 9.3 Directory Publishing. 9.3.1 Assumption of Certain Directory Publishing Agreement Rights and Obligations. Seller is party to a directories Master Publishing Agreement ("Master Publishing Agreement") with GTE Directories Service Corporation n/k/a GTE Directories Corporation herein "Publisher." Seller is also a party to a directories publishing agreement with Publisher as purchaser of the rights and interests of Associated Directory Services, Inc. f/k/a Mast Advertising and Publishing Inc. These agreements are identified in Schedule 9.3.1 attached hereto ("Publishing Agreements"). Pursuant to these agreements Publisher has the exclusive right and obligation to sell advertising, and to publish, print and distribute directories containing telephone numbers relating to the Purchased Exchanges. -36- Buyer agrees to execute an agreement effective as of the Closing to assume and appropriately amend the Master Publishing Agreements as it relates to the Purchased Exchanges, so that such extension expires on December 31, 2001. If the directories for any of the Purchased Exchanges are published by a third party non-Affiliate of Seller, then to the extent requested by Buyer, Seller agrees to assist Buyer in obtaining such third party's consents to the continuation of such publishing arrangements; provided that Seller shall have no obligation to pay compensation or other consideration in connection with such assistance. 9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that Publisher may have a pre-existing obligation (which Publisher may choose to continue) to sell advertising, publish, print and distribute the telephone numbers of third party local exchange telephone companies in the same directory as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements of which Seller is aware, if any, are identified on Schedule 9.3.2. 9.3.3 Meeting to Discuss Directory Publication. Within ninety (90) days following the date of this Agreement, Buyer agrees to meet with Seller and Publisher for the purpose of having an initial discussion about the first directory publication after the Closing Date. This meeting will be held at Publisher's address unless otherwise agreed between the parties and Publisher. All parties shall employ their respective commercially reasonable efforts to ensure that directory publication is not interrupted following the Closing Date. 9.4 GTE Supply Relationship. Within 90 days of this Agreement, Buyer agrees to meet with representatives of GTE Supply for purposes of negotiating in good faith an agreement for GTE Supply to provide ongoing procurement and materials management functions for the Business on substantially the same terms as contained in the Buyer's existing agreement with GTE Supply; provided that Buyer may negotiate in good faith with respect to any volume discounts that may be available from GTE Supply. 9.5 GTE Telecom Agreements. Buyer acknowledges that GTE Telecom will retain ownership of certain assets as well as related rights in connection with fiber loop located in the Purchased Exchanges, all of which assets and rights are listed on Schedule 2.3(g) (the "GTE Telecom Assets"). Buyer further acknowledges that the GTE Telecom Assets may be co-located with the Purchased Property, and may share certain easements, right of way or other Real Property Interests. In order to clarify the relationship between Buyer and GTE Telecom with respect to the GTE Telecom Assets, Seller agrees to cause GTE Telecom, and Buyer agrees, to execute (i) the Capacity Agreement and, except with respect to the Carthage and Andover Purchased Exchanges which are addressed in (iii) below, the Floor Space and Power Agreement substantially in the form attached hereto as Schedule 9.5, (ii) the Non-Exclusive License Agreement in the form attached hereto as Schedule 9.5, and (iii) with respect to the Carthage and Andover Purchased Exchanges, the Standard Agreement for Central Office Collocation substantially in the form attached hereto as Schedule 9.5; provided that, if the fees to be paid by GTE Telecom under the Standard Agreement for Central Office Collocation (and Citizens' corresponding tariff) are higher than the fees it is currently paying Seller for collocation in the Carthage and Andover Purchased Exchanges, then such increase in fees shall be offset by a corresponding increase in the fees charged to Buyer by GTE Telecom under the Capacity Agreement; and provided further, Buyer and GTE Telecom agree to make such other modifications to the Standard Agreement for Central Office Collocation in order to allow GTE Telecom to continue for the term of such agreement the collocation in Carthage and Andover Purchased Exchanges for the purpose of continuing expanded interconnection arrangements necessary for service to GTE Telecom customers other than Buyer (the "GTE Telecom Agreements"). -37- ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES 10.1 Intellectual Property. 10.1.1 No License. Buyer and Seller agree and understand that except as expressly set forth in writing in the License Agreement and Section 10.1.3, Seller has not granted any rights or licenses, express or implied, of, and nothing shall constitute or be construed as a license of Seller under any Intellectual Property now or hereafter owned, obtained or licensable by Seller or under any Third Party Intellectual Property. 10.1.2 Infringement. (a) Notwithstanding anything in this Agreement to the contrary, Seller shall have no obligation to defend, indemnify or hold harmless Buyer or any of its Affiliates, from any damages, costs or expenses resulting from any obligation, proceeding or suit based upon any claim that any activity subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or anyone claiming under Buyer, constitutes direct or contributory infringement, misuse of, or misappropriation of, or inducement to infringe, any Third Party Intellectual Property. (b) Buyer shall defend, indemnify and hold harmless Seller and its Affiliates from and against any and all Indemnifiable Losses resulting from any obligation, proceeding or suit based upon any claim alleging or asserting direct or contributory infringement, or misuse or misappropriation of or inducement to infringe by Seller or any of its Affiliates of any Third Party Intellectual Property, to the extent that such claim is based on, or would not have arisen but for, activity conducted or engaged in subsequent to the Closing Date by Buyer, a customer of Buyer's, or anyone claiming under Buyer. 10.1.3 Trademark Phaseout. (a) Buyer acknowledges that Seller or its Affiliates are the owners of Excluded Marks that qualify as Excluded Property under Section 2.3. Buyer understands and agrees that the Excluded Marks, or any right to or license of the Excluded Marks, are not being transferred pursuant to this Agreement. Buyer acknowledges the exclusive and proprietary rights of Seller and its Affiliates in the use of the Excluded Marks, and Buyer agrees that it shall not use the Excluded Marks (or any names, domain names, marks or indicia confusingly similar to the Excluded Marks) except and to the extent expressly set forth in this Section 10.1.3 or assert any rights or claims in such Excluded Marks (or in any names, domain names, marks or when confusingly similar to the Excluded Marks). After the Closing, all Excluded Marks of Seller and its Affiliates shall be replaced by Buyer, at Buyer's expense, as soon as possible, but in no event later than one hundred twenty (120) days after the Closing Date for items with Excluded Marks affixed to them which Buyer has continued to use in Buyer's -38- operation of the Business, including buildings, vehicles, heavy equipment, hard hats, tools, tool boxes, kits (safety and others), signs, public (pay) telephones, manual covers and notebooks. After the Closing, Buyer will not use, and will destroy or deliver to Seller, all such items with Excluded Marks affixed to them that have no valid continuing use in Buyer's operation of the Business, including items affecting customer or employee relations or items that do not reflect Buyer's true identity. Specific items to be destroyed or returned include items with Excluded Marks affixed to them including giveaways; order, purchase or materials forms; requisitions; invoices; statements; time sheets/labor reports; bill inserts; stationery; personalized note pads; maps; organization charts; bulletins/releases; sales/price literature; manuals or catalogs; report covers/folders; program materials; and materials such as media contact lists/cards. The one hundred twenty (120) day time period for replacement of Excluded Marks affixed to telephone directories that were already published or closed for publication at the Closing Date shall be extended to the expiration date of such directories. (b) Buyer recognizes the great value of the goodwill associated with the Excluded Marks, and acknowledges that the Excluded Marks and all rights therein and the goodwill pertaining thereto belong exclusively to Seller and that the Excluded Marks have a secondary meaning in the minds of the public. Buyer further agrees that any and all permitted use of the Excluded Marks pursuant to this Agreement shall inure to the sole and exclusive benefit of Seller. (c) Buyer agrees that any permitted use of the Excluded Marks in the operation of the Business after the Closing shall be provided in accordance with all applicable federal, state and local laws, and that the same shall not reflect adversely upon the good name of Seller or its Affiliates, and that the operation of the Business will be of a high standard and skill. (d) Buyer acknowledges that its failure to cease use of the Excluded Marks as provided in this Agreement, or its improper use of the Excluded Marks, will result in immediate and irreparable harm to Seller and its Affiliates. Buyer acknowledges and admits that there is no adequate remedy at law for such failure to terminate use of the Excluded Marks, or for such improper use of the Excluded Marks. Buyer agrees that in the event of such failure or improper use, Seller and its Affiliates shall be entitled to equitable relief by way of temporary restraining order, or preliminary or permanent injunction, or any other relief available under this Agreement. (e) Buyer will not contest the ownership or validity of any rights of Seller or its Affiliates in the Excluded Marks. 10.1.4 Third Party Software. To the extent that the transfer of Purchased Property by Seller to Buyer under this Agreement results in the transfer of possession to Buyer of software that at the Closing Date is Third Party Intellectual Property, which software was located in and rightfully used by Seller in the geographical area of the Purchased Exchanges prior to the Closing Date in the normal and ordinary operation of the Business pursuant to Contracts with the owners or licensors of such software ("Third Party Intellectual Property Contracts"), then subject to Section 2.5, effective as of the Closing and provided that no payments to any Person other than a Switch Software vendor (which, if any, shall be paid by Seller) are thereby required, at Closing Seller shall assign to Buyer, and Buyer shall accept all rights and licenses if any to posses and use such software pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that the acceptance by Buyer of such assignment of the Third Party Intellectual Property Contracts includes the assumption by Buyer of obligations under such Third Party Intellectual Property Contracts, including all obligations necessary or incidental to the transfer of -39- such rights and licenses. Buyer understands and agrees that except as provided above in this Section 10.1.4, or as expressly provided elsewhere in this Agreement or in another written agreement between Buyer and Seller, no rights or licenses to use or possess such software or any Third Party Intellectual Property are transferred to Buyer. Buyer shall properly dispose of, and shall not use, any software of which Buyer acquires possession in connection with Purchased Property and (i) which, after the Closing Date, Buyer knows, or reasonably should know, is not the subject of a Third Party Intellectual Property Contract that has been rightfully transferred to Buyer or for (ii) which Buyer does not have a separate license. Seller makes no warranty or representation that any Third Party Intellectual Property Contract or any right therein is assignable in whole or in part to Buyer. 10.2 Effect of Due Diligence and Related Matters. (a) Buyer represents that it is a sophisticated entity that was advised by knowledgeable counsel and financial advisors and, to the extent it deemed necessary, other advisors in connection with this Agreement and has conducted its own independent review and evaluation of the Purchased Property. Accordingly, Buyer covenants and agrees that (i) except for the representations and warranties set forth in this Agreement, Buyer has not relied and will not rely upon any document or written or oral information furnished to or discovered by it or its representatives, including any financial data, (ii) there are no representations or warranties by or on behalf of Seller or its Affiliates or representatives except for those expressly set forth in this Agreement, and (iii) to the fullest extent permitted by law, Buyer's rights and obligations with respect to all of the foregoing matters will be solely as set forth in this Agreement. (b) Upon the Closing, Buyer shall be deemed to have waived any claim with respect to a breach of any representation, warranty, covenant or obligation of Seller, or any failure of a condition, hereunder of which Buyer had knowledge; provided that Buyer shall be deemed to have knowledge of the information made available to Buyer and/or its representatives during its review of the Purchased Property prior to the date of this Agreement, which information is contained in the Due Diligence Documents. (c) After the date of this Agreement and prior to the Closing Date, Buyer shall promptly notify Seller if Buyer obtains knowledge of any actual breach of any representation, warranty, covenant or obligation of Seller or any actual or prospective failure of a condition, hereunder of which Buyer obtains knowledge. Failure to provide timely notice shall be deemed to constitute a waiver of any claim with respect to such breach. 10.3 Confidentiality. Whether or not the Closing occurs, the parties hereto and their respective officers, directors, employees and representatives will comply with the Confidentiality Agreement, the provisions of which are expressly incorporated herein in their entirety by this reference. 10.4 Further Assurances. After the Closing, Seller will use its commercially reasonable efforts to furnish to Buyer such other instruments and information as Buyer may reasonably request in order to convey to Buyer title to the Purchased Property, to be delivered from time to time upon Buyer's reasonable request. -40- 10.5 Prorations. The following liabilities shall be prorated between Seller and Buyer: (i) utility charges (which shall include water, sewer, electricity, gas and other utility charges) with respect to the Owned Real Property, the property subject to the Real Property Leases and customer owned equipment, (ii) rental charges (which shall include rental charges and other lease payments under the Real Property Leases), (iii) personal services (these services are charged for a period which includes the Closing Date; this shall include contract labor), and (iv) real and personal property taxes, ad valorem taxes, and franchise fees or taxes (collectively, "Periodic Taxes"). With respect to measurement periods during which the Closing Date occurs (all such periods of time being hereinafter called "Proration Periods"), the liabilities described in clauses (i), (ii) and (iii) of the preceding sentence shall be apportioned between Seller and Buyer as of the Closing Date, with Buyer bearing only the expense thereof in the proportion that the number of days remaining in the applicable Proration Period on and after the Closing Date bears to the total number of days covered by such Proration Period. Periodic Taxes attributable to Proration Periods shall be prorated between Buyer and Seller based on the relative periods the Purchased Property was owned by each respective party during the fiscal period of the taxing jurisdiction for which such taxes were imposed by such jurisdiction (as such fiscal period is or may be reflected on the bill rendered by such taxing jurisdiction). On the Closing Date, Buyer and Seller shall pay or be reimbursed, on this prorated basis, for Periodic Taxes that have been paid before the Closing Date. On the Closing Date, Buyer and Seller shall also be reimbursed, on this prorated basis, for Periodic Taxes that are to be paid on or after the Closing Date. The reimbursement of Periodic Taxes that are to be paid on or after the Closing Date shall be based on a reasonable estimate of the amount of such Periodic Taxes to be paid (based on past experience). To the extent that Buyer or Seller are not reimbursed on the Closing Date for Periodic Taxes that are paid after the Closing Date, or, in the event the estimated amount of the preceding sentence proves to have been inaccurate, Buyer or Seller shall promptly forward an invoice to the other party for its reimbursable pro rata share, if any. If the other party does not pay the invoice within thirty (30) calendar days of receipt, the amount of such payment shall bear interest at the rate of eight percent (8%) per annum. Similarly, all prepayments made or received by Seller or Buyer with respect to service or maintenance agreements with third parties or license or other fees payable to or by third parties and relating to the Business shall be prorated on an appropriate basis between Seller and Buyer. 10.6 Cost Studies/NECA Matters. 10.6.1 Prior to Closing. Seller agrees that, with respect to all toll revenues, settlements, pools, separations studies or similar activities, Seller shall be responsible for (and shall receive the benefit or suffer the burden of) any adjustments to contributions, or receipt of funds, by Seller resulting from any such activities that are related to the operation of the Business or the ownership or operation of the Purchased Property prior to the Closing Date. Specifically, this paragraph shall apply, but shall not be limited to, any matters related to the National Exchange Carrier Association ("NECA") including the Universal Service Fund ("USF"), Long Term Support ("LTS"), and Telecommunications Relay Services funds. 10.6.2 From and After Closing. (a) Buyer shall receive a pro rata share of USF funds received by Seller, under Seller's methodology of computing USF, pursuant to FCC Rules and Regulations as stated in Part 36.601(c) for rural carriers. The USF Funds -41- due to Buyer shall be determined by multiplying the number of lines sold times a per-line amount of USF support received by Seller prior to the date of sale of the Business. The resulting Buyer's annual USF amount shall be prorated in proportion to the number of months in the year from and after the Closing Date. Beginning July 1, 1999 or a date thereafter determined by the FCC, non-rural carriers shall not receive USF pursuant to Part 36, but will receive support in accordance with guidelines using forward-looking economic cost. Buyer shall make its own filing in accordance with said FCC Rules and Regulations, Part 36.611 and Part 36.612 for rural carriers and Part 54 for non-rural carriers. Within a reasonable time after Buyer's written request, Seller shall furnish to Buyer such necessary information regarding Seller's ownership of the Purchased Property during the partial calendar year prior to Closing Date and such reasonable assistance as required in connection with Buyer's preparation of necessary filings or submissions. (b) Notwithstanding the foregoing, Buyer's right to receive a pro rata share of USF is conditioned upon Buyer's payment, from and after the Closing Date, of a pro rata share of the annual universal service contribution liability assessed by the Universal Service Administrative Company (USAC) based on end-user retail revenues for the previous year generated by assets being sold. The resulting Buyer's annual USF obligation for assets purchased shall be prorated in proportion to the number of months in the year from and after the Closing Date. 10.7 Customer Deposits. Within thirty (30) days after Closing, Seller agrees to transfer to Buyer the customer deposits together with any interest accrued thereon (collectively "Customer Deposits"), together with all of Seller's obligations and rights to hold the Customer Deposits of the Business, up to the Closing Date, and Buyer agrees to hold, disburse and retain such deposits so delivered to it as if it were Seller. 10.8 Access to Books and Records. (a) After the Closing, Seller will retain all Retained Books and Records for a period of three (3) years. (b) After the Closing, upon reasonable notice and subject to the Confidentiality Agreement, the parties will give to the representatives, employees, counsel and accountants of the other, access, during normal business hours, to books and records relating to the Business and the Purchased Property, and will permit such persons to examine and copy such records, in each case to the extent reasonably requested by the other party in connection with tax and financial reporting matters (including any Tax Returns and related information, but not attorney work product or similar work product prepared by accountants), audits, legal proceedings, governmental investigations and other business purposes (including such financial information and any receipts evidencing payment of taxes as may be reasonably requested by Seller to substantiate any claim for tax credits or refunds); provided, however, that nothing herein will obligate any party to take actions that would unreasonably disrupt the normal course of its business or violate the terms of any Contract to which it is a party or to which it or any of its assets is subject. Seller and Buyer will cooperate with each other in the conduct of any Tax audit or similar proceedings involving or otherwise relating to the Business (or the income therefrom or assets thereof) with respect to any Tax and each will execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this Section 10.8(b). -42- 10.9 Purchase Price Allocation. Prior to the Closing Date, Buyer and Seller shall use their good faith efforts to agree to the allocation (the "Allocation") of the Purchase Price, the Assumed Liabilities and other relevant items (including, for example, adjustments to the Purchase Price) to the individual assets or classes of assets within the meaning of Section 1060 of the IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and Seller covenant and agree that (i) the values assigned to the assets by the parties' mutual agreement shall be conclusive and final for all purposes, and (ii) neither Buyer nor Seller will take any position before any Governmental Authority or in any judicial proceeding that is in any way inconsistent with such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation, Buyer and Seller covenant and agree to file and to cause their respective Affiliates to file, all Tax Returns and schedules thereto (including, for example, amended returns, claims for refund, and those returns and forms required under Section 1060 of the IRC and any Treasury regulations promulgated thereunder) consistent with each of Buyer and Seller's good faith Allocations, unless otherwise required because of a change in applicable Law. 10.10 Owned Real Property Transfers. Within sixty (60) days of the date of this Agreement, Seller shall deliver to Buyer copies of all existing title insurance policies in Seller's possession covering the Owned Real Property. Thereafter, no later than thirty (30) days before the Closing Date, Seller shall deliver (at Seller's expense) to Buyer title commitments for owners' policies of title insurance prepared by a title insurance company reasonably acceptable to Buyer and a certified current survey, with respect to all Owned Real Property included in the Purchased Property and in which Seller purports to own fee title. Buyer acknowledges that such title commitments shall be for CLTA owners' policies of title insurance (or its equivalent) unless Buyer has requested in writing, prior to the date hereof, that such commitments be issued for other forms of title insurance (in which event, Buyer shall bear all costs and premiums for such title insurance to the extent attributable to such coverage being in excess of CLTA coverage or its equivalent). Such title commitments shall reflect that upon the consummation of the sale to Buyer contemplated by this Agreement and the payment of all premiums and charges due for such title insurance, Buyer will be vested with good, fee simple title to such Owned Real Property, subject only to the exceptions show thereon, the title company's standard exceptions and exclusions, and such matters that arise after the date and time of such title commitment. Except as provided in the following sentence, in the event that Buyer requires endorsements to such title commitments or the applicable title insurance policies, such endorsements shall be obtained at Buyer's sole cost and expense and shall not be a condition to Closing. On the Closing Date, Seller shall convey the Owned Real Property to be transferred to Buyer subject only to Permitted Encumbrances, provided that Seller may transfer such property subject to one or more exceptions that are not Permitted Encumbrances if Seller commits in writing, in form and substance reasonably acceptable to Buyer, on or before the Closing Date, to cause any such exception that is not a Permitted Encumbrance to be removed, insured or bonded over to Buyer's reasonable satisfaction, or if Seller indemnifies Buyer with respect to such exceptions to Buyer's reasonable satisfaction on or before the Closing Date. With respect to each parcel of Owned Real Property covered by a title commitment referenced above, the amount of title insurance provided under the applicable title insurance policy shall be the fair market value of the -43- applicable property, which shall be determined by Buyer at its sole cost and expense using commercially reasonable methods of valuation, provided that all such valuations shall be consistent with all allocations of the Purchase Price made hereunder or pursuant to this Agreement, and shall be acceptable to the title insurance company. The determination of fair market value shall be made in a timely manner such that the title commitments can be issued in a timely manner prior to the Closing Date. Seller agrees that prior to Closing it will provide the title company with such instructions, authorizations, affidavits, and indemnities as may be reasonably necessary for the title company to issue title policies to Buyer, dated as of the Closing Date, for all of the Owned Real Property with so-called non-imputation endorsements. By no later than forty-five (45) days after the Closing Date, Seller shall deliver to Buyer a final title insurance policy covering each parcel of the Owned Real Property covered by the title commitments. Buyer will use its commercially reasonable efforts to work with the title company between the date hereof and fifty-five (45) days after Closing Date to resolve any issues with respect to such title commitments. Seller shall be responsible for the payment of all title insurance premiums attributable to the CLTA portion of the coverage afforded by each such policy obtained, and Buyer shall be responsible for the payment of all title insurance premiums in excess of such amount and for the payment of all endorsement charges and other fees and costs imposed by the title company. 10.11 Transaction Taxes. Buyer shall bear and be responsible for paying any sales, use, transfer, documentary, registration, business and occupation and other similar taxes (including related penalties (civil or criminal), additions to tax and interest) imposed by any Governmental Authorities with respect to the transfer of Purchased Property to Buyer (including the Owned Real Property) ("Transaction Taxes"), regardless of whether the tax authority seeks to collect the such taxes from Seller or Buyer. Seller shall prepare all tax filings related to any sales, use, transfer, documentary, registration, business and occupation and other similar taxes. Seller, fifteen (15) days prior to making such filings shall provide to the Buyer Seller's work papers for the Buyer's review and approval. Buyer shall provide to the Seller ten (10) days prior to the filing date approval of such work papers. Buyer shall also be responsible for (i) administering the payment of such Transaction Taxes, (ii) defending or pursuing any proceedings related thereto, and (iii) paying any expenses related thereto. Seller shall give prompt written notice to Buyer of any proposed adjustment or assessment of any Transaction Taxes with respect to the transaction, or of any examination of said transaction in a sales, use, transfer or similar tax audit. In any proceedings, whether formal or informal, Seller shall permit Buyer to participate and control the defense of such proceeding, and shall take all actions and execute all documents required to allow such participation. Seller shall not negotiate a settlement or compromise of any Transaction Taxes without the written consent of Buyer, which consent shall not be unreasonably withheld. 10.12 Bulk Sales Laws. Seller and Buyer waive compliance with applicable laws under any version of Article 6 of the Uniform Commercial Code adopted by any state or any similar law relating to the sale of inventory, equipment or other assets in bulk in connection with the sale of the Purchased Property. 10.13 Prepaid Non-Regulated Maintenance Agreements. Within thirty (30) days following Closing, Seller shall pay to Buyer an amount equal to the pro rata portion of all prepaid but unearned revenues from Seller's customers for all non-regulated maintenance agreements as of the Closing Date. -44- 10.14 Vehicle Registration. Buyer agrees to use its commercially reasonable efforts to file promptly the appropriate vehicle title applications and registrations to change the name of the titled owner on each vehicle title certificate and change the motor vehicle registration (with respect to license plate information) on each vehicle being transferred to Buyer from Seller pursuant to this Agreement. Buyer agrees that it shall remove and destroy Seller's existing license plates from all vehicles received upon the earlier of receipt of new license plates or sixty (60) days following Closing. 10.15 Carrier Access Billing and Accounts Receivable Transition. Seller shall render its own final carrier access bills to its interexchange carriers for minutes, messages and other applicable charges up to the Closing Date. Seller shall be responsible for collecting and settling any disputes associated with its final bills to the interexchange carriers. 10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to purchase Seller's Earned End-User Accounts Receivable and make payment to Seller for those accounts in the manner described below: (a) Seller shall transfer to Buyer, as soon as reasonably available after Closing, all open end-user customer account records to Buyer as of the end of business on the Closing Date. Following the Closing, Buyer shall be responsible for administering those records including the application of cash receipts to customer accounts, whether related to services rendered before or after the Closing. Seller shall promptly forward to Buyer all customer payments and related remittance documents received by Seller after the Closing for processing by Buyer. (b) Within twenty (20) days following the Closing, Seller shall provide an accounting to Buyer of the Earned End-User Accounts Receivable Amount and the Customer Advances as well as the most recent twelve (12) month history of Seller's uncollectible net writeoffs expressed as a percentage of billings for the Business (the "Uncollectible Factor"). This data and the resulting calculation of the Earned End-User Accounts Receivable Amount shall be summarized in an accounts receivable settlement statement (the "Accounts Receivable Settlement Statement"). Within thirty (30) days following the Closing, Buyer shall remit to Seller an amount equal to 80% of the Earned End-User Accounts Receivable Amount less 100% of the Customer Advances. Within sixty (60) days following the Closing, Buyer shall remit an additional 15% of the Earned End-User Accounts Receivable Amount and within ninety (90) days will remit the final 5%. (c) Not later than ten (10) days prior to the due dates for the sixty (60) and ninety (90) day payments referred to in Section 10.16(b), Seller will provide Buyer with an updated Accounts Receivable Settlement Statement reflecting any adjustments based upon non-sufficient funds checks, billing adjustments or other facts that relate to pre-closing activity that became known after the preparation of the original statement. -45- (d) If at any time during the ninety (90) day period following the Closing, Buyer or Seller discovers any material discrepancy in the Accounts Receivable Settlement Statement, both parties agree to use commercially reasonable efforts to resolve any discrepancy in a timely manner, and also agree to make payments related to any undisputed amounts as set forth above. (e) At any time between ninety (90) and two hundred seventy (270) days following the Closing, Buyer may, at its discretion, prepare an analysis of actual bad debt write-off experience related to the Earned End-User Accounts Receivable purchased from Seller. If such analysis reasonably demonstrates that write-offs have exceeded the estimated amount in the final Accounts Receivable Settlement Statement (as had been calculated using the Uncollectible Factor) by more than 10%, Seller will pay to Buyer the full amount of the difference within thirty (30) days of receipt of Buyer's request for payment, together with Buyer's write-off analysis, Buyer will provide Seller sufficient detail in its write-off analysis, and as reasonably necessary, access to billing and collection records, to allow Seller to validate the accuracy of Buyer's request. Any disputes regarding the amounts of such request shall be settled using the procedure described in Section 3.3(d). 10.17 Tariff Changes Resulting from the ICC Merger Order. The ICC in approving the Merger issued an order requiring Seller to reduce its rates statewide by $10.03 million. To implement this order, Seller will file tariff changes after the date of the Agreement but prior to Closing. Seller will use its best efforts to ensure that such changes do not disproportionately reduce revenue in the Purchased Exchanges. If Buyer determines and can reasonably demonstrate that the impact of the revenue reductions in the Purchased Exchanges related to tariff changes resulting from the Merger order would be greater than $1.25 million (calculated on a pro forma basis using 1999 revenues), then the Seller will pay to Buyer an amount equal to the reduction in excess of $1.25 million multiplied by 5. Seller will pay such amount to Buyer as an adjustment to the Purchase Price if such amount is known and agreed upon at least thirty (30) days prior to Closing, otherwise the amount will be paid within thirty (30) days of the agreement of the parties on such amount. Seller may request Buyer to provide an analysis of its calculation of the adjustment amount. Buyer will provide such analysis of the amount and sufficient detail to allow Seller to validate the accuracy of the adjustment. Seller will provide Buyer with such assistance and information as is required for Buyer's calculation of the impact of the rate reductions in the Purchased Exchanges. Any disputes regarding the amount will be settled using the procedure described in Section 3.3(d). 10.18 Evaluation and Repair of Certain Tangible Property. Prior to Closing, Seller shall, at its cost and expense, engage a qualified contractor to inspect, evaluate and repair, if recommended by such contractor, the pre-action sprinkler systems at the locations identified in Schedule 8.1.9 as well as any other locations in the Purchased Exchanges that GTE subsequently acquires a reason to believe are in need of repair. -46- ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS 11.1 Employment of Transferred Employees. Subject to the other provisions of this Section 11.1, all Active Employees of Seller employed in the Business, and all Active Employees of Seller and its Affiliates whose duties relate primarily to the Business, on the Closing Date (hereinafter collectively referred to as "Transferred Employees") shall be employed by (or become the responsibility of, as applicable) Buyer as of the Closing Date in the same or comparable positions, and at the same or comparable total compensation (including base pay and bonus), as were in effect on the Closing Date, except as otherwise provided in this Agreement. For purposes of the preceding sentence, the term "Active Employees" shall include all full-time and part-time employees, employees on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, short-term disability, on layoff with recall rights, and employees on other approved leaves of absence with a legal or contractual right to reinstatement. For a period of twelve (12) months following the Closing Date, Buyer shall not actively solicit either directly or indirectly through any agents, and Buyer shall not permit any of its Affiliates to actively solicit either directly or indirectly through any agents, any person who retires or otherwise terminates from any employment at or in association with Seller during the six-month period beginning three (3) months before the Closing Date, and Buyer shall neither employ nor permit any of its Affiliates to employ any individuals who are identified to Buyer by Seller as individuals who terminated from any employment or association with Seller during such six-month period. On or before the execution date of this Agreement, Seller shall have delivered to Buyer a list of the persons who would have been Transferred Employees had the Closing Date occurred on August 31, 1999, showing the following information for each such person: (i) the name of each such person; (ii) the name of his or her current employer; (iii) his or her current base pay, 1998 bonus and projected 1999 bonus; (iv) his or her hire date, any rehire date (if available) and years of service; (v) his or her then-current position; (vi) whether such employee is (x) subject to a collective bargaining agreement or represented by a labor organization, if any, and including the name and date of each such bargaining agreement or (y) on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, short-term disability, on layoff with recall rights or on other approved leave of absence with a legal or contractual right to reinstatement; and (vii) for any employee who is not employed exclusively in the Business, a description of the nature of his or her employment and the percentage of his or her time actually allocated to the Business in calendar year 1998. Seller shall update such list at such time or times requested by Buyer, but not more often than as of the end of each calendar quarter occurring between the execution date hereof and the Closing Date, commencing with the quarter ending September 30, 1999, and as of the month ending immediately prior to the Closing Date, in each case assuming the Closing Date had occurred on such date, and shall deliver such updated lists to Buyer within ten (10) days after the end of each such calendar quarter or month-end, as applicable. Any person who is not on such list as updated as of the end of the month immediately preceding the Closing Date shall not be a Transferred Employee, and for all purposes under this Agreement the Transferred Employees shall include only those persons on such list as updated as of such month-end who continue to be Active Employees of Seller employed in the Business or Active Employees of Seller and its Affiliates whose duties relate primarily to the Business, on the Closing Date. -47- 11.1.1 Assumption of Collective Bargaining Agreement Obligations. On and after the Closing Date, Buyer, as successor employer to Seller, shall assume all of the employer's obligations under, and be bound by the provisions of, each collective bargaining agreement to the extent of provisions covering Transferred Employees. Seller shall cooperate with Buyer in Buyer's efforts to contact the unions representing Transferred Employees. 11.1.2 Assumption of Employment and Other Agreements. On and after the Closing Date, except as otherwise provided in this Agreement or in Schedule 11.1.2, Buyer, as successor employer to Seller, shall assume all obligations of each employment agreement or any other agreement by Seller relating to conditions of employment, employment separation, severance, or employee benefits in connection with the Transferred Employees, but only to the extent that they have been disclosed to Buyer on Schedule 8.1.16(a) and copies have been furnished to Buyer as soon as administratively practicable prior to the execution of this Agreement. To the extent that Buyer assumes any obligations under this Article 11, Buyer may reduce or eliminate benefits under any agreement, plan, policy or program only to the extent required to comply with applicable law, or to the extent that Seller, its Affiliates, or any successors or assigns, make amendments or changes to its benefit plans, policies or programs to eliminate or reduce benefits. Until the fifth anniversary of the Closing Date, Seller promptly shall deliver to Buyer a copy of each material amendment or change that Seller makes to its Plans and Employment Agreements to eliminate or reduce benefits thereunder and shall confirm to Buyer on an annual basis whether, and the extent to which, it has amended its Plans and Employment Agreements and provide sufficient detail to enable Buyer to determine whether Seller has reduced or eliminated benefits thereunder. After the fifth anniversary of the Closing Date, Buyer may amend such plans, policies, and programs in any manner it determines, consistent with applicable law and collective bargaining agreements. 11.1.3 Recognition of Transferred Employee Service. On and after the Closing Date, and subject to the provisions of any applicable collective bargaining agreement, and except as otherwise provided in this Article 11, Buyer shall recognize the service of each Transferred Employee for all employment-related purposes determined in accordance with the practices and procedures of Seller in effect on the Closing Date, as if such service had been rendered to Buyer. 11.1.4 Assumption of Obligation to Pay Bonuses. Transferred Employees shall not accrue benefits under any employee benefit policies, plans, arrangements, programs, practices, or agreements of Seller or any of its Affiliates after the Closing Date. Buyer shall assume the obligation to pay to Transferred Employees any bonuses that would have been payable to the Transferred Employees with respect to the calendar year in which the Closing Date occurs had the Transferred Employees remained employees of Seller or one of its Affiliates, in accordance with the provisions of the policy, plan, arrangement, program, practice or agreement under which the bonus would have been paid. 11.1.5 No Duplicate Benefits. Nothing in this Agreement shall cause duplicate benefits to be paid or provided to or with respect to a Transferred Employee under any employee benefit policies, plans, arrangements, programs, practices, or agreements. -48- 11.1.6 Affiliate Employees. If any employee identified in the list provided pursuant to Section 11.1 is an employee of an Affiliate of Seller whose duties relate primarily to the Business, he or she shall be considered a Transferred Employee and shall be treated under this Agreement in a manner that is comparable to the treatment given to the Transferred Employees who are employed by Seller, except that his or her service as of the Closing Date shall be determined in accordance with the practices and procedures of his or her employer, as disclosed to Buyer in accordance with Section 11.1.2. 11.2 Transferred Employee Benefit Matters. 11.2.1 Defined Benefit Plans. (a) Seller Pension Plans. As of the date of this Agreement, Seller participates in the following single-employer defined benefit pension plans maintained in the United States: (i) the GTE Service Corporation Plan for Employees' Pensions (the "Seller Salaried Pension Plan"); and (ii) the GTE North Incorporated Pension Plan for Hourly-Paid Employees of Illinois (the "Seller Hourly Pension Plan"). The plans identified in this Section 11.2.1(a) shall be referred to collectively in this Agreement as the "Seller Pension Plans," and each such plan shall be referred to individually as a "Seller Pension Plan." (b) Buyer Obligations. Buyer shall take all actions necessary and appropriate to ensure that, as soon as practicable after the Closing Date, Buyer maintains or adopts one or more pension plans (hereinafter referred to in the aggregate as the "Buyer Pension Plans" and individually as the "Buyer Pension Plan") effective as of the Closing Date and to ensure that each Buyer Pension Plan satisfies the following requirements as of the Closing Date: (i) the Buyer Pension Plan is a qualified, single-employer defined benefit plan under Section 401(a) of the IRC; (ii) any Buyer Pension Plan that was in effect before the Closing Date shall not have any "accumulated funding deficiency," as defined in Section 302 of ERISA and Section 412 of the IRC, whether or not waived, immediately before the Closing Date; (iii) the Buyer Pension Plan is not the subject of termination proceedings or a notice of termination under Title IV of ERISA; (iv) the Buyer Pension Plan does not exclude Transferred Employees from eligibility to participate therein; (v) the Buyer Pension Plan does not violate the requirements of any applicable collective bargaining agreement; and (vi) with respect to Transferred Employees who were participants in the Seller Hourly Pension Plan by virtue of their coverage under a collective bargaining agreement on the Closing Date, the terms of the Buyer Pension Plan are substantially identical in all material respects to the terms of the Seller Hourly Pension Plan. For purposes of this Section 11.2.1, Transferred Employees who were participants in the Seller Hourly Pension Plan other than by virtue of their coverage under a collective bargaining agreement on the Closing Date shall be treated as Transferred Employees who, on the Closing Date, participate in the Seller Salaried Pension Plan. Within the 30-day period immediately preceding any transfer of assets and liabilities from a Seller Pension Plan to a Buyer Pension Plan pursuant to this Section 11.2.1(b), Buyer shall provide Seller with a written certification, in a form acceptable to Seller, that the Buyer Pension Plan satisfies each of the requirements set forth in this Section 11.2.1(b). -49- (c) Transfer of Liabilities. (i) In accordance with the provisions of this Section 11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for benefits under the Seller Pension Plans, whether or not vested, that would have been paid or payable (but for the transfer of assets and liabilities pursuant to this Section 11.2.1) to or with respect to the Transferred Employees under the terms of the Seller Pension Plans and that are "Section 411(d)(6) protected benefits" (as defined by Section 411(d)(6) of the IRC and the regulations thereunder) that have accrued under the Seller Pension Plan to or with respect to the Transferred Employees based on accredited service and compensation under the Seller Pension Plans as of the Closing Date. For a period of not less than five (5) years after the Closing Date, and unless otherwise required to comply with applicable law or permitted by Section 11.1.2, Buyer shall not amend the Buyer Pension Plans, or permit the Buyer Pension Plans to be amended, to eliminate any benefit, whether or not vested, with respect to which liabilities are transferred pursuant to the foregoing provisions of this subsection (i), to the extent any such benefit is a "Section 411(d)(6) protected benefit" (as defined by Section 411(d)(6) of the IRC and the regulations thereunder). On or before the Closing Date, Seller or an Affiliate thereof shall take action to fully vest Transferred Employees in their benefits (if any) under the Seller Pension Plans. (ii) (A) For purposes of eligibility and vesting under the Buyer Pension Plans, each Transferred Employee whose accrued benefit is transferred from a Seller Pension Plan to a Buyer Pension Plan shall be credited with service as of the Closing Date as determined under the terms of the Seller Pension Plan. The benefit under the Buyer Pension Plan for each Transferred Employee who, on the Closing Date, participates in the Seller Hourly Pension Plan by virtue of his or her coverage under a collective bargaining agreement, shall be calculated under terms of the Buyer Pension Plan that are substantially identical in all material respects to the terms of the Seller Hourly Pension Plan. The benefit for each Transferred Employee who, on the Closing Date, participates in the Seller Salaried Pension Plan, shall not be less than the greater of (x) the sum of the Transferred Employee's "Seller Pension" and "Buyer Pension," or (y) the Transferred Employee's "Total Service Pension," each as determined under the rules set forth in subsection (c)(iii) of this Section 11.2.1. (B) Except as provided in paragraph (E), below, each Transferred Employee who, as of the Closing Date, participates or formerly participated in the Seller Salaried Pension Plan and who, under the terms of the Seller Salaried Pension Plan, has at least 15 years of accredited service and combined years of age and accredited service of at least 74 as of the Closing Date shall be eligible, after the Transferred Employee's employment with the Buyer and its Affiliates is terminated and after the Transferred Employee's combined years of age and years of accredited service equal or exceed 76, to receive his or her "Seller Pension" (as determined under the rules set forth in subsection (c)(iii) of this Section 11.2.1) as an immediate early retirement pension under the applicable Buyer Pension Plan in accordance with early retirement provisions that are no less favorable to the Transferred Employee than the early retirement provisions of the Seller Salaried Pension Plan as of the Closing Date. For a period of at least five (5) years following the Closing Date, the Buyer shall cause any agreement, pursuant to which the accrued benefit of any Transferred Employee under a Buyer Pension Plan is transferred to another pension plan, to incorporate a provision in substance identical to this subsection (ii)( B). -50- (C) Except as provided in paragraph (E), below, the benefit under the Buyer Pension Plan of a GATT Grandfathered Participant, when expressed in the form of a lump sum, shall not be less than the benefit under the Buyer Pension Plan determined without regard to the changes to Section 417 of the IRC made by the Uruguay Round Agreements Act. The method used to convert a GATT Grandfathered Participant's accrued benefit into a lump-sum amount under the Buyer Pension Plan after 1999 shall be not less favorable to a GATT Grandfathered Participant than the method used for similar purposes by the Seller Pension Plan. For purposes of this paragraph (c)(ii)(C), "GATT Grandfathered Participant" shall mean a Transferred Employee (x) with respect to whom liabilities are transferred pursuant to this subsection (c) and (y) who, taking service from Buyer into account as service with Seller, would have been eligible under the Seller Pension Plan, but for the transfer of liabilities pursuant to this subsection (c), to have his benefit under the Seller Pension Plan (when expressed in the form of a lump sum) determined without regard to the changes to Section 417 of the IRC made by the Uruguay Round Agreements Act. (D) Except as provided in paragraph (E), below, each Transferred Employee who, as of the Closing Date, participates or formerly participated in the Seller Hourly Pension Plan shall be eligible, after the Transferred Employee's employment with Buyer and its Affiliates is terminated, to receive an early retirement pension under the Buyer Pension Plan in accordance with early retirement provisions that are no less favorable to the Transferred Employee than the early retirement provisions of the Seller Hourly Pension Plan as of the Closing Date. (E) Notwithstanding paragraphs (B), (C), and (D), above, if the actuary for the Buyer Pension Plan certifies in writing (with a copy to Seller) that the Buyer Pension Plan will violate the requirements imposed by Treasury Regulation section 1.401(a)(4)-4 unless certain benefits otherwise called for by such paragraphs are not provided by the Buyer Pension Plan, Buyer shall cause such benefits to be provided under a nonqualified deferred compensation plan, rather than under the Buyer Pension Plan, at the same time and in the same form as they otherwise would have been provided under the Buyer Pension Plan; provided that (1) such benefits shall be provided by the Buyer Pension Plan to the maximum extent possible without causing the Buyer Pension Plan to violate Treasury Regulation section 1.401(a)(4)-4; and (2) to the extent that any benefit payable outside of the Buyer Pension Plan pursuant to this paragraph (E) is payable to an individual who is not a member of a "select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, Buyer shall cause a cash payment or payments to be made to each such individual within 24 months of the termination of the individual's employment with Buyer, in addition to all other payments due or otherwise payable to such individual, in an amount that is reasonably calculated to be actuarially equivalent, on a pre-tax basis, to the value of such benefit. (iii) (A) The Buyer Pension Plan benefit of a Transferred Employee who, on the Closing Date, participates in the Seller Hourly Pension Plan by virtue of his or her coverage under a collective bargaining agreement, shall be calculated as set forth in paragraph (c)(ii)(A) of this Section 11.2.1. -51- (B) The Buyer Pension Plan benefit of a Transferred Employee who, on the Closing Date, participates in the Seller Salaried Pension Plan, shall be calculated by applying the benefit formula set forth in paragraph (c)(ii)(A) of this Section 11.2.1, in accordance with the rules described in the remainder of this paragraph (B). A Transferred Employee's "Seller Pension" shall be calculated by applying the benefit formula under the Seller Salaried Pension Plan (as in effect on the Closing Date) to the Transferred Employee's service and compensation credited under the Seller Salaried Pension Plan as of the Closing Date. A Transferred Employee's "Buyer Pension" shall be not less than an amount calculated by applying the benefit formula under the Buyer Pension Plan to the Transferred Employee's total accredited service and compensation under the Buyer Pension Plan (including service and compensation credited under the Seller Salaried Pension Plan as of the Closing Date as if such service and compensation had been earned under the Buyer Pension Plan and service and compensation credited under the Buyer Pension Plan after the Closing Date), multiplied by the ratio of accredited service earned after the Closing Date to such total accredited service; provided that for a period of at least five (5) years following the Closing Date, Buyer shall cause the benefit formula used in determining such "Buyer Pension" to provide "section 411(d)(6)" benefits at least as valuable as were provided under the benefit formula applicable to the Transferred Employee under the Seller Salaried Pension Plan on the Closing Date. A Transferred Employee's "Total Service Pension" shall be calculated by applying the benefit formula under the Buyer Pension Plan (before its amendment to reflect the five (5) year inclusion of Seller's formula) to the Transferred Employee's accredited service (including service and compensation credited with the Seller under the Seller Salaried Pension Plan as of the Closing Date as if such service and compensation was earned under the Buyer Pension Plan and service and compensation credited under the Buyer Pension Plan on and after the Closing Date). For purposes of computing a Transferred Employee's "Total Service Pension," compensation received by such a Transferred Employee from the Seller shall be treated as compensation received from the Buyer. The Seller Pension, the Buyer Pension, and the Total Service Pension shall take into account the Transferred Employee's actual age and entire period of service (including service credited under the Seller Salaried Pension Plan as of the Closing Date and service credited under the Buyer Pension Plan on and after the Closing Date) for vesting and benefit eligibility purposes. (C) Each Transferred Employee who is eligible to receive a benefit under the Buyer Pension Plan may elect to receive the portion of said benefit that is equal to the Seller Pension in any form, and with any early retirement or other actuarial subsidy, that was available under the Seller Pension Plan on the Closing Date, without regard to whether the Transferred Employee is eligible to elect or receive, or does elect or receive, the same form of payment or early retirement or actuarial subsidy for the remainder of the pension under the Buyer Pension Plan. (iv) Within sixty (60) days after the Closing Date, Seller shall deliver to Buyer a list reflecting each Transferred Employee's service and compensation under each of the Seller Pension Plans and each Transferred Employee's accrued benefit thereunder as of the Closing Date. -52- (d) Transfer of Assets. (i) In accordance with the provisions of subsection (d)(i) of this Section 11.2.1 and subject to the provisions of subsection (d)(vi) of this Section 11.2.1, Seller shall direct the trustee of the Seller Pension Plans to transfer to the trustee or funding agent of the Buyer Pension Plan the amount required to be transferred by Section 414(l) of the IRC and the regulations thereunder for all Transferred Employees whose accrued benefits are transferred to a Buyer Pension Plan pursuant to Section (c) of this Section 11.2.1, determined using the following assumptions (the "Pension Assets"): Interest Rate: Rate used to value annuities under PBGC Regulationss. 4044.52(a)(1) for the month in which the Closing Date occurs Annual Rate of Increase in Salaries: 0% Annual Rate of Increase in Social Security Taxable Wage Base: 0% Annual Rate of Increase in Consumer Price Index: 0% Annual Rate of Increase in Limits on Benefits and Compensation: 0% Mortality: Rates specified under PBGC Regulationss.4044.53(c) Termination: None Disability: None Retirement: Expected retirement age as specified under PBGC Regulationss. 4044.55 Lump Sums: None All other demographic assumptions to match those used by Seller in the preparation of financial statement disclosures under Statement of Financial Accounting Standards No. 87 for the 1998 fiscal year. In no event shall the amount of Pension Assets transferred be less than the Projected Benefit Obligation associated with all the liabilities being assumed in the aggregate in Section 11.2.1(c) using the assumptions specified by Seller in the preparation of its financial statement disclosures under Statement of Financial Accounting Standards No. 87 for the 1998 fiscal year. The Pension Assets shall be transferred in cash. Except in the case of an arithmetical error in the calculation of the amount of Pension Assets to be transferred, under no circumstances shall Seller or the Seller Pension Plans be liable to transfer any additional amount to Buyer or a Buyer Pension Plan or any other person in respect of the accrued benefits transferred to a Buyer Pension Plan pursuant to Section (c) of this Section 11.2.1, including but not limited to any circumstance under which any person (including a governmental agency) states a claim to some portion or all of the Pension Assets. -53- (ii) Seller shall appoint an actuary ("Seller's Actuary") to determine the amount to be transferred pursuant to subsection (d)(i) of this Section 11.2.1 and shall provide such determination to Buyer, together with a computer file containing all of the data used by Seller's actuary to calculate Pension Assets, within ninety (90) days after the Closing Date. Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the right to audit and review the determination made by Seller's Actuary. If Buyer's Actuary is unable to agree with Seller's Actuary on the amount of the transfer within ninety (90) days after Seller informs Buyer of the amount to be transferred and provides Buyer with the computer file containing all of the data used by Seller's actuary to calculate Pension Assets, Seller and Buyer shall jointly select a third actuary, whose determination shall be binding on Seller and Buyer. Each of Seller and Buyer shall bear the fees, costs and expenses of their respective actuaries, and the fees, costs, and expenses of the third actuary shall be borne one-half by Seller and one-half by Buyer. (iii) Interest on the Pension Assets shall accrue from the Closing Date to the actual date of transfer at the assumed discount rate used in accordance with paragraph (i) of this Section (d); provided that any Pension Assets that are distributed from the Seller Pension Plans before the date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1 shall be credited with interest (such interest to be credited to the Buyer Pension Plans) only from the Closing Date to the date of distribution. (iv) Under the terms of each Buyer Pension Plan, the accrued benefit of each Transferred Employee immediately after the transfer of assets and liabilities pursuant to this Section 11.2.1 shall not be less than the sum of each Transferred Employee's accrued benefits under the Seller Pension Plan and the Buyer Pension Plan immediately before the transfer of assets and liabilities. Neither Seller nor its Affiliates nor the Seller Pension Plans nor any trustee thereof shall retain any liability for benefits under the Seller Pension Plans for any Transferred Employee with respect to whom cash has been transferred to a Buyer Pension Plan pursuant to this Section 11.2.1 or distributed pursuant to subsection (d)(vi) of this Section 11.2.1. (v) In connection with the transfer of assets and liabilities pursuant to this Section 11.2.1, Seller and Buyer shall cooperate with each other in making all appropriate filings required by the IRC or ERISA and the regulations thereunder, and the transfer of assets and liabilities pursuant to this Section 11.2.1 shall not take place until as soon as practicable after the latest of (i) the expiration of the 30-day period following the filing of any required notices with the IRS pursuant to Section 6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Pension Plan and a copy of the most recent determination letter from the IRS to the effect that the Buyer Pension Plan is qualified under Section 401(a) of the IRC, together with documentation reasonably satisfactory to Seller of the due adoption of any amendments to the Buyer Pension Plan required by the IRS as a condition to such qualification and a certification -54- from Buyer that no events have occurred that adversely affect the continued validity of such determination letter (apart from the enactment of any Federal law for which the remedial amendment period under Section 401(b) of the IRC has not yet expired), and (yy) information enabling the enrolled actuary for the Buyer Pension Plan to issue the certification required by Section 6058(b) of the IRC. (vi) (A) If, after the Closing Date and before the date of transfer of assets and liabilities from the Seller Pension Plans pursuant to this Section 11.2.1, the accrued benefit as of the Closing Date becomes payable under a Seller Pension Plan to or with respect to a Transferred Employee, Buyer shall (xx) furnish GTE Service Corporation with a copy of a properly completed application for such benefits, and (yy) direct GTE Service Corporation to instruct the trustee of the Seller Pension Plan to make benefit payments in the form and amount determined by GTE Service Corporation in accordance with the properly completed application for benefits. Seller shall cause GTE Service Corporation to comply with any such direction. (B) Notwithstanding anything herein to the contrary, the assets and liabilities to be transferred from the trustee of the Seller Pension Plans to the trustee or funding agent of the Buyer Pension Plan pursuant to this Section 11.2.1 shall be reduced, as provided in this subsection (vi), to reflect any benefit payments made pursuant to this subsection (vi) regardless of the form in which paid and any expenses described in paragraph (B) of this subsection (vi) that have not otherwise been paid pursuant to this subsection (vi). 11.2.2 Savings Plans. (a) As of the date of this Agreement, Seller participates in the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred to as the "Seller Savings Plans"). Except as provided in Section (g) of this Section 11.2.2, Transferred Employees shall not be entitled to make contributions to or to benefit from matching or other contributions under the Seller Savings Plans on and after the Closing Date. (b) Buyer shall take all action necessary and appropriate to ensure that, as soon as practicable after the Closing Date, Buyer maintains or adopts one or more savings plans (hereinafter referred to in the aggregate as the "Buyer Savings Plans" and individually as the "Buyer Savings Plan") effective as of the Closing Date and to ensure that each Buyer Savings Plan satisfies the following requirements as of the Closing Date: (i) the Buyer Savings Plan is a qualified, single-employer individual account plan under Section 401(a) of the IRC; (ii) the Buyer Savings Plan does not exclude Transferred Employees from eligibility to participate therein; (iii) the Buyer Savings Plan permits Transferred Employees to make before-tax contributions (under Section 401(k) of the IRC) and provides for matching contributions by the Buyer; and (iv) the Buyer Savings Plan does not violate the requirements of any applicable collective bargaining agreement. Within the thirty (30) day period immediately preceding any transfer of assets and liabilities from a Seller Savings Plan to a Buyer Savings Plan pursuant to this Section 11.2.2, Buyer shall provide Seller with a written certification, in a form acceptable to Seller, that the Buyer Savings Plan satisfies each of the requirements set forth in this Section (b). -55- (c) (i) Seller shall fully vest the Transferred Employees in their account balances under the Seller Savings Plan as of the Closing Date and shall direct the trustee of the Seller Savings Plans to transfer to the trustee or funding agent of the Buyer Savings Plans an amount in cash equal in value to the account balances of the Transferred Employees covered by the Seller Savings Plans as of the date of the transfer; provided that to the extent the account balances to be transferred consist in whole or in part of outstanding loans, Seller shall direct the trustee of the Seller Savings Plans to transfer to the trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the promissory notes and related documents evidencing such loans. Buyer and Seller shall take such actions as may be required to effect the assignment of such loans by the trustee of the Seller Savings Plan to the trustee or funding agent of the Buyer Savings Plan, and Buyer shall cause the trustee or funding agent of the Buyer Savings Plan to accept the assignment of such loans. (ii) After the date of the transfer of assets and liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities for the benefits payable to or with respect to such Transferred Employees under the Seller Savings Plans, and Seller and the Seller Savings Plans and their implementing trust shall retain no liability for such benefits. (d) For purposes of eligibility and vesting under the Buyer Savings Plans, each Transferred Employee shall be credited with service as of the Closing Date as determined under the terms of the Seller Savings Plans. As soon as practicable after the Closing Date, Seller shall cause GTE Service Corporation to deliver to Buyer a list of the Transferred Employees covered by the Seller Savings Plans, together with each Transferred Employee's service under each of the Seller Savings Plans as of the Closing Date. (e) In connection with the transfer of assets and liabilities pursuant to this Section 11.2.2, Seller and Buyer shall cooperate with each other in making all appropriate filings required by the IRC or ERISA and the regulations thereunder, and the transfer of assets and liabilities pursuant to this Section 11.2.2 shall not take place until as soon as practicable after the latest of (i) the expiration of the thirty (30) day period following the filing of any required notices with the IRS pursuant to Section 6058(b) of the IRC, and (ii) the date Buyer has delivered to Seller (xx) a copy of the Buyer Savings Plan and a copy of the most recent determination letter from the IRS to the effect that the Buyer Savings Plan is qualified under Sections 401(a) and 401(k) of the IRC, together with documentation reasonably satisfactory to Seller of the due adoption of any amendments to the Buyer Savings Plan required by the IRS as a condition to such qualification and a certification from Buyer that no events have occurred that adversely affect the continued validity of such determination letter (apart from the enactment of any Federal law for which the remedial amendment period under Section 401(b) of the IRC has not yet expired). (f) As of the Closing Date, Seller shall cause GTE Service Corporation to deliver to Buyer a list of the Transferred Employees who have outstanding loans under the Seller Savings Plans, together with copies of said Transferred Employees' notes, disclosure statements, and security agreements under the Seller Savings Plans. Seller shall also notify Buyer within thirty (30) days after the Closing Date of any Transferred Employee who initiated a loan within thirty (30) days before the Closing Date. Subject to obtaining the consent of the applicable Transferred Employee if required by law, from the -56- Closing Date until the earliest of (i) the actual date of transfer of assets and liabilities pursuant to this Section 11.2.2; (ii) the full amortization of the Transferred Employee's indebtedness; (iii) the distribution of the entire balance of the Transferred Employee's accounts; or (iv) the last date on which Buyer or one of its Affiliates pays remuneration to the Transferred Employee, Buyer or its Affiliate shall (x) continue the payroll deductions pursuant to which each such Transferred Employee is discharging indebtedness to a Seller Savings Plan and (y) remit the deducted funds to Fidelity Management Trust Company, the trustee of the Seller Savings Plans, as soon as practicable, but in no event more than thirty (30) days, after the date of deduction, together with an accounting that identifies the Transferred Employees with respect to whom the funds were deducted and the amount deducted for each Transferred Employee. All such remitted funds shall be transferred to the appropriate Seller Savings Plan and applied to reduce the appropriate Transferred Employee's outstanding indebtedness. Buyer's obligations under this Section (f) are limited to payroll deductions of loan repayments by the Transferred Employees and remittance of those funds, and nothing herein shall be construed to obligate Buyer to repay to Seller any portion of the outstanding indebtedness of the Transferred Employees that are not otherwise discharged by the Transferred Employees themselves. (g) Seller shall make all required matching contributions with respect to the Transferred Employees' contributions made to the Seller Savings Plan by the Transferred Employees in respect of the period ending on or before the Closing Date in the year containing the Closing Date that would have been eligible for matching contributions without regard to any continued service (e.g., last day of the year employment or 1000 hours) requirements. Such matching contributions shall be made not later than the date on which all other matching contributions are made to the Seller Savings Plans with respect to contributions made at the same time as the Transferred Employees' contributions. For not less than five (5) calendar years following the Closing Date (including the year in which the Closing occurs), Buyer shall, subject to applicable plan qualification requirements, provide salaried Transferred Employees with a matching contribution in the Buyer's Savings Plan equal to $.75 for each $1 contributed by Transferred Employees up to six percent (6%) of compensation (as defined in Buyer's Savings Plan). 11.2.3 Welfare Plans. (a) Buyer shall take all action necessary and appropriate to ensure that, as soon as practicable after the Closing Date, Buyer maintains or adopts, as of the Closing Date, one or more employee welfare benefit plans, including medical, health, dental, flexible spending account, accident, life, short-term disability, and long-term disability and other employee welfare benefit plans providing preretirement welfare benefits for the benefit of (i) the non-bargained Transferred Employees (the "Non-union Welfare Plans") and (ii) the union-represented Transferred Employees in accordance with the provisions of applicable collective bargaining agreements (the "Bargained Welfare Plans"). The Non-union Welfare Plans and the Bargained Welfare Plans are hereinafter referred to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall provide as of the Closing Date pre-retirement benefits to Transferred Employees (and their dependents and beneficiaries) that, in the aggregate, are comparable to the pre-retirement benefits to which they were entitled under the corresponding employee welfare benefit plans maintained by Seller on the Closing Date. For purposes of determining eligibility to participate in each Buyer -57- Welfare Plan, each Transferred Employee shall be credited with service, determined under the terms of the corresponding welfare plans maintained by Seller on the Closing Date (hereinafter referred to collectively as the "Seller Welfare Plans"). Any restrictions on coverage for pre-existing conditions or requirements for evidence of insurability under the Buyer Welfare Plans shall be waived for Transferred Employees, and Transferred Employees shall receive credit under the Buyer Welfare Plans for co-payments and payments under a deductible limit made by them and for out-of-pocket maximums applicable to them during the plan year of the Seller Welfare Plan in accordance with the corresponding Seller Welfare Plans. As soon as practicable after the Closing Date, Seller shall deliver to Buyer a list of the Transferred Employees who had credited service under a Seller Welfare Plan, together with each such Transferred Employee's service, co-payment amounts, and deductible and out-of-pocket limits under such plan. (b) (i) Except as otherwise provided in subsection (b)(ii) or (b)(iii) of this Section (b) or in an applicable collective bargaining agreement, Buyer shall provide or cause to be provided retiree medical, health, and life benefits to each Transferred Employee (or the dependents or beneficiaries of such Transferred Employee, as the case may be) under the same terms and conditions as apply to comparable employees of Buyer, and Seller shall have no obligation to provide retiree medical, health, and life benefits in respect of any Transferred Employee on or after the Closing Date. (ii) Subject to Section 11.4, below, following the retirement from Buyer and its Affiliates or any successor thereof of a Transferred Employee who is not subject to a collective bargaining agreement as of the Closing Date, who has combined age and years of accredited service (within the meaning of the Seller Pension Plan) as of the Closing Date equal to at least 66, and who as of his or her retirement has combined age and years of accredited service (within the meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years of accredited service (within the meaning of the Seller Pension Plan) (a "Retired Nonunion Transferred Employee"), Seller shall provide or cause to be provided to each such Retired Nonunion Transferred Employee (and/or his or her dependents and beneficiaries) retiree medical, health, and life benefits under terms and conditions that are substantially identical to the terms and conditions under the corresponding programs offered by Seller to its similarly situated noncollectively bargained employees retiring as of the Closing Date; provided that nothing in this subsection (b)(ii) shall be construed to prevent any Retired Nonunion Transferred Employee (or his or her dependents or beneficiaries) from voluntarily relinquishing such benefits. For a period of five (5) years following the retirement of each Retired Nonunion Transferred Employee from Buyer and its Affiliates or any successor thereof, Buyer shall reimburse Seller, in accordance with this subsection (b)(ii), for the cost of the retiree medical, health, and life coverage for which Seller is responsible and that Seller actually provides pursuant to this subsection (b)(ii). The five (5) year time period for this reimbursement obligation shall be determined separately in respect of each Retired Nonunion Transferred Employee. For each year for which Buyer is required to reimburse Seller under this subsection (b)(ii), Buyer shall pay Seller annually in arrears, within 30 days after Seller provides a statement therefor to Buyer, (A) $4,000 with respect to each Retired Nonunion Transferred Employee who has not yet attained -58- age 65 during the year for which the payment is made and $4,000 with respect to each spouse who is covered with respect to a Retired Nonunion Transferred Employee and who has not yet attained age 65 during the year for which the payment is made, and (B) $1,800 with respect to each Retired Nonunion Transferred Employee who has attained at least age 65 during the year for which the payment is made and $1,800 with respect to each spouse who is covered with respect to a Retired Nonunion Transferred Employee and who has attained at least age 65 during the year for which the payment is made. No reimbursement shall be due with respect to any dependent, other than a spouse, covered with respect to a Retired Nonunion Transferred Employee. The reimbursement obligation for partial years shall be prorated based on the portion of the year covered by the obligation. Each Retired Nonunion Transferred Employee (or his or her dependent or beneficiary, as the case may be) who is provided benefits by Seller under this subsection (b)(ii) shall be required to pay to Seller any premium, contribution or other payment required under, and shall be subject to any copayment or deductible required under, the terms of Seller's applicable retiree medical, health, or life benefit plan; to the extent that any amount constituting such a payment is deducted from any plan, program, or arrangement maintained by Buyer or one of its Affiliates or is otherwise paid to Buyer or one of its Affiliates by such person, Buyer shall cause such amount to be paid to Seller as soon as administratively practicable. (iii) In addition to any other benefits to be provided pursuant to this Article XI, following the retirement from Buyer and its Affiliates or any successor thereof of a Transferred Employee who is subject to a collective bargaining agreement as of the Closing Date and who as of his or her retirement has combined age and years of accredited service (within the meaning of the Seller Pension Plan) equal to at least 76 and at least 15 years of accredited service (within the meaning of the Seller Pension Plan) (a "Retired Union Transferred Employee"), Buyer shall provide or cause to be provided to each such Retired Union Transferred Employee (and/or his or her dependents and beneficiaries) retiree medical, health, and life benefits, for a period of at least five (5) years following the Closing Date, under terms and conditions that are substantially identical to the terms and conditions under the corresponding programs offered by Seller to its similarly situated collectively bargained employees retiring as of the Closing Date. (iv) Benefits provided pursuant to subsections (b)(ii) and (b)(iii) of this Section (b) (including for this purpose, the determination of who is eligible for such benefits) shall take into account service with Buyer or any of its Affiliates on and after the Closing Date in the same manner as if such post-Closing Date service was performed with Seller. Buyer shall provide Seller with such information as shall be reasonably required to implement the immediately preceding sentence with respect to subsection (b)(ii) of this Section (b). (c) Buyer shall refer to GTE Service Corporation and GTE Service Corporation shall assume responsibility for any valid claim under a Seller Welfare Plan for disability, medical, or dental benefits made by a Transferred Employee on or after the Closing Date arising from a disability or loss incurred on or before the Closing Date. Nothing in this Section 11.2.3 shall require Seller, any Affiliate of Seller, or the Seller Welfare Plans to make any payment or to provide any benefit not otherwise provided by the terms of the Seller Welfare Plans. (d) Seller, Buyer, their respective Affiliates, and the Seller Welfare Plans and the Buyer Welfare Plans shall assist and cooperate with each other in the disposition of claims made under the Seller Welfare Plans pursuant to subsection (c) of this Section 11.2.3, and in providing each other with any records, documents, or other information within its control or to which it has access that is reasonably requested by any other as necessary or appropriate to the disposition, settlement, or defense of such claims. -59- (e) Except as otherwise provided in Section 11.2.3(f), nothing in this Agreement shall require Seller or its Affiliates to transfer assets or reserves with respect to the Seller Welfare Plans to Buyer or the Buyer Welfare Plans. (f) Seller will make available to Buyer, prior to the Closing Date, a list of those Transferred Employees that have participated in the health or dependent care reimbursement accounts of Seller under the GTE Flexible Reimbursement Plan (the "FRP"), together with the elections made prior to the Closing Date with respect to such accounts through the Closing Date, any balances standing to the credit of Transferred Employees, and the corresponding amounts being transferred to the corresponding Buyer's plan in accordance with the following sentence. As of the Closing Date, Seller shall cause the portion of the FRP applicable to Transferred Employees to be segregated into a separate component and all account balances of the Transferred Employees in the FRP shall be transferred to a flexible reimbursement plan that Buyer shall cause to be maintained for the duration of the calendar year in which the Closing Date occurs. (g) On and for a period of at least three (3) years after the Closing Date, Transferred Employees not subject to a collective bargaining agreement shall be eligible for benefits under a Buyer severance or separation pay policy or plans that are the same as or comparable to the severance or separation pay policy benefits that are provided by Seller (or the applicable Affiliate, if the Transferred Employee is employed by an employer other than the Seller) or a Seller Pension Plan as of the Closing Date. Buyer shall recognize the service of each such Transferred Employee with Seller and its Affiliates for eligibility, vesting, and benefit determinations under the Buyer severance or separation pay policy or plan. Transferred Employees subject to a collective bargaining agreement shall be eligible for severance or separation pay benefits in accordance with the terms of the applicable collective bargaining agreement. 11.3 Miscellaneous Benefits. 11.3.1 Vacation. (a) On or after the Closing Date, Buyer shall allow Transferred Employees to receive paid time off in the calendar year of the Closing for any unused vacation time accrued prior to the Closing Date. Seller and its Affiliates shall have no liability to Transferred Employees for the vacation payments described in this Section 11.3.1. Seller shall pay Transferred Employees any banked vacation on or before the Closing Date. Schedule 11.3.1 to be prepared by Seller and submitted to Buyer on or before the Closing Date shall list the accrued but unused vacation pay, as of the Closing Date, of each Transferred Employee for the calendar year in which the Closing Date occurs. -60- (b) For purposes of determining a Transferred Employee's eligibility for vacation under Buyer's vacation plan, a Transferred Employee shall be credited, as of the first day of the first calendar year that begins after the calendar year in which the Closing Date occurs, with service for the calendar year in which the Closing Date occurs in an amount equal to the aggregate of the Transferred Employee's service with both Seller and Buyer during the calendar year in which the Closing Date occurs. 11.3.2 Transferred Employee Statements. Within sixty (60) days after the Closing Date, Seller shall prepare and distribute to all Transferred Employees an accurate and complete statement of their accrued benefits under Seller's Pension Plans as of the Closing Date and shall provide Buyer with a true and complete copy of the same. Such statements shall be sufficiently detailed to readily permit Buyer and the Transferred Employees to determine the accuracy thereof. 11.4 Employee Rights. Nothing herein expressed or implied shall confer upon any employee of Seller or its Affiliates, or Buyer or its Affiliates, or upon any legal representative of such employee, or upon any collective bargaining agent, any rights or remedies, including any right to employment or continued employment for any specified period, of any nature or kind whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be deemed to confer upon any person (nor any beneficiary thereof) any rights under or with respect to any plan, program, or arrangement described in or contemplated by this Agreement, and each person (and any beneficiary thereof) shall be entitled to look only to the express terms of any such plan, program, or arrangement for his or her rights thereunder. Nothing in this Agreement shall cause Buyer or its Affiliates, nor Seller or its Affiliates to have any obligation to provide employment or any employee benefits to any individual who is not a Transferred Employee or, except as otherwise provided in Section 11.1.2 with respect to employment agreements, to continue to employ any Transferred Employee for any period of time following the Closing Date. 11.5 WARN Act Requirements. On and after the Closing Date, Buyer shall be responsible with respect to Transferred Employees and their beneficiaries for compliance with the Worker Adjustment and Retraining Notification Act of 1988 and any other applicable law, including any requirement to provide for and discharge any and all notifications, benefits, and liabilities to Transferred Employees and government agencies that might be imposed as a result of the consummation of the transactions contemplated by this Agreement or otherwise. 11.6 Indemnification. 11.6.1 Indemnification of Seller. Notwithstanding anything to the contrary in Article 12 of this Agreement, Buyer shall indemnify and hold harmless Seller, its Affiliates, and their respective directors, officers, -61- employees, agents, and assigns, and each employee benefit plan or arrangement maintained or contributed to by Seller or an Affiliate thereof (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and against any and all claims, demands, actions, administrative or other proceedings, causes of action, liability, loss, cost, damage, and expense (including reasonable attorneys' fees) (i) in any way arising out of or incurred as a result of any action by Buyer, its Affiliates, their respective directors, officers, employees, or agents, the administrators or fiduciaries of any employee benefit plan maintained or contributed to by Buyer or an Affiliate thereof (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA), or any of their successors, except as otherwise expressly permitted under this Agreement, to change, reduce contributions to, terminate, fail to continue, fail to pay benefits under, or fail to manage or administer properly any employee benefit plan or arrangement (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA) on or after the Closing Date, or (ii) in any way arising out of or incurred as a result of any action that is a breach of any the covenants, representations, warranties, or obligations of any such person under this Agreement. 11.6.2 Indemnification of Buyer. Notwithstanding anything to the contrary in Article 12 of the Agreement, Seller shall indemnify and hold harmless Buyer, its Affiliates, and their respective directors, officers, employees, agents, and assigns, and each employee benefit plan or arrangement maintained or contributed to by Buyer or an Affiliate thereof (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and against any and all claims, demands, actions, administrative or other proceedings, causes of action, liability, loss, cost, damage, and expense (including reasonable attorneys' fees) (i) in any way arising out of or incurred as a result of any action by Seller, its Affiliates, their respective directors, officers, employees, or agents, the administrators or fiduciaries of any employee benefit plan maintained or contributed to by Seller or an Affiliate thereof (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA), or any of their successors, to fail to pay benefits under, or fail to manage or administer properly any employee benefit plan or arrangement (whether or not such plan or arrangement is an "employee benefit plan" within the meaning of Section 3(3) of ERISA) before the Closing Date, or (ii) in any way arising out of or incurred as a result of any action that is a breach of any the covenants, representations, warranties, or obligations of any such person under this Agreement. ARTICLE 12 INDEMNIFICATION 12.1 Survival of Representations. Warranties and Covenants. (a) The representations and warranties contained in Sections 8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect indefinitely. Each of the other representations and warranties contained in Article 8 will terminate, without further action, on the date which is fifteen (15) months following the Closing Date (the "Expiration Date"). -62- (b) This Article 12 shall survive any termination of this Agreement and the Ancillary Agreements and the indemnification contained in this Article 12 shall survive the Closing and shall remain in effect (i) indefinitely, with respect to any Indemnifiable Claim related to the breach of any representation or warranty which pursuant to Section 12.1(a) survives indefinitely, (ii) indefinitely or for the applicable period of performance for such covenant (provided that in the case of covenants, the Indemnitee shall have 60 days after the end of such performance period to provide notice to the Indemnifying Party of a claim for indemnification arising during the performance period), with respect to any Indemnifiable Claim arising under Section 12.2(a)(ii)(B) (post closing covenants), (iii) indefinitely, with respect to any Indemnifiable Claim arising under Section 12.2(a)(iii) (Retained Liabilities) or 12.2(b)(iii) (Assumed Liabilities), and (iv) until the Expiration Date for any Indemnifiable Claims that are not specified in any of the preceding clauses. Unless a claim for indemnification with respect to any alleged breach of any representation or warranty is asserted by notice given as herein provided that specifically identifies a particular breach and the underlying facts relating thereto, which notice is given within the applicable period of survival for such representation or warranty, such claim may not be pursued and is irrevocably waived after such time. Without limiting the generality or effect of the foregoing, no claim for indemnification with respect to any representation or warranty will be deemed to have been properly made except (i) to the extent it is based upon a Third Party Claim made or brought prior to the expiration of the survival period for such representation or warranty, or (ii) to the extent based on Indemnifiable Losses actually incurred by an Indemnitee prior to the expiration of the survival period for such representation or warranty. 12.2 Indemnification. (a) Following the Closing and subject to the other sections of this Article 12, Seller will indemnify, defend and hold harmless Buyer and its Affiliates and their respective directors, officers, and agents from and against all Indemnifiable Losses relating to, resulting from or arising out of (i) any inaccuracy in any of the representations and warranties made by Seller in Section 8.1 of this Agreement, (ii) a breach by Seller of any covenant of Seller contained in this Agreement, which covenant requires performance by Seller (A) prior to or at the Closing, or (B) after the Closing, and (iii) any of the Retained Liabilities. (b) Following the Closing and subject to the other sections of this Article 12, Buyer will indemnify, defend and hold harmless Seller and its Affiliates and their respective directors, officers, and agents from and against all Indemnifiable Losses relating to, resulting from or arising out of (i) any inaccuracy in any of the representations or warranties made by Buyer in Section 8.2 of this Agreement, (ii) a breach by Buyer of any covenant of Buyer contained in this Agreement, which covenant requires performance by Buyer prior to, at or after the Closing, and (iii) any of the Assumed Liabilities. (c) Payments made under this Section 12.2 shall be treated by Buyer and Seller as purchase price adjustments and Buyer and Seller shall file all Tax Returns consistent with such treatment. Notwithstanding anything to the contrary contained herein, neither party shall be indemnified or reimbursed for any Tax consequences arising from the receipt or accrual of an indemnity payment hereunder including any Tax consequences arising from adjustments to the basis of any asset resulting from an adjustment to the Purchase Price or any additional or reduced taxes resulting from any such basis adjustment. -63- (d) In the event that a claim against an Indemnifying Party arises under both Section 12.2(a)(i) and Section 12.2(a)(ii), or under both Section 12.2(b)(i) and Section 12.2(b)(ii), then the Indemnitee's rights to pursue its claim under Section 12.2(a)(ii) or Section 12.2(b)(ii), as applicable, will exist notwithstanding the provisions of Section 12.3(d). (e) In the event that a claim against an Indemnifying Party arises under both Section 12.2(a)(i) and Section 12.2(a)(iii), or under both Section 12.2(b)(i) and Section 12.2(b)(iii), then the Indemnitee's rights to pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as applicable, will exist notwithstanding the provisions of Sections 12.3(d). (f) In the event a claim against an Indemnifying Party arises under both Section 12.2(a)(ii) and 12.2(a)(iii), or under both Section 12.2(b)(ii) and 12.2(b)(iii), then the Indemnitee's rights to pursue the claim under Section 12.2(a)(iii) or Section 12.2(b)(iii), as applicable, will exist notwithstanding the provisions of Section 12.3(d). 12.3 Limitations on Liability. (a) For purposes of this Agreement, (i) "Indemnification Payment" means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement, (ii) "Indemnitee" means any person or entity entitled to indemnification under this Agreement, (iii) "Indemnifying Party" means any person or entity required to provide indemnification under this Agreement, and (iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees and expenses) actually incurred in connection with any actions, suits, demands, assessments, judgments and settlements, in any such case (x) reduced by the amount of insurance proceeds recovered from any person or entity with respect thereto, and (y) excluding any such losses, liabilities damages, costs and expenses to the extent that the underlying liability or obligation is the result of any action taken or omitted to be taken by any Indemnitee. (b) Notwithstanding anything to the contrary contained in this Agreement, if the Closing occurs, (i) no claim for indemnification may be asserted under Section 12.2(a) with respect to any matter discovered by or known to Buyer on or before the date of this Agreement, or after the date of this Agreement and on or before the Closing Date to the extent that Buyer has not provided timely notice to Seller of the existence of such claim in accordance with Section 10.2, and (ii) no claim for indemnification may be asserted under Section 12.2(b) with respect to any matter discovered by or known to Seller on or before the Closing Date. (c) As between Seller and any Affiliate of Seller, on the one hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies, rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2, 11.6, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights and obligations with respect to the liabilities and obligations referred to in Section 12.2 and any breach of the representations, warranties or covenants set forth in this Agreement. Without limiting the foregoing, as a material inducement to entering into this Agreement, to the fullest extent permitted by law, each of the parties waives any claim or cause of action that it otherwise might assert, and any breach of the representations, warranties or covenants set forth in this Agreement, except for claims or causes of action brought under and subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.6 and 13.3 or any Indemnifiable Losses arising out of actual fraud. -64- (d) Notwithstanding any other provision of this Agreement or of any applicable Law, no Indemnitee will be entitled to make a claim against an Indemnifying Party under Sections 11.2.2, 11.6, 12.2(a)(i) or 12.2(b)(i) until: (i) the aggregate amount of Indemnifiable Losses incurred by the Indemnitee for any individual occurrence or related series of occurrences giving rise to such Indemnifiable Losses exceeds $25,000, and (ii) the aggregate amount of claims that may be asserted for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an amount equal to 2% of the Purchase Price, but only to the extent such amount, if any, (a) exceeds an amount equal to 2% of the Purchase Price and (b) is less than the amount set forth in Section 12.3(e). (e) Notwithstanding any other provision of this Agreement, the indemnification obligations of Seller under Section 12.2(a) (except with respect to indemnification for inaccuracies of the representations contained in Sections 8.1.1 through 8.1.6) or the indemnification obligation of Buyer under Section 12.2(b) will not exceed the amount of an amount equal to 6.5% of the Purchase Price respectively. (f) No Indemnifying Party shall be liable to or obligated to indemnify any Indemnitee hereunder for any consequential, special, multiple, punitive or exemplary damages including, but not limited to, damages arising from loss or interruption of business, profits, business opportunities or goodwill, loss of use of facilities, loss of capital, claims of customers, or any cost or expense related thereto, except to the extent such damages have been recovered by a third person and are the subject of a Third Party Claim for which indemnification is available under the express terms of this Section 12. (g) Seller and Buyer shall cooperate with each other with respect to resolving any claim or liability with respect to which one party is obligated to indemnify the other party hereunder, including by making commercially reasonable efforts to mitigate or resolve any such claim or liability. 12.4 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any action or proceeding by any entity that is not a party to this Agreement or an Affiliate of such a party (a "Third Party Claim") against such Indemnitee, with respect to which an Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnitee will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than ten (10) calendar days after receipt of notice of such Third Party Claim; provided, however, that the failure of the Indemnitee to -65- notify the Indemnifying Party shall only relieve the Indemnifying Party from its obligation to indemnify the Indemnitee pursuant to this Article 12 to the extent that the Indemnifying Party is materially prejudiced by such failure (whether as a result of the forfeiture of substantive rights or defenses or otherwise). Upon receipt of notification of a Third Party Claim, the Indemnifying Party shall be entitled, upon written notice to the Indemnitee, to assume the investigation and defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether or not the Indemnifying Party elects to assume the investigation and defense of any Third Party Claim, the Indemnitee shall have the right to employ separate counsel and to participate in the investigation and defense thereof; provided, however, that the Indemnitee shall pay the fees and disbursements of such separate counsel unless (i) the employment of such separate counsel has been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party has failed to assume the defense of such Third Party Claim within reasonable time after receipt of notice thereof with counsel reasonably satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in which such claim, demand, action or cause of action has been asserted include both the Indemnifying Party and such Indemnitee and, in the reasonable judgment of counsel to such Indemnitee, there exists one or more defenses that may be available to the Indemnitee that are in conflict with those available to the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall not be liable for the fees and disbursements of more than one counsel for all Indemnified Parties in connection with any one proceeding or any similar or related proceedings arising from the same general allegations or circumstances. Without the prior written consent of the Indemnitee, the Indemnifying Party will not enter into any settlement of any Third Party Claim that would lead to liability or create any financial or other obligation on the part of the Indemnitee unless such settlement includes as an unconditional term thereof the release of the Indemnitee from all liability in respect of such Third Party Claim. If a settlement offer solely for money damages is made by the applicable third party claimant, and the Indemnifying Party notifies the Indemnitee in writing of the Indemnifying Party's willingness to accept the settlement offer and pay the amount called for by such offer without reservation of any rights or defenses against the Indemnitee, the Indemnitee may continue to contest such claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such Third Party Claim that the Indemnifying Party has an obligation to pay hereunder shall be limited to the lesser of (A) the amount of the settlement offer that the Indemnitee declined to accept plus the Losses of the Indemnitee relating to such Third Party Claim through the date of its rejection of the settlement offer or (B) the aggregate Losses of the Indemnitee with respect to such claim. (b) Any claim by an Indemnitee on account of an Indemnifiable Loss that does not result from a Third Party Claim (a "Direct Claim") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after an Executive Officer of the Indemnitee becomes actually aware of the incurrence thereof, and the Indemnifying Party will have a period of thirty (30) calendar days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such thirty (30) calendar day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnitee will be free to pursue such remedies as may be available to the Indemnitee on the terms and subject to the provisions of this Article 12. (c) If after the making of any Indemnification Payment the amount of the Indemnifiable Loss to which such payment relates is reduced by -66- recovery, settlement or otherwise under any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other entity, the amount of such reduction (less any costs, expenses, premiums or taxes incurred in connection therewith) will promptly be repaid by the Indemnitee to the Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying Party will, to the extent of such Indemnification Payment, be subrogated to all rights of the Indemnitee against any third party that is not an Affiliate of the Indemnitee in respect of the Indemnifiable Loss to which the Indemnification Payment relates; provided that (i) the Indemnifying Party shall then be in compliance with its obligations under this Agreement in respect of such Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its Indemnifiable Loss, all claims of the Indemnifying Party against any such third party on account of said Indemnification Payment will be subrogated and subordinated in right of payment to the Indemnitee's rights against such third party. Without limiting the generality or effect of any other provision of this Article 12, each such Indemnitee and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described subrogation and subordination rights. 12.5 No Indemnifiable Claims Resulting From Governmental Authority Action. Buyer has no indemnifiable or otherwise compensable claim that any of Seller's representations or warranties in Section 8.1 (other than Sections 8.1.4(b), 8.1.15 and 8.1.25) is inaccurate, or that any covenant has been breached, to the extent that such claim is predicated on any action by the FCC or ICC undertaken after Closing or any action the FCC or ICC requires Seller to undertake after Closing. Buyer may only bring such a claim to the extent that its basis is independent of any such FCC or ICC action. ARTICLE 13 TERMINATION 13.1 Termination Rights. This Agreement may be terminated at any time prior to the Closing Date: (a) at any time by mutual written consent of the parties; (b) by Buyer if any of the conditions provided in Section 6.1 of this Agreement have not been met within eighteen (18) months after execution of this Agreement and have not been waived by Buyer; (c) by Seller if any of the conditions provided in Section 6.2 of this Agreement have not been met within eighteen (18) months after execution of this Agreement and have not been waived by Seller; (d) by Seller if any obligations of Buyer provided in Article 3 become incapable of being fulfilled; or (e) by either party immediately upon written notice to the other party if any Governmental Authority issues an order forbidding or enjoining the consummation of the transaction contemplated hereby and such order has become final and non-appealable. -67- 13.2 Goodfaith Performance. Neither party shall be entitled to exercise any right of termination pursuant to subsection 13.1(b), (c) or (d) above if such party shall not have performed diligently and in good faith the obligations required to be performed by such party hereunder prior to the date of termination. 13.3 Effect of Termination. (a) If this Agreement is terminated as a result of a Material Adverse Effect or Section 13.1(a), this Agreement shall be of no further force and effect and there shall be no further liability hereunder (except the obligations under the Confidentiality Agreement and the liability for breach of such obligations) on the part of either party or their respective Affiliates, directors, officers, shareholders, agents or other representatives. (b) If this Agreement is terminated by Buyer pursuant to Section 13.1(b), this Agreement shall be of no further force and effect and there shall be no further obligations or liability hereunder (except the obligations under the Confidentiality Agreement and the liability for breach of such obligations) on the part of either party or their respective Affiliates, directors, officers, shareholders, agents or other representatives; provided, however, that no such termination shall relieve Seller of liability for any claims, damages or losses suffered by Buyer as a result of the negligent or willful failure of Seller to perform any obligations required to be performed by it hereunder on or prior to the date of termination. Notwithstanding anything herein to the contrary, in no event shall the any act or omission of Seller in connection with the Merger be deemed to be a breach of the terms and conditions of this Agreement for purposes of this Section 13.3(b). (c) If this Agreement is terminated by Seller pursuant to Section 13.1(c) or (d), this Agreement shall be of no further force and effect and there shall be no further obligations or liability hereunder (except the obligations under the Confidentiality Agreement and the liability for breach of such obligations) on the part of either party or their respective Affiliates, directors, officers, shareholders, agents or other representatives; provided, however, that in the event such termination is the result of the breach by Buyer of any of its obligations required to be performed by it hereunder on or prior to the date of termination, and Buyer has failed to cure such non-performance within a reasonable period after notice from Seller, then Buyer shall pay to Seller liquidated damages in an amount equal to ten (10) percent of the Purchase Price. Such liquidated damages amount is designed to compensate Seller for its lost opportunity costs and reliance damages caused by such termination. Buyer shall promptly pay such amount to Seller in immediately available funds following such termination. (d) Upon any termination of the Agreement, each of the parties shall promptly comply with the obligations of the Confidentiality Agreement regarding return or destruction of Evaluation Material of the other party. (e) Notwithstanding anything to the contrary contained herein, the provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3, 14.8, 14.11, 14.13 and 14.14 shall survive any termination of this Agreement. -68- ARTICLE 14 MISCELLANEOUS 14.1 Notices. All notices and other communications required or permitted hereunder shall be in writing and, unless otherwise provided in this Agreement, will be deemed to have been given when delivered in person or dispatched by electronic facsimile transfer (confirmed in writing by certified mail, concurrently dispatched) or one business day after having been dispatched for next-day delivery by a nationally recognized overnight courier service to the appropriate party at the address specified below: (a) If to Buyer, to: Citizens Utilities Company High Ridge Park Stamford, Connecticut 06905 Attention: Donald P. Weinstein Facsimile No.: (203) 614-4625 With a copy to: Citizens Utilities Company High Ridge Park Stamford, Connecticut 06905 Attention: L. Russell Mitten, II, Esq. Facsimile No.: (203) 614-4625 Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W. Washington, D.C. 20036 Attention: Jeffry L. Hardin, Esq. Facsimile No.: (202) 387-3467 (b) If to Seller, to: William M. Edwards, III Vice President - Property Repositioning 600 Hidden Ridge, HQE02J27 Irving, TX 75038 Facsimile No. (972) 719-7062 -69- With a copy to: Dale R. Chamberlain Legal Counsel - Property Repositioning 600 Hidden Ridge, HQE02J34 Irving, TX 75038 Facsimile No. (972) 719-7162 or to such other address or addresses as any such party may from time to time designate for itself by like notice. 14.2 Information Releases. The parties shall consult with each other (and allow the other party notice, and a reasonable time to comment) in preparing any employee announcement, press release, public announcement, news media response or other form of release of information concerning this Agreement or the transactions contemplated hereby that is intended to provide such information to the employees generally, news media or the public. Neither party shall issue or cause the publication of any press release, public announcement or media response without the prior written consent of the other party; provided, however, that, after allowing the other party notice and a reasonable time to comment prior to issuance, nothing herein will prohibit either party from making an employee announcement, or issuing or causing publication of any press release, public announcement or media response to the extent that such action is required by applicable Law or the rules of any national stock exchange applicable to such party or its Affiliates. 14.3 Expenses. Whether or not the transactions contemplated hereby are consummated and except as otherwise expressly provided herein, each party will pay any expenses (including attorneys' fees) incurred by it incidental to this Agreement and in consummating the transactions provided for herein. 14.4 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but is not assignable or delegable by any party without the prior written consent of the other party; provided, that (a) Seller may assign this Agreement to an Affiliate of Seller without the consent of Buyer including, on and after the closing of the Merger, the ultimate parent entity of the successor corporation to such merger or any entity controlled thereby; and (b) Buyer may assign this Agreement, without the prior written consent of Seller, to any directly or indirectly wholly owned subsidiary of Buyer provided such subsidiary assumes in writing all the duties and obligations of Buyer hereunder. No such assignment by Buyer shall in any way operate to enlarge, alter or change any obligation due to Seller or relieve Buyer of its obligations hereunder if such subsidiary fails to perform such obligations, with the understanding that Buyer shall be jointly and severally liable with such subsidiary for any non-performance of Buyer's obligations hereunder. 14.5 Amendments. This Agreement may be amended or modified only by a subsequent writing signed by authorized representatives of both parties. -70- 14.6 Captions. The captions set forth in this Agreement are for convenience only and shall not be considered as part of this Agreement, nor as in any way limiting or amplifying the terms and provisions hereof. 14.7 Entire Agreement. The term "Agreement" shall mean collectively this document, the Schedules hereto and any agreements expressly incorporated herein. This Agreement supersedes and revokes any prior discussions and representations, other agreements, commitments, arrangements or understandings of any sort whatsoever, whether oral or written, that may have been made or entered into by the parties relating to the matters contemplated hereby. This Agreement, the Confidentiality Agreement and the Ancillary Documents constitute the entire agreement by and among the parties with respect to the subject matter hereof, and there are no representations, warranties, agreements, commitments, arrangements or understandings except as expressly set forth herein. 14.8 Waiver. Except as otherwise expressly provided in this Agreement, neither the failure nor any delay on the part of any party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to each party at law or in equity. 14.9 Third Parties. Except as expressly provided herein, nothing contained in this Agreement is intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies under or by reason of this Agreement. 14.10 Counterparts. This Agreement may be executed in two or more counterparts, any or all of which shall constitute one and the same instrument. 14.11 Governing Law. This Agreement and the Ancillary Agreements shall in all respects be governed by and construed in accordance with the laws of the State of New York (except that no effect shall be given to any conflicts of law principles of the State of New York that would require the application of the laws of any other jurisdiction). The parties irrevocably submit to the exclusive jurisdiction of any New York State Court or any Federal Court located in the borough of Manhattan in the City of New York for purposes of any suit, action or other proceeding arising out of this Agreement, the Ancillary Agreements or any transaction contemplated hereby or thereby. The parties agree that service of process, summons or notice or document by U.S. registered mail to such party's respective address set forth in Section 14.1 shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. The parties hereto irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement or any other agreement entered into in connection therewith and for any counterclaim with respect thereto. In the event of any breach of the provisions of this Agreement or any other agreement entered into in connection therewith, the non-breaching party shall be entitled to equitable relief, including in the form of injunctions and orders for specific performance, where the applicable legal standards for such relief in such courts are met, in addition to all other remedies available to the non-breaching party with respect thereto at law or in equity. -71- 14.12 Further Assurances. From time to time, as and when requested by one of the parties, the other party will use its commercially reasonable efforts to execute and deliver, or cause to be executed and delivered, all such documents and instruments as may be reasonably necessary or appropriate, in the reasonable opinion of counsel for Seller and Buyer, to consummate and make effective the transactions contemplated by this Agreement. 14.13 Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Authority, the remaining provisions of this Agreement to the extent permitted by Law shall remain in full force and effect provided that the essential terms and conditions of this Agreement for both parties remain valid, binding and enforceable and provided that the economic and legal substance of the transactions contemplated is not affected in any manner materially adverse to any party. In the event of any such determination, the parties agree to negotiate in good faith to modify this Agreement to fulfill as closely as possible the original intents and purposes hereof. To the extent permitted by Law, the parties hereby to the same extent waive any provision of Law that renders any provision hereof prohibited or unenforceable in any respect. 14.14 Representation by Counsel; Interpretation. Seller and Buyer each acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Buyer and Seller. -72- IN WITNESS WHEREOF, the parties, acting through their duly authorized agents, have caused this Agreement to be duly executed and delivered as of the date first above written. GTE NORTH INCORPORATED CITIZENS UTILITIES COMPANY By: By: --------------------------------------- ------------------------ Name: William M. Edwards, III Name: ------------------------------- ----------------------- Title: VP - Property Repositioning Title: ----------------------------- ---------------------- GTE SOUTH INCORPORATED By: ------------------------------------- Name: William M. Edwards, III ------------------------------------ Title: VP - Property Repositioning ------------------------------------ (Signature page for Asset Purchase Agreement between GTE North Incorporated, GTE South Incorporated and Citizens Utilities Company dated ________________.) -73- EX-10.29 3 EXHIBIT 10.29 EXECUTION COPY -------------- PURCHASE AND SALE AGREEMENT (ARIZONA ELECTRIC) between CITIZENS UTILITIES COMPANY, CAP ROCK ELECTRIC COOPERATIVE and CAP ROCK ENERGY CORPORATION Dated as of February 11, 2000
TABLE OF CONTENTS Page ARTICLE I DEFINITIONS.....................................................................................1 Section 1.1 Certain Defined Terms..................................................................1 Section 1.2 Other Defined Terms....................................................................9 ARTICLE II PURCHASE AND SALE...............................................................................9 Section 2.1 Purchase and Sale of Assets............................................................9 Section 2.2 Assumed Liabilities....................................................................9 Section 2.3 Retained Liabilities..................................................................11 Section 2.4 Condition on Assignment or Assumption of Contracts and Rights.........................12 ARTICLE III PURCHASE PRICE.................................................................................12 Section 3.1 Purchase Price........................................................................12 Section 3.2 Deposit...............................................................................13 Section 3.3 Calculation of Purchase Price.........................................................13 Section 3.4 Prorations and Adjustments as of the Closing Date.....................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................................................15 Section 4.1 Organization, Existence and Qualification.............................................15 Section 4.2 Authority Relative to this Agreement and Binding Effect...............................15 Section 4.3 Governmental Approvals................................................................15 Section 4.4 Availability of Funds.................................................................15 Section 4.5 Filings...............................................................................16 Section 4.6 Brokers...............................................................................16 Section 4.7 Independent Investigation.............................................................16 Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility.................16 Section 4.9 Buyer's Financial Statements..........................................................16 Section 4.10 Buyer's Insurance. ...................................................................16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER .....................................................17 Section 5.1 Organization, Existence and Qualification.............................................17 Section 5.2 Authority Relative to this Agreement and Binding Effect...............................17 Section 5.3 Governmental and Other Required Consents..............................................17 Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility.................17 Section 5.5 Title to Assets; Liens................................................................18 Section 5.6 Financial Statements..................................................................18 Section 5.7 Compliance with Legal Requirements; Governmental Permits. ...........................19 Section 5.8 Legal Proceedings; Outstanding Orders. ...............................................19 Section 5.9 Taxes.................................................................................19 Section 5.10 Intellectual Property.................................................................20 Section 5.11 Personal Property.....................................................................20 Section 5.12 Material Contracts; Existing Loan Documents...........................................20 Section 5.13 Employee Benefit Matters..............................................................20 Section 5.14 Environmental Matters.................................................................21 Section 5.15 No Material Adverse Change............................................................21 Section 5.16 State and Federal Regulatory Matters..................................................22
Page Section 5.17 Brokers...............................................................................22 Section 5.18 Employee Relations....................................................................23 Section 5.19 Insurance.............................................................................23 Section 5.20 Accounts Receivable...................................................................23 Section 5.21 Appropriate Knowledge Persons.........................................................23 Section 5.22 Local Furnishing......................................................................23 Section 5.23 Disclaimer............................................................................24 ARTICLE VI COVENANTS......................................................................................24 Section 6.1 Covenants of Seller...................................................................24 Section 6.2 Covenants of Buyer....................................................................27 Section 6.3 Governmental Filings..................................................................28 Section 6.4 Citizens Marks........................................................................28 Section 6.5 Acknowledgment by Buyer...............................................................29 Section 6.6 Transition Plan. ....................................................................29 Section 6.7 IDRB Obligations......................................................................30 Section 6.8 Title Insurance.......................................................................31 ARTICLE VII CONDITIONS PRECEDENT...........................................................................32 Section 7.1 Seller's Conditions Precedent to Closing..............................................32 Section 7.2 Buyer's Conditions Precedent to Closing...............................................33 ARTICLE VIII CLOSING........................................................................................34 Section 8.1 Closing...............................................................................34 ARTICLE IX TERMINATION....................................................................................35 Section 9.1 Termination Rights....................................................................35 Section 9.2 Limitation on Right to Terminate: Effect of Termination...............................37 ARTICLE X EMPLOYEE MATTERS...............................................................................37 Section 10.1 Employment of Transferred Employees...................................................37 Section 10.2. Assumption of Collective Bargaining Agreement Obligations.............................38 Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses....................38 Section 10.4 Similarity of Benefit Packages........................................................39 Section 10.5 Defined Benefit Pension Plan..........................................................39 Section 10.6 401(k) Plan...........................................................................39 Section 10.7 Welfare Benefits......................................................................40 Section 10.8 Flexible Spending Accounts............................................................41 Section 10.9 Employment Agreements.................................................................41 Section 10.10 Vacation..............................................................................41 Section 10.11 Severance.............................................................................41
Page ARTICLE XI TAX MATTERS....................................................................................42 Section 11.1 Purchase Price Allocation.............................................................42 Section 11.2 Cooperation with Respect to Like-Kind Exchange........................................42 Section 11.3 Transaction Taxes.....................................................................43 ARTICLE XII ENVIRONMENTAL MATTERS..........................................................................43 Section 12.1 Environmental Due Diligence...........................................................43
Page ARTICLE XIII INDEMNIFICATION....................................................................................45 Section 13.1 Indemnification by Seller.............................................................45 Section 13.2 Indemnification by Buyer..............................................................45 Section 13.3 Limitations on Liability..............................................................46 Section 13.4 Claims Procedure......................................................................49 Section 13.5 Exclusive Remedy......................................................................50 Section 13.6 Indemnification for Negligence........................................................50 Section 13.7 Waiver and Release....................................................................50 ARTICLE XIV GENERAL PROVISIONS.................................................................................51 Section 14.1 Expenses..............................................................................51 Section 14.2 Notices...............................................................................51 Section 14.3 Assignment............................................................................52 Section 14.4 Successor Bound.......................................................................52 Section 14.5 Governing Law.........................................................................52 Section 14.6 Dispute Resolution....................................................................52 Section 14.7 Cooperation...........................................................................54 Section 14.8 Construction of Agreement.............................................................54 Section 14.9 Publicity. ..........................................................................54 Section 14.10 Waiver................................................................................54 Section 14.11 Parties in Interest...................................................................54 Section 14.12 Section and Paragraph Headings........................................................55 Section 14.13 Amendment.............................................................................55 Section 14.14 Entire Agreement......................................................................55 Section 14.15 Counterparts..........................................................................55 Section 14.16 Severability..........................................................................55
LIST OF EXHIBITS Exhibit 6.7 Form of IDRB Obligations Agreement Exhibit 7.1(g) Form of Buyer's Opinion of Counsel Exhibit 7.2(g) Form of Seller's Opinion of Counsel Exhibit 8.1(a) Form of Bill of Sale LIST OF SCHEDULES Schedule 1.1(a) Excluded Assets Schedule 1.1(b) Related Purchase Agreements Schedule 5.2 Seller's Authority Schedule 5.3 Seller's Governmental and Other Required Consents Schedule 5.5 Encumbrances; Owned Real Property Schedule 5.6(a) Financial Statements Schedule 5.6(b) Certain Liabilities Schedule 5.7 Compliance with Legal Requirements; Governmental Permits Schedule 5.8 Legal Proceedings; Outstanding Orders Schedule 5.9 Taxes Schedule 5.10 Intellectual Property Schedule 5.11 Extraordinary Required Repairs Schedule 5.12 Material Contracts Schedule 5.13 Employee Matters Schedule 5.14 Environmental Matters Schedule 5.15 Material Adverse Changes Schedule 5.16 State and Federal Regulatory Matters Schedule 5.19 Seller's Insurance Schedule 6.1 Conduct of Business Schedule 6.2(c) Citizens' Guarantees and Surety Instruments Schedule 10.1 Active Employees Schedule 10.7 Retirees and "Grandfathered Employees" PURCHASE AND SALE AGREEMENT (ARIZONA ELECTRIC) This PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of the 11th day of February, 2000, by and between CITIZENS UTILITIES COMPANY, a Delaware corporation ("Seller"), and CAP ROCK ELECTRIC COOPERATIVE, a Texas corporation, and CAP ROCK ENERGY CORPORATION, a Texas corporation ("Cap Rock Energy"). Cap Rock Cooperative and Cap Rock Energy are sometimes referred to in this Agreement individually as a "Buyer Entity" and collectively as the "Buyer". Capitalized terms used herein shall have the meanings ascribed to them in Article I, unless otherwise provided. W I T N E S S E T H : WHEREAS, Seller owns all of the Assets; and WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets, subject in all respects to the provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article I (such definitions to be equally applicable to both the singular and plural forms of the terms defined): "Affiliates" or "Affiliated Entities" -- entities shall be deemed "Affiliated" as to each other to the extent (i) one of the entities directly or indirectly controls the other, or the direct or indirect control of one of the entities is exercised by the officers, directors, stockholders, or partners of the other entity (whether or not such persons exercise such control in their capacities as officers, directors, stockholders, or partners) or (ii) is deemed to be an Affiliate under existing statutes or regulations of the SEC. "Assets" -- all of the assets, property and interests of every type and description, real, personal or mixed, tangible and intangible, owned by Seller and relating primarily to the Business, other than the Excluded Assets. "Assumed Environmental Liabilities" -- means any of the following: (a) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to the environmental matters or incidents disclosed by Seller on Schedule 5.14 as of the date of execution of this Agreement that remain outstanding as of the Closing Date, it being understood by the parties that the unadjusted Purchase Price reflects Buyer's estimate of any Losses that could arise after the Closing Date with respect to such Environmental Liabilities; (b) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to environmental matters or incidents that are disclosed to Buyer by Seller after the date of execution of this Agreement (including any additional disclosures appearing on Schedule 5.14 as revised by Seller and delivered to Buyer prior to the Closing Date) but prior to the Closing Date that remain outstanding as of the Closing Date, provided that any Losses incurred by Buyer in connection with any such Environmental Liability in any year in excess of $200,000 or in the aggregate (when combined with all other Losses incurred by Buyer in connection with its performance or discharge of other Disclosed Pre-Closing Liabilities) in excess of $2,000,000 shall be Retained Environmental Liabilities and Seller shall be obligated to indemnify Buyer pursuant to Section 13.1 (but subject to the applicable limitations on such obligations provided in Section 13.3(f)) for such Losses incurred by Buyer in the amount of such excess; and (c) Any other Environmental Liability relating to the Business, the Assets, Buyer or any Affiliate, successor or assign of Buyer, to the extent arising or relating to the period after the Closing, including with respect to the removal of asbestos or asbestos-containing materials in connection with any renovation or structural change to any Asset conducted after Closing. "Bonds" -- means any of the bonds issued pursuant to the Indentures of Trust to which IDRB Documents relate, the proceeds from the issuance of which were advanced to Seller and used in connection with the Business or the Assets of the Business pursuant to any of the IDRB Documents. "Business" -- means collectively: (a) the regulated electricity generation, transmission and distribution business conducted by Seller within the State of Arizona through its Arizona Electric divisions; and (b) the provision of related services and products and the engagement in related activities by Seller within the State of Arizona through its Arizona Electric divisions. "Buyer's IDRB Obligations"-- means the obligations of Buyer set forth in Section 6.7(a) and Section 6.7(b) and in the IDRB Obligations Agreement to be executed and delivered by Buyer on or prior to the Closing Date in accordance with Section 6.7(a) and Section 8.1(d). "Capital Budget -- means the capital budget for the Business approved by the Board of Directors of Seller for the year 2000. "Claim Notice" -- means a written notice of a claim given by a party seeking indemnification pursuant to the terms of this Agreement that specifies in reasonable detail the nature of the Losses and the estimated amount of such Losses. "Confidentiality Agreement" -- means that certain confidentiality agreement dated October 21, 1999, between Buyer and Seller. "Consent" -- any approval, consent, ratification, waiver, license, permit, registration, certificate, exemption, legal statute, order, determination or other authorization from any Person. "Contract" -- any agreement, contract, document, instrument, obligation, promise or undertaking (whether written or oral) that is legally binding, including Easements. 2 "Disclosed Pre-Closing Liabilities" means any and all liabilities and obligations relating to or arising from Seller's ownership of the Assets or Seller's conduct or operation of the Business on or prior to the Closing Date that were not disclosed in any Schedule to this Agreement as of the date of execution of this Agreement (and with respect to which Seller had no Knowledge as of the date of execution of this Agreement) and that are disclosed to Buyer by Seller after the date of execution of this Agreement to the extent remaining outstanding or undischarged as of the Closing Date, including the Environmental Liabilities described in clause (b) of the definition of Assumed Environmental Liabilities and the Proceedings described in Section 2.2(d), but expressly excluding any such liabilities and obligations that are Retained Liabilities pursuant to Section 2.3(a), (b), (c) or (d) or with respect to which the Purchase Price is reduced (but only to the extent reduced). "Easements"-- means all easements, rights of way, permits, licenses, and other ways of necessity, whether or not of record. "Encumbrance" -- any charge, adverse claim, lien, mortgage, pledge or security interest. "Environmental Law"-- any Order or Legal Requirement, and any judicial and administrative interpretation thereof and related policies, guidelines and standards, relating to pollution or protection of the environment and natural resources, including those relating to (a) emissions, discharges, Releases or threatened Releases of Hazardous Material into the environment (including ambient air, surface water, groundwater or land), and (b) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material, each as in effect as of the date of determination. "Environmental Liability" -- means any liability, responsibility or obligation arising out of or relating to: (a) the presence of any Hazardous Material in the fixtures, structures, soils, groundwater, surface water or air on, under or about or emanating from the assets and properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by a Person, and any such Hazardous Material emanating to adjoining or other properties; (b) the use, generation, production, manufacture, treatment, storage, disposal, Release, threatened Release, discharge, spillage, loss, seepage or filtration of Hazardous Materials by a Person or its employees, agents or contractors from, on, under or about the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by such Person or the presence therein or thereunder of any underground or above-ground tanks for the storage of fuel oil, gasoline and/or other petroleum products or by-products or other Hazardous Material; (c) the violation or noncompliance or alleged violation or noncompliance by a Person or its employees, agents or contractors of any Environmental Law arising from or related to its or their conduct, actions or operations or the former or current use, operation, ownership, lease, possession, control, occupancy, maintenance or condition of any of such Person's former or current assets or properties; (d) the failure by a Person or its employees, agents, or contractors to have obtained or maintained in effect any Consent required by any Environmental Law as a result of its or their conduct, actions or operations or the use, operation, ownership, lease, control, possession, occupancy, maintenance or condition of such Person's assets or properties; (e) any and all Proceedings arising out of any of the above-described matters, including Proceedings by Governmental Bodies for enforcement, cleanup, removal, treatment, response, remedial or other actions or damages and Proceedings by any third Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief; and 3 (f) any and all remedial work and other corrective action (including investigation or monitoring of site conditions, or any clean-up, containment, restoration or removal) taken by, or the costs of which are imposed upon, a Person arising from any of the above-described matters. "ERISA" - the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that act or any successor law. "Excluded Assets" -- means the following assets of Seller, each of which shall be excluded from the Assets, and not acquired by the Buyer, at Closing: (a) assets that Seller uses in both the Business and in Seller's other gas, electric, communications or water businesses, and which are described generally on Schedule 1.1(a), and Contracts regarding the procurement of services or goods by Seller for use in such in other businesses; (b) cash and cash equivalents in transit, in hand or in bank accounts; (c) except as otherwise set forth in Article X, assets attributable to or related to an Employee Benefit Plan of Seller; (d) the stock record and minute books of Seller, duplicate copies of all books and records transferred to Buyer, all records prepared in connection with the sale of the Business (including bids received from third parties and analysis relating to the Business) and all IDRB Documents; (e) assets disposed of by Seller after the date of this Agreement to the extent such dispositions are not prohibited by this Agreement; (f) except to the extent set forth in Section 3.4, rights to refunds of Taxes payable for periods prior to the Closing with respect to the Business, assets, properties or operations of Seller or any member of any affiliated group of which either of them is a member; (g) accounts owing, by and among Seller and its Affiliates; (h) all deferred tax assets or collectibles for periods prior to the Closing; (i) any insurance policy, bond, letter of credit or other similar item, and any cash surrender value in regard thereto; (j) the Citizens Marks; and (k) the other assets listed on Schedule 1.1(a). "Existing Loan Documents"-- means all Contracts relating to the indebtedness for money borrowed by Seller and used in connection with the Business or the Assets as of the date hereof to which Seller is a party, including all IDRB Documents, but excluding line extension agreements or similar arrangements involving customer advances for construction, it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed. 4 "Final Order" -- an action by a Governmental Body as to which: (a) no request for stay of the action is pending, no such stay is in effect and if any time period is permitted by statute or regulation for filing any request for such stay, such time period has passed; (b) no petition for rehearing, reconsideration or application for review of the action is pending and the time for filing any such petition or application has passed; (c) such Governmental Body does not have the action under reconsideration on its own motion and the time in which such reconsideration is permitted has passed; and (d) no appeal to a court, or a request for stay by a court of the Governmental Body's action is pending or in effect and the deadline for filing any such appeal or request has passed. "Future Regulatory Obligations" -- means all liabilities, responsibilities and obligations relating to the Assets or the Business, including capital expenditure obligations and liabilities of the types that appear as "Accrued Liabilities" and "Non-Current Liabilities" on the Balance Sheet, arising out of any Legal Requirement or other action of any state or federal regulatory commission or local franchising authority, including with respect to all Proceedings of any state regulatory commission relating to the Assets or the Business commenced before or after the Closing Date, regardless of whether the Legal Requirement or other action is or purports to be based on conduct, actions, facts, circumstances or conditions arising, existing or occurring at any time on or prior to the Closing Date, but other than liabilities, responsibilities and obligations (i) relating to any Retained Environmental Liability or (ii) arising out of Seller's violation of any Order or Legal Requirement of such Governmental Body, as in effect and as reasonably interpreted by common industry practice as of the date such violation occurred, that is found by Final Order to have occurred prior to Closing and that is reasonably likely to have a material adverse effect on the Business or the Assets, taken as a whole. "GAAP" - generally accepted United States accounting principles, applied on a consistent basis. "Governmental Body" -- any of the following that possesses competent jurisdiction: (a) federal, state, county, local, municipal or other governmental body; (b) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal); or (c) any governmental body entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Hazardous Materials" -- any waste or other chemical, material or substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, toxic, or a pollutant or a contaminant, or words of similar import, under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including oil, natural gas, petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials, any flammable substances or explosives, any radioactive materials, any toxic wastes of substances, urea formaldehyde foam insulation, toluene or polychlorinated biphenyls. "HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor law, and regulations and rules issued by the U.S. Department of Justice or the Federal Trade Commission pursuant to that act or any successor law. "IDRB Documents" -- means, collectively, the Loan Agreements, the Tax Regulatory Agreements and Tax Representations and Project Certificates which are listed in Schedule 5.12. 5 "IDRB Indebtedness" -- means, collectively, the indebtedness of Seller owing to the issuer or issuers of the Bonds (as described further in Schedule 5.12 and in Exhibit 6.7) and arising under the Loan Agreements included among the IDRB Documents. "IRC" - the Internal Revenue Code of 1986, as amended. "IRS" -- the Internal Revenue Service or any successor agency. "Knowledge" -- means, with respect to Seller, the actual knowledge of Seller's Chief Financial Officer; President, Citizens Public Services; and Vice President of Arizona Energy Operations; and Director, Special Projects, Arizona Electric (currently Thomas J. Ferry), or their respective successor. "Legal Requirement" -- any federal, state, county, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, adopted code, principle of common law, regulation, rule, directive, approval, notice, tariff, franchise agreement, statute or treaty. "Losses" -- shall mean all claims, losses, liabilities, causes of action, costs and expenses (including, without limitation, involving theories of negligence or strict liability and including court costs and reasonable attorneys' fees and disbursements in connection therewith). "Material Adverse Effect" -- an occurrence or condition that has a material adverse effect on the operation, financial condition or results of operations of the Business when combined with the businesses and assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase Agreements, taken as a whole. For purposes of this Agreement, an occurrence or condition shall not constitute a Material Adverse Effect (a) if it arises from general business, economic or financial market conditions, from conditions generally affecting the industries in which the Business competes, or from the transactions contemplated by this Agreement, (b) if it is of the type normally recoverable by the Business through rates, or (c) to the extent that the Business may realize the benefit of insurance maintained by Seller or to the extent that Seller or Buyer may receive or recover payments in respect of such occurrence from any other source (whether in a lump sum or stream of payments). "Material Contract" -- a Contract relating primarily to the Business and involving a total commitment by or to any party thereto of at least $100,000 on an annual basis and which cannot be terminated by Seller with notice of ninety (90) days or less without penalty to Seller. "Order" -- any award, decision, injunction, judgment, order, writ, decree, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, other Governmental Body, or by any arbitrator, each of which possesses competent jurisdiction. "Organizational Documents" -- the articles or certificate of incorporation and the bylaws of a corporation or the comparable organizational and governing documents of other Persons. "Permitted Encumbrances" -- means any of the following: (a) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business and which in the aggregate are not substantial in amount and do not interfere with the present use of the Assets to which they apply; 6 (b) liens for current Taxes and assessments not yet due and payable; (c) usual and customary nonmonetary real property Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) that do not and will not materially interfere with the operation of that portion of the Business currently conducted on such real property; (d) Encumbrances securing the payment or performance of any of the Assumed Liabilities; (e) all applicable zoning ordinances and land use restrictions; (f) with respect to any Asset which consists of a leasehold or other possessory interests in real property, all usual and customary nonmonetary real property Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) to which the underlying fee estate in such real property is subject that do not currently and will not interfere materially with the operation of that portion of the Business currently conducted on such property; and (g) any other Encumbrances, Contracts, obligations, defects or irregularities of any kind whatsoever, affecting the Assets that, individually or in the aggregate, do not have a Material Adverse Effect or that will be terminated, released or waived on or before the Closing Date. "Person" -- any individual, corporation (including any nonprofit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization or Governmental Body. "Proceeding" -- any claim, action, arbitration, hearing, litigation or suit commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PUHCA" - the Public Utility Holding Company Act of 1935, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. "Real Property" -- all real property owned, leased or under Contract by Seller in the operation of the Business, together with all interests in real property (including Easements) used or held for use by Seller in the operation of the Business. "Related Documents" -- any Contract provided for in this Agreement to be entered into by one or more of the parties hereto in connection with the transactions contemplated by this Agreement. "Related Purchase Agreements" -- means those certain purchase agreements between Seller and Buyer or Affiliates of Buyer described on Schedule 1.1(b). "Release" -- any presence, emission, dispersal, disposal, spilling, leaking, emitting, discharging, depositing, pumping, pouring, escaping, leaching, dumping, releasing or migration into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or in, into or from any facility, including the movement of any Hazardous Materials through the air, soil, surface water, groundwater or property. 7 "Representative" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Retained Environmental Liabilities" -- means all Environmental Liabilities of Seller that are described in this Agreement as Retained Environmental Liabilities or that are otherwise not being assumed by Buyer under this Agreement as Assumed Environmental Liabilities. "SEC" -- the United States Securities and Exchange Commission or any successor agency. "Tax" -- any tax (including any income tax, capital gains tax, value-added tax, sales and use tax, franchise tax, payroll tax, withholding tax, property tax or transfer tax), levy, assessment, tariff, duty (including any customs duty), deficiency, franchise fee or payment, payroll tax, utility tax, gross receipts tax or other fee or payment relating to the foregoing, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Governmental Body or for which Seller has any liability as a transferee, pursuant to Treasury Regulations Section 1.1502-6, or pursuant to any other Legal Requirement. "Tax Return" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to any Governmental Body in connection with the determination, assessment, collection or payment of any Tax, or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threatened" -- a claim, dispute, or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing or orally or any notice has been given in writing or orally, and Seller has Knowledge of the same. Section 1.2 Other Defined Terms. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement as indicated below and, whenever such terms are used in this Agreement, they shall have their respective defined meanings. Term Section - ---- ------- Active Employees 10.1 Antitrust Authorities 6.3 Assumed Liabilities 2.2 Balance Sheet 5.6(a) Bill of Sale 8.1 Buyer Indemnitees 13.1 Buyer's Pension Plan 10.5 Buyer Welfare Plans 10.7(a) CERCLA 5.14(e) Citizens Marks 6.4 Closing 8.1 Closing Date 8.1 Deposit 3.2 Employee Plans 5.13 Environmental Data 12.1(c) Estimated Purchase Price 3.3(a) Financial Statements 5.6 Purchase Price 3.1 Retained Liabilities 2.3 Seller Indemnitees 13.2 Seller's Pension Plan 10.5 Seller's 401(k) Plan 10.6 Seller Welfare Plan 10.7 Transaction Taxes 11.3 Transferred Employee 10.1 8 ARTICLE II PURCHASE AND SALE Section 2.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions contained herein, at the Closing, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase and accept delivery from Seller, all of the Assets. Section 2.2 Assumed Liabilities. In further consideration for the sale of the Assets at the Closing, Buyer will assume and agree to pay, perform and discharge when due, all liabilities and obligations, of every kind or nature, arising out of or relating to: (a) the Buyer's IDRB Obligations; (b) Buyer's ownership or use of the Assets and the conduct or operation of the Business by Buyer, in each case after the Closing Date, including all liabilities, responsibilities and obligations relating to or arising from the following: (i) Transferred Employees (except to the extent otherwise provided in Article X), including any termination of any Transferred Employee for any reason (including constructive dismissal) and Buyer's hiring practices or decisions; (ii) Performance of the Contracts included among the Assets (except that Buyer shall not assume any liabilities or obligations for any breach or default by, or payment obligations of, Seller under any such Contract occurring or arising or accruing on or prior to the Closing Date); (iii) Customer advances, customer deposits and construction advances, unperformed service obligations, Easement relocation obligations, and engineering and construction required to complete scheduled construction, construction work in progress, and other capital expenditure projects, in each case relating to the Business and outstanding on or arising after the Closing Date; (iv) Future Regulatory Obligations; (v) Assumed Environmental Liabilities; (vi) One-half of the Transaction Taxes arising out of the sale of the Assets to Buyer hereunder; 9 (vii) Proceedings based on conduct, actions, facts, circumstances or conditions arising or occurring after the Closing Date, Proceedings in respect of Future Regulatory Obligations regardless of when filed, and Proceedings arising from or related to any other Assumed Liability; and (viii) Items addressed in Section 3.1(d) to the extent resulting in a decrease in the Purchase Price; (c) Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings; and (d) all Proceedings involving Seller, the Assets or the Business based on conduct, actions, facts, circumstances or conditions arising or occurring on or before the Closing Date that are pending or Threatened as of the Closing Date and that are disclosed to Buyer by Seller after the date of execution of this Agreement but prior to the Closing Date (except any such Proceedings relating to the Retained Liabilities described in Sections 2.3(a), (b), (c), (d), and (f)), provided that any Losses incurred by Buyer in connection with any such individual Proceeding in excess of $200,000 or in connection with all such Proceedings in excess of $2,000,000 in the aggregate (when combined with all other Losses incurred by Buyer in connection with its performance or discharge of other Disclosed Pre-Closing Liabilities) shall be Retained Liabilities and Seller shall be obligated to indemnify Buyer pursuant to Section 13.1 (but subject to the applicable limitations on such obligations provided in Section 13.3(f)) for such Losses incurred by Buyer in the amount of such excess; The liabilities, responsibilities and obligations to be assumed by Buyer pursuant to this Section 2.2 are hereinafter collectively referred to as the "Assumed Liabilities." Buyer hereby irrevocably and 10 unconditionally waives and releases Seller from all Assumed Liabilities and all liabilities or obligations relating to the Business or the Assets to the extent arising from events or occurrences after the Closing or to the extent otherwise relating to the period after the Closing, including any liabilities created or which arise by statute or common law, including CERCLA (it being understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Notwithstanding anything in this Section 2.2 to the contrary, "Assumed Liabilities" shall not include any liabilities, responsibilities or obligations expressly stated to be Retained Liabilities pursuant to Section 2.3. Section 2.3 Retained Liabilities. Buyer shall not assume and at the Closing Seller shall retain and pay, perform and discharge when due, all of the liabilities and obligations relating to or arising from Seller's ownership of the Assets and Seller's conduct or operation of the Business on and prior to the Closing Date, except to the extent any such liability or obligation is included among the Assumed Liabilities, including liabilities and obligations relating to or arising from the following (collectively referred to herein as the "Retained Liabilities"): (a) all obligations of Seller under the IDRB Documents except to the extent also included in Buyer's IDRB Obligations, and any other indebtedness for money borrowed by Seller (including items due to Seller's Affiliates) other than payment obligations arising after the Closing Date under any equipment lease listed in Part VII of Schedule 5.12 or under any line extension Contracts or similar construction arrangements, it being understood and agreed that such leases, Contracts and similar arrangements do not create indebtedness for money borrowed; (b) Taxes of Seller or the Business with respect to ownership or use of the Assets and Seller's conduct and operation of the Business on and prior to the Closing Date; (c) Excluded Assets; (d) Non-Transferred Employees, the Seller's Employee Benefit Plans and Employee Plans (except to the extent otherwise provided in Article X) and any breach or default by, or payment obligations of, Seller with respect to any Transferred Employee occurring or arising or accruing on or prior to the Closing Date (except to the extent any such payment obligation becomes the responsibility and obligation of Buyer in accordance with Article X); (e) Proceedings involving Seller, the Assets or the Business based on conduct (including Seller's performance under any Contract included among the Assets), action, facts, circumstances or conditions arising or occurring on or before the Closing Date, including Proceedings described in Items I.1 and I.2 of Schedule 5.8 but expressly excluding any such liabilities or obligations relating to any Proceeding relating to (x) Assumed Liabilities (subject to the proviso set forth in Section 2.2(d) with respect to the Proceedings described in Section 2.2(d)), (y) Future Regulatory Obligations and (z) Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings; (f) Retained Environmental Liabilities; and (g) One-half of the Transaction Taxes arising out of the sale of the Assets, to Buyer hereunder. 11 Seller hereby irrevocably and unconditionally waives and releases Buyer from all Retained Liabilities including any liabilities created or which arise by statute or common law, including CERCLA (it being understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Section 2.4 Condition on Assignment or Assumption of Contracts and Rights. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign or assume any Contract or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment or assumption thereof, without the Consent of a third party thereto, would constitute a breach thereof. Any transfer or assignment to Buyer by Seller of any property or property rights or any Contract which requires the Consent of any third party shall be made subject to such Consent being obtained. If such Consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights of Seller thereunder so that Buyer would not in fact receive all such rights, Seller will, at its expense, cooperate with Buyer in any arrangement reasonably designed to provide for Buyer, at Buyer's cost, the benefits under any such Contract including, without limitation, enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereto arising out of the breach or cancellation by such third party or otherwise To the extent that Buyer does receive the benefits of any such Contract pursuant to the preceding sentence, such Contract shall be a Contract deemed to have been assigned or transferred to Buyer pursuant to Section 2.2(b)(ii). ARTICLE III PURCHASE PRICE Section 3.1 Purchase Price. Subject to the terms and conditions of this Agreement, the aggregate purchase price for the Assets (the "Purchase Price") shall be an amount equal to $210,000,000 in cash, as adjusted in accordance with the following provisions and with such adjustments determined pursuant to Section 3.3: (a) Such amount will be increased by the aggregate amount of all accounts receivable, earned but unbilled revenue, and materials and supplies inventory of the Business, in each case outstanding as of the Closing Date and other than any such items that are due from Seller's Affiliates. (b) Such amount will be decreased by the aggregate amount of all accounts payable, customer deposits and unexpended cash from customer advances for construction, in each case to the extent relating to the Business and outstanding as of the Closing Date and other than any such items that are due to Seller's Affiliates. (c) Such amount will be increased by the aggregate amount of all (i) capital expenditures relating to the Business that are accrued by Seller between the date of the Balance Sheet and the Closing Date (including expenditures recorded in the Construction Work in Progress account of the Business as of the Closing Date and relating to such period), (ii) without duplication, expenditures to purchase materials, supplies and other capital items that are dedicated to, but as of Closing have not been used in, the construction or improvement of the property, plant or equipment relating to the Business and (iii) without duplication, other expenditures recorded as an asset of the Business as of the Closing Date and relating to such period to the extent such expenditures are normally recoverable through rates, including expenditures recorded in the Preliminary Survey and Investigation account of the Business, in each case to the extent such expenditures are not prohibited by this Agreement. 12 (d) Such amount will be decreased or increased, as appropriate, by an aggregate amount equal to the total amount payable to or by Buyer pursuant to Section 3.4. Section 3.2 Deposit. Concurrently with the execution of this Agreement, Buyer has delivered to Seller an irrevocable letter of credit from National Cooperative Services Corporation (the "NCSC") (the "Letter of Credit"), as and for an earnest money deposit, in the amount of $9,550,000 (the "Deposit"). The Letter of Credit has been appropriately conditioned in accordance with the terms of Section 9.2(c). Promptly (and in any event within ten (10) days after the date of execution of this Agreement), Buyer shall file and in good faith diligently prosecute an application with the NCSC for a revised commitment letter that provides for the NCSC's commitment to remain outstanding until July 31, 2001, and for the NCSC to issue to Seller a letter of credit (to replace the Letter of Credit) with an expiration date of July 31, 2001. Upon receipt of such replacement letter of credit, such letter of credit shall be considered the Letter of Credit for all purposes under this Agreement. Section 3.3 Calculation of Purchase Price. (a) Any of the items included in clauses (a) through (d) of Section 3.1 that cannot be calculated in a timely fashion as of the Closing Date shall be estimated by Seller in good faith based upon the account balance of such item at the end of the month for which Seller's books are closed next preceding the Closing Date, with such adjustments as may be appropriate to reflect changes in such account balance occurring between such month-end and the Closing Date. Any such estimated amounts shall be set forth in a certificate of Seller delivered to Buyer at least five (5) business days prior to the Closing Date, which certificate shall set forth an estimate of the Purchase Price (the "Estimated Purchase Price"), including such estimated amounts and shall be accompanied by reasonably detailed supporting documentation. (b) Within one hundred twenty (120) days after the Closing Date, Seller shall notify Buyer of the actual amount as recorded on Seller's books and records for the Business of any items that were estimated in arriving at the Estimated Purchase Price, as well as the prorations and adjustments required to be made under Section 3.4 below. Buyer may dispute any amount so determined by Seller, by written notice to Seller within fifteen (15) days after receipt of Seller's notice. If Buyer does not so dispute any item, the party owing the difference between the Estimated Purchase Price and the Purchase Price shall pay such difference to the other party within ten (10) days after the expiration of such fifteen (15) day period, plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment. If Buyer disputes the actual amount of any item, the undisputed amount plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment shall be paid promptly by the owing party. If such dispute cannot be resolved within sixty (60) days after the giving of Buyer's notice that there exists a disputed amount, then an independent auditor mutually agreeable to Buyer and Seller shall, upon written notice from either Buyer or Seller, resolve such dispute within sixty (60) days after receipt of such notice. The fees and expenses of such independent auditor shall be allocated between Buyer and Seller so that Seller's share of such fees and expenses shall be in the same proportion that the aggregate amount of such remaining disputed amounts so submitted by Buyer to such auditor that is unsuccessfully disputed by Buyer (as finally determined by such auditor) bears to the total amount of such remaining disputed amounts so submitted by Buyer to such auditor. Any determination by such independent auditor shall be binding and conclusive upon the parties without further appeal therefrom. Within ten (10) days after the independent auditor shall have resolved such dispute, the party owing the determined amount shall pay such determined amount to the other party, plus interest at 8.25% per annum on such determined amount from the Closing Date to (but not including) the date of payment. 13 Section 3.4 Prorations and Adjustments as of the Closing Date. (a) Buyer and Seller agree that the following items relating to the Assets and the Business shall be adjusted and allocated as of the Closing Date, with Seller to be responsible for and to receive the benefit of the same for the period through and including the Closing Date and Buyer to be responsible for and to receive the benefit of the same after the Closing Date; (i) real and personal property taxes, assessments and annual registration fees; (ii) water, sewer and other similar types of taxes, and installments on special benefit assessments and regulatory assessments; (iii) electric, gas, telephone and other utility charges; (iv) payroll expenses, payroll taxes, reimbursable employee business expenses and the financial cost of the accrued vacation time of the Transferred Employees, in each case as recorded on Seller's books for the Business as of the Closing Date; (v) rents under leases transferred to or assumed by Buyer; (vi) charges under maintenance, service and other Contracts and fees under licenses transferred to or assumed by Buyer and not included in the items described in Section 3.1(a); (vii) deposits of Seller to the extent transferable to Buyer; (viii) prepaid and accrued expenses; (ix) sales, franchise, gross receipts and other similar Taxes based upon revenues; and (x) petty cash. (b) The items listed in Section 3.4(a) above shall be estimated item by item by Seller and reflected on the certificate and supporting documentation to be delivered to Buyer pursuant to Section 3.3(a) and finally determined in accordance with Section 3.3(b). 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Section 4.1 Organization, Existence and Qualification. Buyer is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Texas, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which Buyer is a party. Buyer is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state in which the failure to be so qualified or in good standing would materially adversely affect the business or properties of Buyer. Buyer is, or by Closing will be, duly qualified and in good standing as a foreign corporation licensed to do business in the State of Arizona. Section 4.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Buyer have been duly authorized by Buyer's Board of Directors, which constitutes all necessary corporate action required on the part of Buyer for such authorizations. The execution, delivery and performance of this Agreement and the Related Documents by Buyer will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Buyer, or (b) a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Contract to which Buyer is a party or by which its assets are bound, or (c) a violation of any Order of any Governmental Body. This Agreement constitutes, and the Related Documents to be executed by Buyer when executed and delivered will constitute, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. Section 4.3 Governmental Approvals. Except for those Consents described in Schedule 5.3 to the extent applicable to Buyer, no Consent of any Governmental Body is required to be obtained by Buyer in connection with the execution and delivery by Buyer of this Agreement or the Related Documents or the consummation of the transactions contemplated by this Agreement or the Related Documents. Buyer has no knowledge of any facts or circumstances relating to Buyer or its Affiliates that reasonably would be likely to preclude or prolong the receipt of such required Consents. Section 4.4 Availability of Funds. Buyer will have available on the Closing Date sufficient funds to enable it to consummate the transactions contemplated by this Agreement, and Buyer or the Affiliates of Buyer that are buyers of the assets and businesses being acquired pursuant to the Related Purchase Agreements will have available at the Closing Date, sufficient funds to enable them to consummate the transactions contemplated by the Related Purchase Agreements. Buyer has received, and has provided to Seller a true and complete copy of, that certain commitment letter dated as of February 11, 2000, duly executed by Buyer and NCSC. Buyer understands and agrees that its failure to arrange for such funding and have such funding available by the Closing Date will permit Seller to terminate this Agreement under Section 9.1 and to exercise its rights under Section 9.2(c). 15 Section 4.5 Filings. No statement furnished by Buyer for inclusion in any filing with any Governmental Body in connection with obtaining such Governmental Body's Consent for the consummation of the transactions contemplated by this Agreement will contain, as of the date such information is so provided, any untrue statement of a material fact or will omit to state, as of the date such information is so provided, any material fact which is necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. Section 4.6 Brokers. No broker or finder has acted for or on behalf of Buyer or any Affiliate of Buyer in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Buyer or any Affiliate of Buyer for which Seller or any Affiliate of Seller has or will have any liability or obligations (contingent or otherwise). Section 4.7 Independent Investigation. Buyer is knowledgeable about the businesses engaged in by Seller through its Arizona Electric divisions and of the usual and customary practices of companies engaged in businesses similar to such businesses and has had access to the Assets, the officers and employees of Seller, and the books, records and files of Seller relating to the Business and the Assets. In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely on the basis of its own independent due diligence investigation of the Business and upon the representations and warranties made in this Agreement and in any other document or instrument delivered by Seller pursuant hereto. Accordingly, Buyer acknowledges that Seller has not made, and Seller is expressly disclaiming and negating any representation or warranty (other than those express representations and warranties made in Article V), express, implied, at common law, by statute or otherwise, relating to the Business. Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility. Buyer is a "public utility company" (as such term is defined in PUHCA). Neither Buyer nor any of its Affiliates is a "holding company", a "subsidiary" of a "public utility company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. Section 4.9 Buyer's Financial Statements. The consolidated financial statements of Buyer for its most recently ended fiscal year heretofore delivered to Seller were prepared in accordance with GAAP applied on a consistent basis, except for changes concurred in by Buyer's accountants and disclosed in said financial statements, throughout the periods specified, and present fairly in all material respects the financial condition and results of operations of the businesses of Buyer as of the dates thereof and for the periods then ended (subject, in the case of unaudited financial statements, to normal year-end adjustments). Section 4.10 Buyer's Insurance. Within five (5) business days after the date of execution of this Agreement, Buyer will deliver to Seller a schedule that lists Buyer's policies and contracts in effect as of the date hereof for casualty and property insurance covering its assets and properties and the operation of its business, together with the risks insured against, coverage limits and deductible amounts. 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER Section 5.1 Organization, Existence and Qualification. Seller is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct the Business as it is now being conducted, to own or use the Assets, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which Seller is a party. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of the State of Arizona and each other state in which the failure to be so qualified or in good standing would have a Material Adverse Effect. Section 5.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Seller have been duly authorized by all requisite corporate action. Except as set forth in Schedule 5.2, the execution, delivery and performance of this Agreement and the Related Documents by Seller will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Seller, (b) to Seller's Knowledge, a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Material Contract to which Seller is a party or by which any of the Assets are bound, or (c) a violation of any Order of any Governmental Body, except for such exceptions to the foregoing clauses (b) and (c) that, will be cured, waived or otherwise remedied on or prior to the Closing Date. This Agreement constitutes and the Related Documents to be executed by Seller when executed and delivered will constitute valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. No Person has any agreement, option, warrant, subscription, understanding, or commitment, or any right or privilege capable of becoming an agreement, option or commitment for the purchase of the Assets of any other interest in the Business. Section 5.3 Governmental and Other Required Consents. Except as set forth in Schedule 5.3, no Consent of any Governmental Body or third Person is required to be obtained by Seller in connection with the execution and delivery by Seller of this Agreement or the Related Documents or the consummation by Seller of the transactions contemplated by this Agreement or the Related Documents, other than (i) any Consent the failure of which to obtain would not be material to the operation or conduct of the Business after Closing and (ii) any Consent that is obtained or made on or prior to the Closing Date. Seller has no Knowledge of any facts or circumstances relating to Seller or its Affiliates, other than those relating to the auction process in which Buyer was selected, and other bidders were not selected, to acquire the Business or relating to the matters disclosed in any Schedule referred to in this Agreement, that would be reasonably likely to preclude or prolong the receipt of such required Consents. Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility. Seller is a "public utility company" (as such term is defined in PUHCA). Seller is not a "holding company", a "subsidiary" of a "public utility company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. 17 Section 5.5 Title to Assets; Liens. Seller has good and indefeasible title to the Assets, including the Assets reflected in the Financial Statements, except those disposed of since the date of the Financial Statements in the ordinary course of business or otherwise disposed of in accordance with this Agreement. None of the Assets are subject to any Encumbrance except (i) Encumbrances described in Schedule 5.5 and (ii) Permitted Encumbrances. Schedule 5.5 lists each parcel of Real Property owned in fee simple that is a part of the Assets. To Seller's Knowledge, except as set forth in Schedule 5.5, Seller owns or possesses all Easements necessary to conduct the Business as now being conducted without any known conflict with the rights of others. Except as set forth in Schedule 5.5, (a) Seller enjoys peaceful and undisturbed possession under all real property leases included in the Assets, and to the Knowledge of Seller, all such leases are valid and in full force and effect; (b) all rents due to date from Seller on each such lease have been paid; (c) Seller has not received notice that it is in default under any such lease; and (d) to the Knowledge of Seller, there exists no event, occurrence, condition or act (including the consummation of the transactions contemplated by this Agreement) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default by Seller under such lease. Except as set forth in Schedule 5.5, all buildings, structures and equipment that are a part of the Assets lie wholly within the boundaries of the Real Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person. Seller has adequate rights of ingress and egress for operation of the Business in the ordinary course consistent with past practices. None of the buildings, structures or equipment that are a part of the Assets, nor the operation and maintenance thereof, violates any restrictive covenant. Section 5.6 Financial Statements. (a) Schedule 5.6(a) sets forth the unaudited balance sheet for the Business as at September 30, 1999 (the "Balance Sheet") and unaudited statement of income of the Business for the nine-month period ended September 30, 1999 (collectively, the "Financial Statements"). Except as set forth in Schedule 5.6(a), the Financial Statements have been prepared on a pre-tax basis in accordance, in all material respects, with GAAP applied on a basis consistent with prior periods. Except as set forth in Schedule 5.6(a), the Balance Sheet presents fairly in all material respects the financial condition of the Business as of its date and the income statement included in the Financial Statements presents fairly in all material respects the results of operations of the Business for the periods covered thereby. The books and records of Seller from which the Financial Statements were prepared were complete and accurate in all material respects at the time of such preparation. (b) Except as disclosed in Schedule 5.6(b), Seller has no liabilities with respect to the Business or the Assets which would constitute Assumed Liabilities, either direct or indirect, matured or unmatured or absolute, contingent or otherwise, except: (1) those liabilities set forth in the Financial Statements or referred to in the notes to the Financial Statements and not heretofore paid or discharged; (2) those liabilities relating to or arising from matters disclosed in any other Schedule hereto; (3) liabilities arising in the ordinary course of business consistent with past practices under any Contract or Legal Requirements; 18 (4) those liabilities incurred, consistent with past practices, in or as a result of the ordinary course of business since the Balance Sheet Date which do not and could not be reasonably expected to, in the aggregate, result in a Material Adverse Effect; (5) those liabilities and obligations that are the subject of Article X; and (6) those liabilities, which, if outstanding as of the Closing Date, would result in a decrease to the Purchase Price in accordance with Section 3.1(b) or (d). Section 5.7 Compliance with Legal Requirements; Governmental Permits. Except as set forth in Schedule 5.7: (a) Seller is in substantial compliance with each Legal Requirement or Order that is applicable to it, to the conduct or operation of the Business, or to the ownership or use of any of the Assets; (b) Seller possesses all Consents from Governmental Bodies required by any applicable Legal Requirement or Order necessary to permit the operation of the Business in the manner in which it is currently being conducted by Seller; (c) all such Consents are in full force and effect; and (d) Seller has not received notice from any Governmental Body of its intent to revoke or terminate of such Consent. Section 5.8 Legal Proceedings; Outstanding Orders. Except as set forth in Schedule 5.8, there is no pending or Threatened Proceeding (a) that has been commenced against Seller or the Business other than Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings, or (b) as of the date of this Agreement, that challenges, or that may have the effect of preventing, delaying, making illegal, restricting or otherwise interfering with, the transactions contemplated hereby. Schedule 5.8 lists each outstanding Order against Seller which relates to or arises out of the conduct of the Business or the ownership, condition or operation of the Business or the Assets which would be considered material to a reasonably prudent purchaser of the Business in its reasonable business judgment, other than any Orders relating to rates, tariffs and similar matters arising in the ordinary course of business and other than any Order applicable to other Persons engaged in a business similar to the Business such as generic or industry-wide Orders. Section 5.9 Taxes. All Tax Returns required to be filed by or on behalf of Seller or requests for extensions to file such Tax Returns have been timely filed, and Seller has paid and discharged or made adequate provision for all Taxes that are required to be paid or remitted by or on behalf of Seller. There are no pending audits or other examinations relating to any Tax matters relating to the Business or the Assets except as set forth in Schedule 5.9. There are no Tax Encumbrances on the Assets, except for liens for Taxes not yet due and payable or for Taxes that Seller is contesting in good faith through appropriate proceedings. As of the date of this Agreement, Seller has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax relating to the Business or the Assets except as set forth in Schedule 5.9. Except as set forth in Schedule 5.9, none of the Assets include stock of a corporation or interests in a partnership or limited liability company. Seller is not a party to any safe harbor lease within the meaning of IRC Section 168(f)(8), as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. Seller is not a "foreign person" as defined in IRC Section 1445(f)(3) and Buyer is not required to withhold tax on the purchase of the Assets of Seller by reason of IRC Section 1445. Seller has not entered into any agreement with respect to the performance of services that would require a payment, and Seller is not requiring Buyer pursuant to this Agreement to make any payment (including but not limited to the payments described in Section 10.11 of this Agreement), that would result in a nondeductible expense pursuant to IRC Section 280G or an excise tax to the recipient of such payment pursuant to IRC Section 4999. 19 Section 5.10 Intellectual Property. Schedule 5.10 lists all patents, trademarks, service marks and copyrights used or held for use by Seller primarily in the operation of the Business. Seller has no Knowledge of (i) any infringement or claimed infringement by Seller of any patent, trademark, service mark or copyright of others or (ii) any infringement of any patent, trademark, service mark or copyright owned by or under license to Seller. Section 5.11 Personal Property. Except for normal wear and tear, the tangible Assets, taken as a whole, are in good operating condition and in a state of reasonable maintenance and repair. The buildings, structures and equipment that are a part of the Assets are structurally sound, are in good operating condition and repair and are adequate for the uses to which they are being put, and none of such buildings, structures or equipment is in need of maintenance or repairs, except in each case, for the Assets described in Schedule 5.11 and for Assets in need of ordinary and routine maintenance and repairs that will not, individually or in the aggregate, have a Material Adverse Effect. Section 5.12 Material Contracts; Existing Loan Documents. Schedule 5.12 contains, to Seller's Knowledge, a complete and correct list as of the date hereof of all Material Contracts (other than line extension Contracts and similar construction arrangements), including all Existing Loan Documents. To Seller's Knowledge, (i) each Material Contract is in full force and effect and enforceable against the parties thereto, (ii) there are no defaults and Seller has not rescinded nor given notice of a default or claimed default under any such Material Contract, and (iii) no event has occurred which with notice or lapse of time, or both, would constitute a default thereunder. Except as set forth in Schedule 5.12, Seller is not obligated under any Contract relating to the Business or the Assets with respect to industrial development bonds or other obligations with respect to which the interest thereon is excluded from gross income of the holder for federal or state income tax purposes. Section 5.13 Employee Benefit Matters. (a) Schedule 5.13 lists (i) each "Employee Benefit Plan," as such term is defined in Section 3(3) of ERISA, which is covered by any provision of ERISA and which is maintained or contributed to by Seller or its Affiliates for the benefit of the Active Employees; (ii) each other material fringe benefit plan, policy or arrangement currently maintained or contributed to by Seller or its Affiliates for the benefit of Active Employees which provides for pension, retirement, deferred compensation, bonuses, incentive compensation, profit sharing, stock options, severance, employee insurance coverage or similar employee benefits (collectively, "Employee Plans"); and (iii) each collective bargaining, union or other employee association agreement, employment, managerial, advisory, and consulting agreement, change-in-control agreement, employee confidentiality agreement, and all other material agreements, policies, or arrangements maintained or contributed to by Seller or its Affiliates for the Active Employees or by which Seller is bound with respect to the Business. Seller has made available to Buyer accurate and complete copies of all such documents and (if applicable) summary plan descriptions with respect to such plans, agreements and arrangements, or summary description(s) of any such plans, agreements or arrangements not otherwise in writing. (b) Seller's Pension Plan and Seller's 401(k) Plan are the only Employee Benefit Plans which are intended to be qualified under Section 401(a) of the IRC. (c) Each Employee Benefit Plan has been established and administered in all material respects in accordance with its terms, ERISA and the applicable provisions of the IRC. 20 Section 5.14 Environmental Matters. (a) Except as listed in Schedule 5.14, since December 31, 1996, Seller has not received a written notice from a Governmental Body that Seller is in violation of any Environmental Law arising out of Seller's ownership, use or operation of the Assets or the operation of the Business. (b) Except as listed in Schedule 5.14, there are no Proceedings pending or Threatened with respect to Seller's compliance with Environmental Laws and relating to the Business or the Assets. To Seller's Knowledge, there is no reasonable basis for any such Proceeding that would impose any liability or obligation that would have or would reasonably be expected to have a Material Adverse Effect. (c) Except as listed in Schedule 5.14, Seller possesses all certificates, permits and authorizations required by any Environmental Law for Seller's ownership, use or operation of the Assets or the operation of the Business. (d) Except as set forth in Schedule 5.14, no environmental remediation of any Release is occurring on any Real Property included in the Assets nor has Seller issued a request for proposal or otherwise asked an environmental remediation contractor to begin plans for any such environmental remediation. Except as set forth in Schedule 5.14, to Seller's Knowledge, during or prior to the period of Seller's ownership or operation of the Business there were no Releases or threatened Releases which would reasonably be expected to have a Material Adverse Effect. (e) Except as set forth in Schedule 5.14, none of the Real Property is (i) situated in a federal "Superfund" site or, to Seller's Knowledge, in any federal "Superfund" study area designated under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), or (ii) to Seller's Knowledge, situated in any site or study area designated under any state statute comparable to CERCLA. Section 5.15 No Material Adverse Change. Except as set forth in Schedule 5.15, between the date of the Balance Sheet and the date of execution of this Agreement: (a) no Material Adverse Effect has occurred; (b) except for actions taken in connection with the contemplated sale of the Business and this Agreement and except for conversion to the SAP financial reporting system, between the date of the Balance Sheet and the date of execution of this Agreement, the Business has been conducted in the ordinary course, consistent with past practices; (c) there has not been any increase in the salary, wage, bonus, grants, awards, benefits or other compensation payable or that could become payable by Seller to its officers, directors and employees with respect to the Business or any amendment of any of the Employee Plans, Seller's Pension Plan and Seller's 401(k) Plan other than increases or amendments in the ordinary course of the Business, consistent with past practices (which may include normal periodic performance reviews and related compensation and benefit increases and the provision of new individual compensation and benefits for promoted or newly hired officers and employees on terms consistent with past practice), nor has Seller granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus, in each case to any such officer, director, or employee, other than pursuant to preexisting agreements, arrangements or bonus plans, or taken any action that would result in the payment of any amounts, or the accelerated vesting of any rights or benefits, under any Employee Plan, Seller's Pension Plan or Seller's 401(k) Plan; 21 (d) there has been no change in any method of accounting or accounting practice of the Business; (e) Seller has not sold, mortgaged, pledged or encumbered the Business or the Assets, other than sales of Assets in the ordinary course of business; and (f) no agreement or commitment to do any of the actions contemplated by clauses (c), (d) or (e) above has been entered into. Section 5.16 State and Federal Regulatory Matters. (a) Schedule 5.16 reflects all of the currently pending filings relating to the Business heretofore made by Seller before state or federal regulatory commissions and each other currently pending Proceeding of such state or federal regulatory commission which would be considered material to a reasonably prudent purchaser of the Business in its reasonable business judgment, other than any currently pending Proceeding that also is applicable to other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings. (b) All currently effective material filings relating to the Business heretofore made by Seller with state or federal regulatory commissions were made in compliance with Legal Requirements then applicable thereto and the information contained therein was true and correct in all material respects as of the respective dates of such filings. Section 5.17 Brokers. Except for Morgan Stanley & Co. Incorporated, no broker or finder has acted for or on behalf of Seller or any Affiliate of Seller in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Seller or any Affiliate of Seller for which Buyer has or will have any liabilities or obligations (contingent or otherwise). 22 Section 5.18 Employee Relations. Except as disclosed in Schedule 5.18, as of the execution of this Agreement (i) there is no strike, slowdown, picket, work stoppage or other labor dispute or disturbance on the part of the employees of Seller with respect to the Business pending or Threatened, and Seller has not experienced any such strike, slowdown, picket, work stoppage or other labor dispute or disturbance with respect to the Business within the past two years, (ii) no grievance, unfair labor practice charge or any arbitration Proceeding arising out of or under any collective bargaining agreement relating to the Business exists or is pending on the date hereof, (iii) Seller is not the subject of a Proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it to bargain with any labor organization as to wages or conditions of employment with respect to the Business, (iv) Seller is not aware of any activity involving Seller's employees seeking to certify a collective bargaining unit or engaging in other organizational activity with respect to the Business, (v) Seller is currently in compliance in all material respects with respect to the Business with all applicable Legal Requirements relating to the employment of labor, including those related to wages, hours and collective bargaining, and is not liable for any arrearages of wages, penalties or other sums for failure to comply with any of the foregoing and (vi) there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or Threatened before any Governmental Body regarding any person or entity currently or formerly employed by Seller with respect to the Business. Section 5.19 Insurance. Schedule 5.19 lists the Seller's casualty and property insurance policies and contracts in effect as of the date hereof in connection with the Business. Except as disclosed in Schedule 5.19, (i) each material insurance policy thereof is in full force and effect, (ii) Seller is not in default with respect to its obligations under any such policy and (iii) Seller has not received any notice of cancellation or termination with respect to any material insurance policy thereof. Section 5.20 Accounts Receivable. All accounts receivable and earned but unbilled revenue reflected in the Financial Statements represent actual indebtedness to Seller incurred by the applicable account debtors in the ordinary course of business consistent with past practices. To Seller's Knowledge, all accounts receivable and earned but unbilled revenue reflected in the Financial Statements are good and collectible at the aggregate recorded amounts thereof, net of any reserve for doubtful accounts reflected therein. Section 5.21 Appropriate Knowledge Persons. The individuals identified in the definition of "Knowledge" are agents, employees or officers of Seller and certain of such individuals have primary decisionmaking responsibility for the day-to-day operations, management, maintenance and repair of the Assets and the Business, and they have served in such capacities for more than twelve (12) months. Section 5.22 Local Furnishing. Seller was engaged in the local furnishing of electrical energy in Mohave County and Santa Cruz County, Arizona, respectively, within the meaning of Sections 142(a)(8) and 142(f)(3) of the IRC on January 1, 1997, and has continued to be so engaged at all times thereafter. All of the Assets are facilities used in the local furnishing of electrical energy in Mohave County and Santa Cruz County, Arizona, respectively, within the meaning of Sections 142(a)(8) and 142(f)(3) of the IRC. 23 Section 5.23 Disclaimer. Except as otherwise expressly set forth in this Agreement or in any other document or instrument delivered by Seller pursuant hereto, Seller expressly disclaims any representations or warranties of any kind or nature, express or implied, as to the condition, value or quality of the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by Seller, and Seller SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED, "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL FAULTS AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION THEREOF. ARTICLE VI COVENANTS Section 6.1 Covenants of Seller. Seller agrees to observe and perform the following covenants and agreements: (a) Conduct of the Business Prior to the Closing Date. With respect to the Business, except (i) as contemplated in this Agreement or in Schedule 6.1, (ii) as required by any Legal Requirement or Order or (iii) as otherwise expressly consented to in writing by Buyer which consent will not be unreasonably withheld or delayed, prior to the Closing, Seller will, with respect to the Business. (1) Not make or permit any material change in the general nature of the Business; (2) Maintain and conduct the Business in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy, and maintain the Assets in their present condition, reasonable wear and tear excepted, subject to retirements in the ordinary course of business, use all reasonable efforts to preserve intact the present business organization and the relationship with customers, suppliers and others having business dealings with the Business; (3) Not enter into any material transaction or Material Contract other than in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy; (4) Not purchase, sell, lease, dispose of or otherwise transfer or make any Contract for the purchase, sale, lease, disposition or transfer of, or subject to Encumbrance, any material Assets other than in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy; (5) Not hire any new employee unless such employee is a bona fide replacement for either a presently-filled position or a vacancy in an authorized position with the Business; 24 (6) Not make any capital expenditure or capital expenditure commitment in excess of $200,000 in the aggregate that is not included in the Capital Budget except in the event of service interruption, emergency or casualty loss, and use commercially reasonable efforts to make capital expenditures in accordance with the Capital Budget; (7) Comply in all material respects with all applicable Legal Requirements and Orders, including without limitation those relating to the filing of reports, the timely filing of Tax Returns and the payment of Taxes due to be paid prior to the Closing, other than those Taxes contested in good faith; (8) Except in the ordinary course of business consistent with past practices or in accordance with the terms of any existing Contract, Employee Plan or collective bargaining agreement, not grant any material increase or change in total compensation or benefits (taken as a whole) to any of the Transferred Employees or, except as permitted by Section 10.2, enter into any employment, severance or similar Contract with any Person or amend any such existing Contracts to increase any amounts payable thereunder or benefits provided thereunder; (9) Not terminate any Material Contract; (10) Not create, incur, assume, guarantee or otherwise become liable with respect to any indebtedness for money borrowed other than in the ordinary course of business (it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed), except in connection with additional borrowings under the Existing Loan Documents and any renewal, extension, rearrangement or refunding of any indebtedness created under or evidenced by the Existing Loan Documents, and except pursuant to advances made by Seller to the Business; or (11) Not make any material filings with any Governmental Body prior to consulting with Buyer except for filings made in the ordinary course of business consistent with past practices. (b) Access to the Business, Assets and Records; Updating Information. (1) From and after the date hereof and until the Closing Date, Seller shall permit Buyer and its Representatives to have, on reasonable notice and at reasonable times, reasonable access to the Business, the Assets and all books, papers and records to the extent that they reasonably relate to the ownership, operation, obligations and liabilities of the Business and the Assets; provided, however, that such access shall not unreasonably interfere with the operation of the Business; and provided, further, that Buyer hereby agrees to defend, indemnify and hold harmless Seller from and against all Losses arising out of or relating to the negligence or willful misconduct of Buyer or its Representatives in connection with Buyer's access provided pursuant to this Section 6.1(b)(1). Without limiting the application of the Confidentiality Agreement, all documents or information furnished by Seller hereunder shall be subject to the Confidentiality Agreement. (2) Seller will notify Buyer as promptly as practicable of any significant change in the ordinary course of business for the Business and of any material Proceedings (Threatened or pending) involving or affecting the Business or the transactions contemplated by this Agreement, and shall use reasonable efforts to keep Buyer fully informed of such events. 25 (c) Consents. Seller will use its commercially reasonable efforts to obtain all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business and all Consents listed in Schedule 5.3. (d) Exclusivity. Until consummation of the transactions contemplated hereby or termination of this Agreement pursuant to Section 9.1, neither Seller nor its Affiliates, representatives, officers, directors, employees or agent will, directly or indirectly, (1) submit, solicit, initiate, encourage or discuss any proposal or offer from any Person (other than Buyer or its Affiliates) or enter into any agreement or accept any offer relating to any (i) reorganization, liquidation or dissolution of the Business; (ii) merger or consolidation involving the Business; (iii) purchase or sale of substantially all of the Assets; or (iv) similar transaction or business combination involving the Business or the Assets, or (2) furnish any information with respect to, assist or participate in or facilitate in any other manner any effort or attempt by any Person or do or seek to do any of the foregoing. Seller shall notify Buyer promptly if any Person makes any proposal, offer, inquiry or contact with respect to an action described in clauses (i) through (iv) above. (e) Noncompetition. (i) From the Closing Date through the third (3rd) anniversary thereof, Seller agrees that neither it nor any of its Affiliates will (i) directly, or indirectly through one or more entities, own, manage, operate, control, be employed by or participate in the ownership, management, operation or control, or have a financial interest in, any Person which is engaged in the Business within the State of Arizona, provided, however, that the foregoing shall not prevent the purchase or ownership of shares which constitute less than five percent (5%) of the outstanding equity securities of a publicly-held company; or (ii) divert or direct any Person who is, at that time, a customer or supplier of the Business away from the Business. (ii) Seller acknowledges that it has carefully read all the terms of this Section 6.1(e), and agrees that (A) the same are necessary for the reasonable and proper protection of the value of the Business, (B) each and every covenant is reasonable with respect to such matter, length of time and the geographical area described, and (C) that irrespective of all other conditions, the covenants and restrictions in clause (i) above shall be operative during the full period and throughout the geographical area described. In the event any court finds any such restraint or limitation to be unreasonable, then it is the intent of the parties that such court should determine the maximum restraint or limitation which is reasonable and enforcement will be of that restraint or limitation. (iii) Because of the immediate and irreparable damage that would be caused to Buyer as a result of the breach of the covenants of Seller contained in this Section 6.1(e), for which Buyer would not have other adequate remedy, Seller agrees that, in the event of any such breach, Buyer shall be entitled to seek, from any court of competent jurisdiction, an injunction against any further breach by Seller. In addition, Buyer shall be entitled to pursue any other remedies available under applicable laws or equitable principles. Each party waives any requirements for security of the posting of any bond or other surety in connection with any temporary or permanent award or injunctive, mandatory or other equitable relief. 26 Section 6.2 Covenants of Buyer. Buyer agrees to observe and perform the following covenants and agreements: (a) Consents. Buyer will use its commercially reasonable efforts to assist Seller in obtaining all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business, and will use its commercially reasonable efforts to obtain all Consents listed in Schedule 4.2 and Schedule 4.3. (b) Access to Information. After Closing, Buyer will, and will cause its Representatives to, afford to Seller, including its Representatives, at Seller's expense, reasonable access to all books, records, files and documents related to the Business to the extent necessary to permit Seller to prepare and file its tax returns and to prepare for and participate in any investigation with respect thereto, to prepare for and participate in any other investigation and defend any Proceedings relating to or involving Seller or the Business for which Seller may be responsible, to discharge its obligations under this Agreement and the other Related Documents to which its is a party and for other reasonable purposes and will afford Seller reasonable assistance in connection therewith. Buyer will cause such records to be maintained for not less than seven years from the Closing Date and will not dispose of such records without first offering in writing to deliver them to Seller; provided, however, that in the event that Buyer transfers all or a portion of the Business to any third party during such period, Buyer may transfer to such third party all or a portion of the books, records, files and documents related thereof, provided such third party transferee expressly assumes in writing the obligations of Buyer under this Section 6.2(b). In addition, after the Closing Date, at Seller's request, Buyer shall make available to Seller and its Affiliates, employees, representatives and agents, those employees of Buyer requested by Seller in connection with any Proceeding, including to provide testimony, to be deposed, to act as witnesses and to assist counsel; provided, however, that (x) such access to such employees shall not unreasonably interfere with the normal conduct of the operations of Buyer and (y) Seller shall reimburse Buyer for the allocated time charges of such employees and the out-of-pocket costs reasonably incurred by Buyer in making such employees available to Seller. (c) Citizens Guarantees and Surety Instruments. Buyer shall use its commercially reasonable efforts to assist Seller in obtaining full and complete releases on the guarantees, letters of credit, bonds and other surety instruments listed in Schedule 6.2(c). For purposes of this Section 6.2(c), reasonable efforts shall include: (i) Buyer's assumption of the Contracts on the terms set forth in this Agreement; and (ii) an obligation on the part of Buyer to provide a guaranty, letter of credit, bond or other surety instrument at Closing to the extent required by any Contract assumed by Buyer at Closing and, in general, an equivalent surety instrument to be substituted for any surety instrument provided by Citizens to any beneficiary in connection with the Business. (d) Other Covenants of Buyer. Buyer agrees to submit to regulation by the appropriate state regulatory commission to the same extent as such state regulatory commission currently regulates Seller in connection with the Business. Buyer also agrees to make no filings with such state regulatory commission or take any other action in connection with any Proceeding or Legal Requirement relating to any other businesses conducted by Seller that also are subject to regulation by such state regulatory commission. 27 Section 6.3 Governmental Filings. (a) HSR Act Filing. Buyer and Seller shall comply promptly with the notice and reporting requirements of the HSR Act. Buyer and Seller shall comply substantially with any additional requests for information, including requests for production of documents and production of witnesses for interviews or depositions, made by the Antitrust Division of the United States Department of Justice, the United States Federal Trade Commission or the antitrust or competition law authorities of any other jurisdiction (the "Antitrust Authorities"). Buyer shall exercise its commercially reasonable efforts, and Seller shall cooperate fully with Buyer, to prevent the entry in any Proceeding brought by an Antitrust Authority or any Governmental Body which would prohibit, make unlawful or delay the consummation of the transactions contemplated by this Agreement. Seller shall not oppose any efforts of Buyer, including Buyer's proffer of consent to any Order, to complete lawfully the transactions contemplated by this Agreement, and shall cooperate in good faith with Buyer and the Antitrust Authorities to the same effect. (b) Other Regulatory Filings. Buyer and Seller will, as soon as reasonably practicable following the execution of this Agreement, prepare and file with each Governmental Body, including the appropriate state regulatory commission, requests for such Consents as may be necessary for the transfer of the Assets in accordance with the terms of this Agreement. Buyer and Seller will diligently pursue such Consents and will cooperate with each other in seeking such Consents. To this end, the parties agree to make available the personnel and other resources of their respective organizations in order to accomplish actions reasonably required by them to obtain all such Consents. (c) Actions Not Required. Notwithstanding anything to the contrary contained in this Agreement, in connection with or as a condition to receiving any Consent, neither Seller nor Buyer shall be required (A) to divest, abandon, license or take similar action with respect to any assets (tangible or intangible) of it or any of its respective Affiliates, or (B) to expend material sums of money or grant any material financial or other accommodations (other than as contemplated hereby). Section 6.4 Citizens Marks. Buyer acknowledges and agrees with Seller that Seller has the absolute and exclusive proprietary right to all names, marks, trade names, trademarks and corporate symbols and logos incorporating "Citizens" and "CZN" (collectively and together with all other names, marks, trade names, trademarks and corporate symbols and logos owned by Seller or any of its Affiliates, the "Citizens Marks"), all rights to which and the goodwill represented thereby and pertaining thereto are being retained by Seller. Within ninety (90) days after the Closing Date, Buyer shall cease using any Citizens Mark and shall remove from the Assets any and all Citizens Marks. Thereafter, Buyer shall not use any Citizens Mark in connection with the sale of any products or services or otherwise in the conduct of its businesses. In the event that Buyer breaches this Section 6.4, Seller shall be entitled to specific performance of this Section 6.4 and to injunctive relief against further violations, as well as any other remedies at law or in equity available to Seller. 28 Section 6.5 Acknowledgment by Buyer. In order to induce Seller to enter into and perform this Agreement and the Related Documents, Buyer acknowledges and agrees with Seller as follows: (a) To the extent any representation or warranty of Seller made herein is, to the knowledge of Buyer acquired prior to the date of execution of this Agreement, untrue or incorrect, (i) Buyer shall have no rights under this Agreement or any Related Documents by reason of such untruth or inaccuracy, and (ii) any such representation or warranty by Seller shall be deemed to be amended to the extent necessary to render it consistent with such knowledge of Buyer. As used in this Agreement, the "knowledge of Buyer" means the actual knowledge of John D. Parker, Buyer's Chief Financial Officer. (b) EXCEPT AS SET FORTH IN THIS AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO, NONE OF SELLER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES MAKES ANY REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY INFORMATION, WRITTEN OR ORAL, FURNISHED TO OR PREPARED AT THE REQUEST OF BUYER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES WITH RESPECT TO THE BUSINESS OR THE ASSETS. (c) THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT AND IN ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF SELLER TO BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND BY THE RELATED DOCUMENTS THERE ARE NO REPRESENTATIONS, WARRANTIES, COVENANTS, UNDERSTANDINGS OR AGREEMENTS, ORAL OR WRITTEN, IN RELATION THERETO BETWEEN THE PARTIES OTHER THAN THOSE INCORPORATED HEREIN AND THEREIN. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO, BUYER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, BY OR ON BEHALF OF SELLER OR ITS AFFILIATES OR REPRESENTATIVES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED IN SECTIONS 5.7, 5.11 AND 5.14, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF SELLER WITH RESPECT TO THE CONDITION OF THE ASSETS, COMPLIANCE WITH ENVIRONMENTAL LAWS AND ENVIRONMENTAL PERMITS OR THE PRESENCE OR RELEASES OF HAZARDOUS MATERIAL IN THE FIXTURES, SOILS, GROUNDWATER, SURFACE WATER OR AIR ON, UNDER OR ABOUT OR EMANATING FROM ANY OF THE PROPERTIES OR ASSETS OF SELLER. Section 6.6 Transition Plan. Within 30 days after the execution date of this Agreement, Buyer shall deliver to Seller a list of its proposed representatives to a joint transition team, which shall include expertise from various functional specialties associated or involved in providing billing, payroll and other support services provided to the Business by any automated or manual process using facilities or employees that are not included among the Assets or Transferred Employees. Seller will add its representatives to such team within 15 days after receipt of Buyer's list. Such team will be responsible for preparing as soon as reasonably practicable after the execution date of this Agreement and at least 60 days prior to the Closing Date, and timely implementing, a transition plan which will identify and describe substantially all of the various transition activities that the parties will cause to occur before and after the Closing and any other transfer of control matters that any party reasonably believes should be addressed in such transition plan, including (i) the payment, collection, remittance and/or other appropriate arrangements with respect to the items addressed in Sections 3.1(a), 3.1(b) and 3.4; (ii) 29 post-Closing inspection and maintenance of the gas pipeline serving the Nogales, Arizona, generation facility; (iii) post-Closing access to and use of space in the Nogales, Arizona, operations and maintenance facility by employees of the Arizona Gas business of Seller and its successor; and (iv) identification, selection and hiring by Buyer on or after the Closing Date of employees of Seller who provide support services to the Business but who are not included among the Active Employees. If requested by either party, the terms and conditions governing such transition activities will be more fully set forth in a Transition Agreement reasonably satisfactory to the parties. Buyer and Seller shall use their commercially reasonable efforts to cause their Representatives on such transition team to cooperate in good faith and take all reasonable steps necessary to develop a mutually acceptable transition plan by no later than 120 days after the date of this Agreement. Section 6.7 IDRB Obligations. (a) Buyer's IDRB Obligations. Each party acknowledges that (x) Seller is and after the Closing Date shall continue to be and shall remain the primary obligor with respect to all IDRB Indebtedness and related Bonds outstanding immediately after the Closing Date to the same extent as though no sale of the Assets had been made and that Buyer shall have no payment obligations with respect to such IDRB Indebtedness and related Bonds and (y) the IDRB Documents require Seller not to take or permit to be taken any action which would have the effect, directly or indirectly, of subjecting the interest on any of the Bonds to federal or state income taxation. Accordingly, Buyer covenants and agrees at Closing to execute and deliver to Seller an agreement substantially in the form attached hereto as Exhibit 6.7, with respect to the Bonds that will be outstanding after the Closing Date. Buyer represents, warrants, covenants and agrees, that so long as any Bonds relating to any IDRB Indebtedness are outstanding, (a) as the "successor in interest" to Seller (as such term is used in Section 142(f)(3)(B) of the IRC), Buyer will not take or permit to be taken any action the effect of which is to cause the Assets that were acquired, constructed, improved or equipped with the proceeds of such Bonds to be used as facilities that are not facilities for the local furnishing of electric energy within the meaning of Sections 142(a)(8) and 142(f) of the IRC or, if applicable, Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as amended and (b) Buyer has not made and shall not make an election pursuant to Section 142(f)(4)(B) of the IRC to terminate tax-exempt bond financing by Buyer. Notwithstanding anything in this Agreement to the contrary, in no event shall Buyer be liable for or have any responsibility to Seller or others under this Section 6.7 if (i) the Assets, or the use and operation thereof, fail to satisfy the previously mentioned requirements of the IRC as of the Closing Date or (ii) interest on any of the Bonds was not excluded from gross income for purposes of federal or state income taxation as of the Closing Date. Buyer acknowledges and agrees that Seller's bond counsel may rely on Buyer's representations, warranties and covenants as hereinabove provided for the purpose of rendering legal opinions, as required by the IDRB Documents as a precondition to the sale by Seller of such Assets, to the effect that the sale of such Assets will not result in the inclusion of the interest on the Bonds in the gross income of the recipient for purposes of federal income taxation. Nothing in this Agreement is intended to nor shall it be interpreted as (i) an assignment to, and assumption by, Buyer of any of the IDRB Documents, or (ii) as an undertaking or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other payment obligations pursuant to the IDRB Documents. Seller shall not refund any Bonds or take any action that might cause any of the Bonds to be considered "reissued" for the purposes of Section 103 of the IRC or extend the maturity date of any of the Bonds without the express written consent of Buyer, which consent may be withheld in Buyer's sole and absolute discretion. In the event that the interest on any of the Bonds becomes subject to federal or state income tax prior to Closing, Buyer's IDRB Obligations and Seller's covenants set forth herein, in each case with respect to such Bonds, shall be null and void ab initio. 30 (b) IDRB Construction Funds. The construction funds that may be available after the Closing Date that are held by the trustees of the Bonds (collectively, the "Construction Fund") are listed in Schedule 5.12. From time to time after the Closing Date, at the request of Seller, Buyer shall provide written notice to Seller, and Seller promptly shall requisition from the applicable bond trustee disbursements from the applicable Construction Fund in such amount(s) which shall not exceed the amount(s) then available in the applicable Construction Fund. Seller shall prepare and deliver to Buyer a draft of such written notice. Such written notice shall include the information and representations required by the Loan Agreement included among the IDRB Documents relating to the applicable Construction Fund (including a disbursement request proposed by Seller and for a permitted use reasonably acceptable to Buyer). Upon Buyer's receipt of the Funds relating to a requested disbursement from the Construction Fund, Buyer shall promptly remit to Seller an amount equal to the amount so disbursed by the bond trustee. Buyer shall diligently complete the construction of the facilities relating to such Construction Fund and promptly notify Seller in writing when the construction of such facilities has been completed. Seller shall then certify to the applicable trustee of the related Bonds in accordance with the applicable Loan Agreement that such construction has been completed. Seller agrees not to use any Construction Fund in any manner prohibited by the IDRB Documents relative to such Construction Fund. Buyer shall have no liability to Seller or any other Person for any action of Buyer in compliance with this Section 6.7(b) which causes interest on any of the Bonds to become subject to federal or state income taxation. (c) Consents and Legal Opinions. The parties shall use their respective commercially reasonable efforts to obtain all Consents and legal opinions as may be required under the IDRB Documents to enable Seller to retain all IDRB Indebtedness and to sell the Assets to Buyer without the result that the interest on the Bonds will be included in the gross income of the recipient for purposes of federal income taxation. Section 6.8 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires to obtain ALTA title insurance commitments (collectively, the "Title Commitments," and each a "Title Commitment"), in final form, from one or more title insurance companies (collectively, the "Title Company"), committing the Title Company (subject only to the satisfaction of any industry standard requirements contained in the Title Commitment) to issuing ALTA (or its local equivalent) form of title insurance policies insuring good, valid, indefeasible fee simple title to the owned Real Estate in Buyer, in all cases, at Buyer's sole expense and in the respective amounts that Buyer requests prior to Closing, subject to no Encumbrances or other exceptions to title other than Permitted Encumbrances (collectively the "Title Policies"). On or prior to the Closing Date, Seller shall execute and deliver, or cause to be executed and delivered, to the Title Company, at no cost to Seller, any customary affidavits, standard gap indemnities and similar documents reasonably requested by the Title Company in connection with the issuance of the Title Commitments or the Title Policies; provided that such efforts and Buyers' request for Title Policies or Title Commitments shall, in no event, result in any delay in the consummation of the transactions contemplated by this Agreement. 31 ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Seller's Conditions Precedent to Closing. The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Buyer's representations and warranties in this Agreement shall have been true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the date of this Agreement and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall be true and correct in all respects) as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement, except that representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Buyer shall have been performed and complied with in all material respects prior to or at the Closing Date. (c) Certificate. Buyer shall execute and deliver to Seller a certificate of an authorized officer of Buyer, dated the Closing Date, stating that the conditions specified in Sections 7.1(a) and 7.1(b) of this Agreement have been satisfied. (d) Governmental Approvals and Other Consents. The Arizona Corporation Commission shall have issued an Order approving the transactions contemplated hereby, the terms and conditions of such Order shall be acceptable in all material respects to Seller in its reasonable discretion and shall have no significant adverse effect on Seller's acquisition and divestiture activities in the State of Arizona (including the divestiture of the Assets), and such Order shall have become a Final Order. Seller also shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby and to transfer the Assets to Buyer without incurring material liability under any Legal Requirement, Order or Contract. (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated without there being in effect a Legal Requirement enjoining or restraining consummation of such transaction. (f) Injunctions. On the Closing Date, there shall be no Proceedings pending which seek, and no Orders which operate, to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Seller shall have received from counsel to Buyer an opinion in the form of Exhibit 7.1(g). (h) Documents. Buyer shall have delivered all the certificates, instruments, contracts and other documents specified to be delivered by it hereunder on or before the Closing Date, including pursuant to Section 8.1, and shall have taken such actions as Seller may have requested pursuant to Section 11.2 hereof. 32 (i) IDRB Indebtedness. Seller shall have obtained all Consents and legal opinions required under the IDRB Documents to enable Seller to retain the IDRB Indebtedness until maturity and to sell the Assets to Buyer without the result that the interest on the Bonds will be included in the gross income of the recipient for purposes of federal income taxation, and Buyer shall have duly executed and delivered all of the instruments contemplated by Section 6.7(a) and Section 8.1(d). (10) Related Closings. The transactions contemplated in the Related Purchase Agreement(s) shall have been consummated, or Seller shall be reasonably satisfied that the consummation of those transactions will occur concurrently with the Closing. Section 7.2 Buyer's Conditions Precedent to Closing. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Seller's representations and warranties in this Agreement shall have been true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the date of this Agreement and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall be true and correct in all respects) as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement; except (i) that representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period, and (ii) to the extent that any failure of such representations and warranties to be true and correct as aforesaid when taken in the aggregate would not have a Material Adverse Effect. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Seller shall have been performed and complied with in all material respects prior to or at the Closing Date, except where the failure to so perform or comply when taken in the aggregate would not have a Material Adverse Effect. (c) Certificate. Seller shall execute and deliver to Buyer a certificate of an authorized officer of Seller, dated the Closing Date, stating that the conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement have been satisfied. (d) Governmental Approvals. The Arizona Corporation Commission shall have issued an Order approving the transactions contemplated hereby, such Order shall not contain any restrictions or conditions (other than those in effect on the date of this Agreement or requiring that the regulatory treatment with respect to the Business in existence as of the date of this Agreement applicable to Seller be continued following the Closing) which would have a material adverse effect on the operation, financial condition or results of operations of the Business, and such Order shall have become a Final Order. In addition, Seller shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby other than those the failure of which to obtain would not have a material adverse effect on the operation, financial condition or results of operations of the Business. 33 (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. (f) Injunctions. On the Closing Date, there shall be no Proceedings pending which seek, and no Orders which operate, to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Buyer shall have received from L. Russell Mitten II, Vice President and General Counsel of Seller, an opinion in the form of Exhibit 7.2(g) hereto. (h) Documents. Seller shall have delivered all of the certificates, instruments, contracts and other documents specified to be delivered by it hereunder, including pursuant to Section 8.1, and shall have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as promptly as practicable after the Closing such records (including customer and employee records) necessary to own and operate the Business. (i) No Material Adverse Change. Since the date of execution of this Agreement, no Material Adverse Effect shall have occurred that has continuing effect as of the Closing Date. ARTICLE VIII CLOSING Section 8.1 Closing. The closing of the purchase and sale of the Assets (the "Closing") will take place at the offices of Fleischman and Walsh, L.L.P., 1400 Sixteenth Street, N.W., Suite 600, Washington, D.C. 20036, on the last calendar day of the month in which the conditions specified in Sections 7.1(d) and 7.2(d) have been satisfied, unless another time, date and place is agreed to in writing by the parties. The date of the Closing is referred to in this Agreement as the "Closing Date." The transactions to be consummated on the Closing Date shall be deemed to have been consummated as of 11:59 p.m. on the Closing Date. At the Closing the following events shall occur, each event being deemed to have occurred simultaneously with the other events. (a) Bill of Sale. Seller and Buyer shall execute and deliver the Bill of Sale and Assignment and Assumption Agreement in the form of Exhibit 8.1(a) hereto (the "Bill of Sale"). (b) Payment of Purchase Price. As provided below, Buyer will pay to Seller an amount equal to the Estimated Purchase Price by wire transferring such amount, in lawful money of the United States of America in immediately available funds, to such account as Seller shall have designed by notice to Buyer. If the Closing Date is not a business day on which financial institutions are open and operating, then on or before the last business day on which financial institutions are open and operating before the Closing Date, Buyer shall deliver the Estimated Purchase Price to Buyer's lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Estimated Purchase Price in an interest-bearing account mutually agreed upon by Seller and Buyer. At Closing, Buyer shall sign and deliver to Seller a statement which confirms that the Closing has occurred and which instructs the Escrow Agent to transfer to Seller the funds representing the Estimated Purchase Price, plus an amount representing the interest earned after the Closing Date until the date the funds are transferred, to an account that Seller shall designate at least two (2) business days prior to the date the funds are required to be transferred hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and expenses of Escrow Agent shall be paid one-half by Seller and one-half by Buyer. 34 (c) Other Related Documents. To the extent consistent with the other provisions of this Agreement, Seller (or the appropriate Affiliate of Seller) and Buyer shall execute and deliver such other Related Documents (including special warranty deeds, conveyances, certificates of title, bills of sale, assignment and assumption instruments and FIRPTA affidavits) reasonably requested by a party that are necessary in order to satisfy any applicable Legal Requirements relating to the transfer of the Assets to Buyer or the assumption of the Assumed Liabilities by Buyer or which are customarily given in the State of Arizona to accomplish transfers of assets of the type involved; provided, however, that nothing in this clause (c) shall obligate Seller or any Affiliate of Seller to execute or deliver any document that affects, in a manner adverse to Seller and in a manner not required by the terms of this Agreement, Seller's liability to Buyer as expressed herein and in the Bill of Sale. (d) IDRB Indebtedness. Buyer and Seller shall execute and deliver the IDRB Obligations Agreement contemplated by Section 6.7(a) to the extent not previously executed and delivered by Buyer and Seller. (e) Office Leases. If requested by Buyer at least sixty (60) days before Closing, Buyer and Seller (or its appropriate Affiliate) will commence good faith negotiations regarding Buyer's short-term lease (not to exceed 180 days from the Closing Date) of office space in Seller's Kingman, Arizona, and Havasu, Arizona, office buildings, portions of which are used by Seller in connection with the Business, on commercially reasonable terms acceptable to Buyer and Seller. (f) FIRPTA Certificate. Seller shall execute and deliver to Buyer a certification of nonforeign status within the meaning of Treasury Regulations Section 1.1445-2. ARTICLE IX TERMINATION Section 9.1 Termination Rights. This Agreement may be terminated in its entirety at any time prior to the Closing: (a) By the mutual written agreement of Seller and Buyer; (b) By Buyer, on the one hand, or Seller, on the other hand, in writing if there shall be in effect a nonappealable Order prohibiting , enjoining or restricting the transactions contemplated by this Agreement; (c) By Buyer, upon the breach in any material respect of any of the representations and warranties of Seller contained herein or in the failure by Seller to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Seller, provided that such breach or failure is reasonably likely to result in a Material Adverse Effect and is not cured or otherwise addressed by Seller in a manner reasonably acceptable to Buyer within 30 days of Seller's receipt of a written notice from Buyer that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); 35 (d) By Seller, upon the breach in any material respect of any of the representations and warranties of Buyer contained herein or the failure by Buyer to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Buyer, provided that such breach or failure is not cured or otherwise addressed by Buyer in a manner reasonably acceptable to Seller within 30 days of Buyer's receipt of a written notice from Seller that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); (e) By either party in writing if the Closing has not occurred within fifteen (15) months (twelve (12) months if the Letter of Credit is not replaced with one that expires no earlier than July 31, 2001) after the execution date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 9.1(e) will not be available to any party that is in material breach of its representations, warranties, covenants or agreements contained herein; and provided, further, that if Closing has not occurred within such period of time because the conditions precedent to Closing set forth in Sections 7.1(d) and 7.2(d) have not been fulfilled, then such period of time shall be automatically extended by an additional two (2) months; (f) By Seller or Buyer, as appropriate, if any Governmental Body whose Consent is required to fulfill a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to Buyer) has affirmatively indicated that such Consent will not be given or will contain terms or conditions (or, if such Consent has been obtained, contains terms or conditions) that, in the reasonable business judgment of Seller or Buyer, as appropriate, will result in a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to Buyer) not being satisfied; or (g) By Seller if both (i) the NCSC fails to advance loan proceeds to Buyer with which to fund the payments required to be made by Buyer at Closing or the NCSC affirmatively indicates, for no reason or for any reason other than the proper termination of this Agreement pursuant to any other provision of this Section 9.1, that such funding will not be provided by the NCSC and (ii) Buyer is unable to arrange, to Seller's reasonable satisfaction, replacement funding from any other source within forty-five (45) days after the occurrence of the event described in the preceding clause (i). (8) By Seller if a Related Purchase Agreement is terminated for any reason other than due to the failure of the applicable State regulatory commission to Consent to the transactions contemplated by such agreement because of concerns about Buyer's nonfinancial qualifications or capabilities. 36 Section 9.2 Limitation on Right to Terminate: Effect of Termination. (a) A party shall not be allowed to exercise any right of termination pursuant to Section 9.1 if the event giving rise to the termination right shall be due to the willful failure of such party seeking to terminate this Agreement to perform or observe in any material respect any of the covenants or agreements hereof to be performed or observed by such party. (b) If this Agreement is terminated as permitted under Section 9.1, such termination shall be without liability of or to any party to this Agreement, or any shareholder or Representative of such party; provided, however, that if such termination shall result from the willful failure of any party to fulfill a condition to the performance of any other party or to perform a covenant of this Agreement or from a material and willful breach by any party to this Agreement (it being understood that the failure to cure a breach shall not, by itself, be a willful breach of this Agreement), then such party shall (subject to the limitation set forth in the last sentence of this Section 9.2(b)) be fully liable for any and all damages sustained or incurred by the other party. If prior to Closing either party to this Agreement resorts to legal proceedings to enforce this Agreement, the prevailing party in such proceedings shall be entitled to recover all costs incurred by such party including reasonable attorney's fees, in addition to any other relief to which such party may be entitled; provided, however, and notwithstanding anything to the contrary in this Agreement, in no event shall either party be entitled to receive any punitive, indirect or consequential damages. (c) If (i) Seller terminates this Agreement pursuant to Section 9.1(d) or (ii) this Agreement is terminated by either party pursuant to Section 9.1(e) or 9.1(f) because the requisite Consent from the applicable state regulatory commission has not been obtained, or because such Governmental Body has affirmatively indicated that its Consent will not be given, due in whole or in part to concerns about Buyer's qualifications or capabilities, unless such Governmental Body also has affirmatively indicated that its Consent is being withheld due in part to concerns about Seller's operation of the Business or ownership of the Assets or (iii) Seller terminates this Agreement pursuant to Section 9.1(g), then Seller may present a sight draft under the Letter of Credit, and thereby retain either all of the Deposit (if clause (i) or (iii) is applicable) or $6,300,000 (if clause (ii) is applicable), (or, if the Letter of Credit does not permit Seller to present a sight draft in such circumstances, then Buyer shall pay to Seller in cash an amount equal to the Deposit or $6,300,000, as the case may be, within five (5) business days after the effective date of termination of this Agreement) in either case, as liquidated damages free of any claims by Buyer or any other Person with respect thereto (the parties hereby acknowledging that the extent of damages to Seller occasioned by such breach or default or failure by Buyer would be impossible or extremely difficult to ascertain and that the amount to be paid by Seller is a fair and reasonable estimate of such damages under the circumstances). If this Agreement is terminated for any reason other than as set forth in the preceding sentence, then Seller shall promptly deliver the Letter of Credit to Buyer, free of any claims by Seller or any other Person with respect thereto. ARTICLE X EMPLOYEE MATTERS Section 10.1 Employment of Transferred Employees. (a) Schedule 10.1 lists each division, and the total number of salaried and hourly, nonunion and union, employees actively employed as of the date of this Agreement in each division by Seller or its Affiliates whose primary duties relate to the Business ("Active Employees"). As of the Closing Date, Buyer shall employ all Active Employees of Seller employed in the Business 37 being acquired ("Transferred Employees") in the same comparable positions, and at the same compensation level (including wages, salary and bonuses) as were in effect with Seller immediately prior to the Closing Date. Buyer reserves the right to restructure positions and functions as it deems appropriate so long as reassignment does not result in materially diminished responsibilities or a reduction in compensation. For purposes of the preceding sentence, "Active Employees" shall include all full-time and part-time employees, employees on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, on short-term disability, on layoff with recall rights, and employees on other leaves of absences where there is a legal or contractual right to reinstatement. Notwithstanding the foregoing, nothing in this Agreement shall operate to prevent or prohibit Buyer from making changes in compensation of Transferred Employees based on demotions arising for cause. (b) Prior to the execution date of this Agreement, Seller has delivered to Buyer a list of the persons who would have been Transferred Employees had the Closing Date occurred on December 31, 1999, showing the following information for each such person: (i) the name of each such person; (ii) the name of his or her current employer; (iii) his or her current base pay, 1998 bonus that was paid in 1999 and the projected 1999 bonus that will be paid in 2000; (iv) his or her hire date, any rehire date (if available) and years of service; (v) his or her then-current position and job title; (vi) whether such employee is subject to a collective bargaining agreement or represented by a labor organization and, if so, the name of the union and local, (vii) whether such employee is on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, short-term disability, on layoff with recall rights, or on other leave of absence with a legal or contractual right to reinstatement. Seller shall update such list as of the end of each calendar quarter occurring between the execution date hereof and the Closing Date, in each case assuming the Closing Date had occurred on such date, and shall deliver such updated lists to Buyer within ten (10) days after the end of each such calendar quarter. Section 10.2. Assumption of Collective Bargaining Agreement Obligations. On and after the Closing Date, Buyer, shall assume all of the Seller's obligations under, and be bound by the provisions of, each collective bargaining agreement to the extent of provisions covering Transferred Employees. Each collective bargaining agreement shall be identified on a Schedule 10.2 to be prepared by Seller and submitted to Buyer on or before the Closing Date. Seller shall cooperate with Buyer in Buyer's efforts to contact the unions representing Transferred Employees. Seller may extend, renew or enter into a new Contract to replace any collective bargaining agreement that will expire prior to December 31, 2000, provided that Seller shall consult with Buyer regarding the terms and conditions of any such extension, renewal or replacement of any such collective bargaining agreement. Notwithstanding the foregoing provisions of this Section 10.2, Buyer shall not be obligated to assume any new collective bargaining agreement that contains terms and conditions that, when taken as a whole, are materially more onerous on the employer than the terms and conditions, taken as a whole, of the collective bargaining agreement that was replaced by such new collective bargaining agreement. Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses. From and after the Closing Date, Transferred Employees shall accrue no additional benefits under any Employee Benefit Plan, or Employee Plan of Seller or its Affiliates. Seller and Buyer shall pro-rate the obligation to pay any bonuses declared by Seller after the Closing Date that would have been payable to the Transferred Employees had the Transferred Employees remained employed by Seller or its Affiliates throughout the calendar year in which the Closing Date occurs, in accordance with the provisions of any Employee Benefit Plan or Employee Plan of Seller under which such bonus would have been paid. For Transferred Employees entitled to such bonus, Buyer shall be obligated to pay that portion of each such bonus determined by multiplying the amount of such bonus by a fraction, the numerator of which is the number of days from and after the Closing Date through the end of the calendar year in which the Closing Date occurs, and the denominator of which is 365. Seller shall be obligated to pay the balance of any such bonuses. 38 Section 10.4 Similarity of Benefit Packages. As of the Closing Date, and except as otherwise expressly provided in this Article X, Buyer shall include each Transferred Employee in a benefit package providing benefits that are in the aggregate substantially similar to those provided by Seller to such Transferred Employees immediately prior to the Closing Date. Notwithstanding the foregoing, to the extent that one or more collective bargaining agreements being assumed by Buyer contains provisions pertaining to employee benefits, Buyer shall provide the Transferred Employees covered by such agreements with benefits that are identical to those required to be provided under the terms of such agreements. Except as otherwise expressly provided in this Article X, Buyer shall treat all service and compensation credited to each such Transferred Employee as if such service and compensation had been rendered to, and paid by, Buyer for all purposes under Buyer's benefit plans, arrangements, and policies. Section 10.5 Defined Benefit Pension Plan. (a) At least fifteen days prior to the Closing Date, Seller shall take any and all actions necessary to cease benefit accruals and fully vest all Transferred Employees in their accrued benefits under the Citizens Pension Plan ("Seller's Pension Plan"). Seller shall retain all liabilities and assets for pension benefits accrued through the Closing Date by Transferred Employees and retirees of the Business under Seller's Pension Plan. (b) As of the Closing Date, Buyer shall cause all union Transferred Employees to be included in a qualified defined benefit pension plan providing benefits identical to the benefits provided under the Seller's Pension Plan ("Buyer's Pension Plan"). Buyer shall take all actions necessary to cause Buyer's Pension Plan to recognize the service that all union Transferred Employees had under Seller's Pension Plan for purposes of such Employees' eligibility to participate, vesting, attainment of retirement dates, subsidized benefits, and entitlement to optional forms of payment. Section 10.6 401(k) Plan. (a) Buyer shall take all action necessary to ensure that, as of the Closing Date, it includes Transferred Employees in a qualified 401(k) plan providing for matching contributions at least equivalent to that provided to the Transferred Employee under Citizens 401(k) Savings Plan ("Seller's 401(k) Plan") immediately prior to the Closing Date. Buyer shall take all actions necessary to cause Buyer's 401(k) Plan to recognize the service that the Transferred Employees had in Seller's 401(k) Plan for purposes of determining such Employees' eligibility to participate, vesting, attainment of retirement dates, contribution levels and, if applicable, eligibility for optional forms of benefit payments. Buyer shall cause the trustee of Buyer's 401(k) Plan to accept transfers and direct rollovers from Seller's 401(k) Plan of the vested account balances of Transferred Employees, including transfers of outstanding loan balances and related promissory notes, subject to compliance with applicable law. (b) Seller shall vest Transferred Employees in their account balances under Seller's 401(k) Plan as of the Closing Date. Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan an amount of cash equal to the value of the account balances of the Transferred Employees under Seller's 401(k) Plan; except that to the extent that the account balances consist of outstanding loans, Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan the promissory notes and related documents evidencing such loans. 39 (c) After the transfer of assets and liabilities pursuant to this Section, Buyer shall assume all liabilities for the benefits payable with respect to Transferred Employees under Seller's 401(k) Plan, and Seller and Seller's 401(k) Plan shall have no liability for such benefits. (d) In connection with the transfer of assets and liabilities under this Section, Seller and Buyer shall cooperate in making all appropriate filings, and providing all applicable notices, required by the IRC or ERISA. Buyer shall deliver to Seller a copy of Buyer's 401(k) Plan, and a copy of the most recent determination letter from the IRS with respect to such Plan, together with a certification to the effect that no events have occurred since the date of the determination letter that would adversely affect the Plan's qualified status. Section 10.7 Welfare Benefits. (a) Buyer shall take all action necessary and appropriate to ensure that, as of the Closing Date, Buyer maintains employee welfare benefit plans (including retiree medical benefits) for the benefit of Transferred Employees that, in the case of nonunion Transferred Employees are, in the aggregate, comparable to those benefits provided by Seller under its corresponding welfare benefit plans (the "Buyer's Nonunion Welfare Plans"), and in the case of union Transferred Employees are identical to those benefits provided to union Transferred Employees under Seller's corresponding welfare benefit plans (the "Buyer's Bargained Welfare Plans"), as in effect immediately prior to the Closing Date. The Buyer's Nonunion Welfare Plans and the Buyer's Bargained Welfare Plans are hereinafter referred to collectively as the "Buyer Welfare Plans." For purposes of determining eligibility to participate, and entitlement to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be credited with service, determined under the terms of the corresponding welfare plans maintained by Seller on the Closing Date (hereinafter referred to collectively as the "Seller Welfare Plans"). Any restrictions on coverage for pre-existing conditions, actively at work requirements, waiting periods, and requirements for evidence of insurability under the Buyer Welfare Plans shall be waived in the Buyer Welfare Plans for Transferred Employees, and Transferred Employees shall receive credit under the Buyer Welfare Plans for co-payments, payments under a deductible limit made by them, and for out-of-pocket maximums applicable to them during the plan year of the Seller Welfare Plan in which the Closing Date occurs. As soon as practicable after the Closing Date, Seller shall deliver to Buyer a list of the Transferred Employees who had credited service under a Seller Welfare Plan, together with each such Transferred Employee's service, co-payment, deductible and out-of-pocket payment amounts under such plan. (b) Buyer shall provide or cause to be provided retiree medical, dental, and life benefits to each retiree of the Business identified in Schedule 10.7 as updated as of the Closing Date (the "Retirees"), to each Transferred Employee who is considered to be a "grandfathered employee" (as hereinafter defined), and to each union Transferred Employee who otherwise is eligible for such retiree benefits, under the same terms and conditions as applied to such Retiree or Transferred Employee immediately prior to the Closing Date, and Seller shall have no obligation or liability, contingent or otherwise, to provide retiree medical, dental or life benefits to any such Retiree or Transferred Employee on or after the Closing Date. For purposes of this Section 10.7, a "grandfathered employee" is a union or nonunion Transferred Employee, who was at least age 55 with at least 10 years of service as defined in the Seller's Pension Plan by December 31, 1997, and who retires after December 31, 1997. Schedule 10.7 identifies each Active Employee who is a "grandfathered employee" and each union Active Employee who otherwise is eligible for such retiree benefits. Buyer agrees not to terminate or materially modify those post-retirement benefit provisions covering "grandfathered" Transferred Employees, eligible union Transferred Employees, Retirees, their spouses and dependents that are in effect immediately prior to the Closing Date. 40 (c) Within sixty (60) days after the Closing, Seller agrees to transfer to an exempt trust established by Buyer under Section 501(c)(9) of the IRC ("Buyer's VEBA") the amount held under any trust established by Seller under Section 501(c)(9) of the IRC ("Seller's VEBA") to fund post-retirement health care and life insurance benefits for the Business. Such amount shall be determined based upon Seller's internal recordkeeping. Buyer agrees that Buyer's VEBA will apply an amount at least equal to the sum of the assets transferred from Seller's VEBA (and earnings thereon calculated at the rate of return generated by Buyer's VEBA) to provide post-retirement health care and life insurance benefits after the Closing Date to the Retirees and, as applicable, the Transferred Employees who become eligible for such benefits after Closing. Upon Closing, Buyer shall be responsible for all obligations of Seller to provide post-retirement health care and life insurance benefits to such Transferred Employees and Retirees, and Seller and Seller's VEBA shall cease to have any liability, contingent or otherwise, for such benefits. Section 10.8 Flexible Spending Accounts. Seller shall transfer to Buyer's flexible benefits plan any balances standing to the credit of Transferred Employees under Seller's flexible benefits plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing Date a list of those Transferred Employees that have participated in the health or dependent care reimbursement accounts of Seller, together with their elections made prior to the Closing Date with respect to such account, and balances standing to their credit as of the Closing Date. Section 10.9 Employment Agreements. Buyer shall assume all obligations of each employment agreement to which Seller or its Affiliates is a party and which covers any Transferred Employee immediately prior to the Closing Date. Section 10.10 Vacation. Seller shall pay to Transferred Employees any "banked" vacation credited to them on or prior to the Closing Date. On or after the Closing Date, Buyer shall provide to each Transferred Employee vacation in an amount equal to the Transferred Employee's vacation entitlement for the year of the Closing reduced by the number of vacation days that such Transferred Employee has taken on or before the Closing. Section 10.11 Severance. In the event that Buyer terminates the services of any Transferred Employee within twelve (12) months following the Closing Date without cause, Buyer shall provide to any such Transferred Employee severance or separation pay benefits that are at least equal to the benefits that would have been paid by Seller had Seller continued to employ such Transferred Employee through such twelve month period ending on the employee's date of termination from Buyer; provided, however, that if a collective bargaining agreement that is applicable to a union Transferred Employee would provide for a greater benefit to be paid by Buyer, the terms and conditions of such agreement shall instead be applicable. "Cause" for termination shall consist of: (a) any act of dishonesty or fraud; (b) an employee's conviction of a crime involving fraud, embezzlement or any other act of moral turpitude; (c) an employee's gross negligence or willful misconduct in the performance of his duties; (d) an employee's engagement in acts seriously detrimental to the Business or reputation of Buyer; (e) an employee's failure to abide by lawful policies of Buyer; and (f) the employee's failure to abide by the directives of the employee's superior. 41 ARTICLE XI TAX MATTERS Section 11.1 Purchase Price Allocation. Buyer and Seller shall use their good faith efforts to agree upon the allocation (the "Allocation") of the Purchase Price, the Assumed Liabilities and other relevant items (including, for example, adjustments to the Purchase Price) to the individual assets or classes of assets as required by Section 1060 of the IRC and the Treasury Regulations promulgated thereunder. If Buyer and Seller agree to such Allocation, Buyer and Seller covenant and agree that, except to the extent that the IRS or other Governmental Body successfully challenges such Allocation, (i) the values assigned to the assets by the parties' mutual agreement shall be conclusive and final for all purposes, (ii) Buyer and Seller shall file all federal Tax Returns, including IRS Form 8594, in accordance with such Allocation, and (iii) neither Buyer nor Seller will take any position before any Governmental Body or in any Proceeding that is in any way inconsistent with such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation, Buyer and Seller covenant and agree to file, and to cause their respective Affiliates to file, all Tax Returns and schedules thereto (including, for example, amended returns, claims for refund, and those returns and forms required under Section 1060 of the IRC and any Treasury regulations promulgated thereunder) consistent with each of such party's good faith Allocations, unless otherwise required because of a change in any Legal Requirement. Section 11.2 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that Seller may, at Seller's election prior to the Closing Date, direct Buyer to acquire any portion of the Assets by delivering all or a portion of the Purchase Price to a "qualified intermediary" (as defined in Treasury Regulations ss.1.1031(k) - (l)(g)(4)) as to assist Seller in structuring the relinquishment of the Assets to qualify as part of a like-kind exchange of property covered by Section 1031 of the IRC. If Seller so elects, Buyer shall cooperate with Seller (but without being required to incur any out-of-pocket costs in the course thereof) in connection with Seller's efforts to effect such like-kind exchange, which cooperation shall include, without limitation, taking such actions as Seller reasonably requests in order to enable Seller to qualify such transfer as part of a like-kind exchange of property covered by Section 1031 of the IRC (including any actions required to facilitate the use of a "qualified intermediary"), and Buyer agrees that Seller may assign all or part of its rights and delegate all or part of its obligations under this Agreement to a person or entity acting as a qualified intermediary to the extent necessary to qualify the transfer of the Assets as part of a like-kind exchange of property covered by Section 1031 of the IRC, provided, however, that no such assignment shall relieve Seller of any of its obligations under this Agreement. Buyer and Seller agree in good faith to use reasonable efforts to coordinate the transactions contemplated by this Agreement with any other transactions engaged in by either Buyer or Seller; provided that such efforts are not required to include an unreasonable delay in the consummation of the transactions contemplated by this Agreement. Seller agrees to pay any additional Transaction Taxes that may be imposed as a result of any like-kind exchange contemplated by this Section 11.2 and to reimburse Buyer for any additional out-of-pocket legal fees and expenses that may be incurred by Buyer in connection with any such exchange. 42 Section 11.3 Transaction Taxes. Buyer and Seller shall each bear and be responsible for paying one-half of any sales, use, transfer, documentary, registration (other than any annual registration fees), business and occupation and other similar Taxes (including related penalties (civil or criminal), additions to tax and interest) imposed by any Governmental Body with respect to the transfer of Assets (including the Real Property) to Buyer ("Transaction Taxes"), regardless of whether the tax authority seeks to collect such Taxes from Seller or Buyer. Seller shall prepare all tax filings related to any Transaction Taxes (other than with respect to Real Property and motor vehicle title transfer and registration, which shall be prepared by Buyer). Fifteen (15) days prior to making such filings, the filing party shall provide to the nonfiling party the filing party's workpapers for the nonfiling party's review and approval. The nonfiling party shall provide to the filing party approval or disapproval of such workpapers within ten (10) days of delivery by the filing party. The filing party shall be responsible for (i) administering the payment of such Transaction Taxes, (ii) defending or pursuing any Proceedings related thereto, and (iii) paying any expenses related thereto, in each case subject to reimbursement by the nonfiling party for one-half of such payments and expenses. Each party shall give prompt written notice to the other of any proposed adjustment or assessment of any Transaction Taxes with respect to the transaction, or of any examination of said transaction in a sales, use, transfer or similar tax audit. In any Proceedings, whether formal or informal, the filing party shall control the defense of such Proceedings, but shall permit the nonfiling party to participate in the defense of such proceeding and shall take all actions and execute all documents required to allow such participation. Neither party shall negotiate a settlement or compromise of any Transaction Taxes without the prior written consent of the other, which consent shall not be unreasonably withheld. ARTICLE XII ENVIRONMENTAL MATTERS Section 12.1 Environmental Due Diligence. (a) Right to Conduct Environmental Due Diligence. Regarding environmental matters, Buyer has completed its initial environmental due diligence prior to execution of this Agreement, including a review of the Environmental Data. Buyer also has required Seller to make the representations concerning environmental matters set forth in Section 5.14, upon which Buyer is relying. In light of these actions, Buyer agrees not to conduct additional environmental due diligence (including employee interviews and sampling of any media or wastewater) except in accordance with this Section 12.1. All activities of Buyer regarding environmental due diligence shall be conducted to minimize any inconvenience or interruption of the normal use and enjoyment of the Business and the Assets. (b) Delivery of Environmental Reports. Seller has made available to Buyer before the date of execution of this Agreement copies of all written environmental audits, reports or studies in Seller's possession of which Seller has Knowledge and which were prepared after December 31, 1996, concerning the existence or possible existence of Hazardous Materials on, or under or adjacent to any of the Real Property or relating to potential Environmental Liability of Seller in connection with the Business or the Assets. Buyer shall provide to Seller copies of all reports, assessments and other information composed or compiled by Buyer or Buyer's environmental consultant(s) promptly following Buyer's receipt thereof. Buyer shall treat all such information delivered to, or composed or compiled by, Buyer or Buyer's environmental consultant(s) as Environmental Data in accordance with the procedures of Section 12.1(c). 43 (c) Confidentiality of Environmental Data. All audits, reports and studies delivered to or prepared by Buyer and all other information collected and generated as a result of Buyer's environmental due diligence ("Environmental Data") will be subject to the terms and conditions of the Confidentiality Agreement, except as otherwise expressly provided in this Section 12.1. Neither Buyer nor its environmental consultant(s) shall disclose or release any Environmental Data without the prior written consent of Seller and all such information shall be kept strictly confidential. The Environmental Data shall be prepared at the request of counsel to Buyer and, to the fullest extent permitted by law, shall be the work product of such counsel and constitute confidential attorney/client communications. The Environmental Data shall be transferred among Buyer and its consultant(s) in a manner that will preserve, to the greatest extent possible, such privileges. Buyer expressly agrees that until the Closing, it will not distribute the Environmental Data to any third party without Seller's prior written consent. After the Closing, each Party agrees that it will not distribute the Environmental Data to any third party without the other's prior written consent, except as required by law or by express provisions of its corporate compliance program if the other Party is provided written notice at least ten (10) days prior to such distribution, provided, however, that for a period of two (2) years after the Closing Date, Buyer may distribute the Environmental Data to any potential purchaser of the Assets only after first notifying the Seller. (d) Environmental Consultants. Buyer may retain one or more outside environmental consultants to assist in its environmental due diligence concerning the Assets and shall notify Seller of the environmental consultant or consultants Buyer intends to retain. Thereafter, Seller shall have five (5) days after receipt of such notification to notify Buyer in writing of Seller's objection (which must be for good cause) and substantiate the basis for that objection. If Seller does not object for good cause and substantiate that objection within said five (5) day period, Seller shall be deemed to have consented to Buyer's selection. (e) Phase I Reviews. Buyer has conducted various environmental assessment activities with respect to the Assets, including reviewing existing environmental reports, correspondence, permits and related materials regarding the Assets, but excluding inspecting individual sites. Buyer may not conduct any further Phase I environmental assessment activities with respect to the Assets without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. Any permitted Phase I environmental assessment activities shall not include any sampling or intrusive testing. (f) Phase II Reviews. Buyer may not conduct any Phase II environmental assessment activities with respect to the Assets (including, but not limited to, the taking and analysis of soil, surface water and groundwater samples, testing of buildings, drilling wells, taking soil borings and excavating) without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. (g) Additional Due Diligence. Notwithstanding the foregoing, if prior to Closing Seller receives notice of any Proceeding or Threatened Proceeding arising under Environmental Laws or if Seller otherwise acquires Knowledge that is reasonably likely to require a change to Schedule 5.14, Seller promptly shall notify Buyer of the same and Buyer may request that Seller authorize Buyer to conduct specific additional environmental due diligence measures if and to the extent that such measures are required to determine the extent of any potential Environmental Liability relating thereto. Such authorization shall not be unreasonably withheld, conditioned or delayed by Seller. Any such additional environmental due diligence shall be conducted at Buyer's sole expense. 44 (h) Indemnity for Due Diligence Activities. Buyer hereby agrees to indemnify and hold harmless Seller, Seller's Affiliates and their respective officers, directors, employees, agents, successors and assigns from and against any and all Losses with respect to persons or property arising out of or resulting from any site visit by Buyer or its environmental consultant(s) and resulting from an act or omission of Buyer or its environmental consultant(s), provided, however, that such indemnity shall not extend to Losses resulting from the discovery of pre-existing damage or other pre-existing conditions of the Assets. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Seller. From and after Closing and subject to the other provisions of this Article XIII, Seller shall indemnify and hold harmless Buyer, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Buyer Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Seller in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing; and (c) the Retained Liabilities, including the Retained Environmental Liabilities. Section 13.2 Indemnification by Buyer. From and after Closing and subject to the other provisions of this Article XIII, Buyer shall indemnify and hold harmless Seller, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Seller Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Buyer in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing; (c) Assumed Liabilities, including the Assumed Environmental Liabilities; and (d) any event as a result of which the interest on the Bonds may be included in the gross income of the recipient for purposes of federal income taxation, to the extent such event arises out of or results from any act, negligence, fault or failure of Buyer or any assignee, lessee or successor of Buyer, including any breach or default by Buyer in its performance of the Buyer's IDRB Obligations and any breach or violation of the representations, warranties, covenants and agreements set forth in the IDRB Obligations Agreement executed and delivered by Buyer in accordance with Sections 6.7(a) and 8.1(d). 45 Section 13.3 Limitations on Liability. Notwithstanding anything to the contrary in this Agreement, the liability of Seller and Buyer under this Agreement and any documents delivered in connection herewith or contemplated hereby shall be limited as follows: (a) IN NO EVENT SHALL SELLER BE LIABLE TO THE BUYER INDEMNITEES, OR SHALL BUYER BE LIABLE TO THE SELLER INDEMNITEES, FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however, that if Buyer or Seller is held liable to a third party for any of such damages and Seller or Buyer, respectively is obligated to indemnify the other for the matter that gave rise to such damages, then Seller or Buyer, as appropriate, shall be liable for, and obligated to reimburse the other for, such damages. (b) Except as provided below, the representations, warranties, covenants and agreements of Seller and Buyer set forth in this Agreement shall survive the Closing for the applicable period of time set forth below in this Section 13.3(b), and all representations, warranties, covenants and agreements of Seller and Buyer under this Agreement and the indemnities granted by Seller and Buyer in Section 13.1 or Section 13.2, respectively, shall terminate at 5:00 p.m., local time in Stamford, Connecticut, on the appropriate anniversary of the Closing Date or on the expiration of the applicable statute of limitations (or extensions or waivers thereof), as the case may be, as set forth below in this Section 13.3(b); provided, however, that such indemnities shall survive with respect only to the specific matters that is the subject of a proper Claim Notice delivered in good faith in compliance with the requirements of this Section 13.3 until the earlier to occur of (A) the date on which a final nonappealable resolution of the matter described in such Claim Notice has been reached or (B) the date on which the matter described in such Claim Notice has otherwise reached final resolution. (1) The representations and warranties of Seller contained in Section 5.9 (Taxes), the covenants and agreements of Seller relating to Taxes, and the related indemnity obligations of Seller contained in Section 13.1 shall terminate on, and no action or claim with respect thereto may be brought following, the expiration of the applicable statute of limitations (or extensions or waivers thereof). (2) The representations and warranties of Seller contained in Section 5.5 (Title to Assets; Liens) and the related indemnity obligations of Seller contained in Section 13.1 shall terminate on, and no action or claim with respect thereto may be brought after, the third anniversary of the Closing Date. (3) The representations and warranties of Sellers contained in Section 5.14 (Environmental Matters) and the related indemnity obligations of Sellers contained in Section 13.1 shall terminate on, and no action or claim with respect thereto may be brought after, the fourth anniversary of the Closing Date. (4) All other representations and warranties of Seller and Buyer contained in this Agreement and the related indemnity obligations of Buyer and Seller contained in this Agreement shall terminate on, and no further action or claim with respect thereto may be brought after, the second anniversary of the Closing Date. 46 (5) Except as set forth in the proviso to this clause (5), the indemnity obligations of Seller contained in Section 13.1 with respect to any Retained Liability shall terminate on, and no action or claim with respect thereto may be brought after, the second anniversary of the Closing Date, provided that the indemnity obligations of Seller contained in Section 13.1 for (i) Retained Liabilities relating to Taxes shall survive until the expiration of the applicable statute of limitations (or extensions or waivers thereof); (ii) Retained Environmental Liabilities with respect to which Seller had no Knowledge as of the Closing Date shall survive until the fourth anniversary of the Closing Date; and (iii) Retained Liabilities described in Sections 2.3(a), (c) and (d), Retained Liabilities relating to the Proceedings described in items I.1 and I.2 of Schedule 5.8, and any Disclosed Pre-Closing Liability (and any liability or obligation that would have been a Disclosed Pre-Closing Liability had Seller disclosed such liability or obligation to Buyer if Seller had Knowledge of such liability or obligation as of the Closing Date) shall survive for an unlimited period of time. The Retained Liabilities described in clauses (i) and (iii) of this Section 13.3(b)(5) are collectively referred to hereinafter as the "Specified Retained Liabilities. (6) The indemnity obligations of Buyer contained in Section 13.2 with respect to any Assumed Liability shall survive for an unlimited period of time. (7) Notwithstanding the foregoing, the Parties acknowledge that Buyer shall be entitled to indemnification by Seller for Losses incurred by Buyer in respect of any intentional or reckless misrepresentation or omission or fraud by Seller without any time limitation (it being understood that the failure to cure a breach shall not, by itself, be an intentional or reckless act or omission). In no event shall any amounts be recovered from Seller or Buyer under Section 13.1 or Section 13.2, respectively, or otherwise for any matter for which a Claim Notice is not delivered to Seller or Buyer, as the case may be, prior to the close of business on the applicable date set forth above. (c) Notwithstanding anything to the contrary in this Agreement, Seller shall not be required to indemnify the Buyer Indemnities, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses (other than Losses incurred by Buyer in respect of the Specified Retained Liabilities and any intentional or reckless misrepresentation or omission or fraud by Seller, it being understood that the failure to cure a breach shall not, by itself, be an intentional or reckless act or omission (the "First-Dollar Losses")) until the Buyer Indemnitees have suffered Losses (determined after giving effect to the provisions of Section 13.3(f) and other than First-Dollar Losses) that, when taken together with all other claims for Losses (other than First-Dollar Losses) under Section 13.1 of each of the Related Purchase Agreements, are in excess of a deductible in an amount equal to two percent (2%) of the total of the Purchase Price plus the aggregate gross purchase price set forth in each Related Purchase Agreement that is consummated, after which point Seller will be obligated only to indemnify the Buyer Indemnitees from and against further Losses other than First-Dollar Losses in excess of such deductible. Buyer shall be entitled to indemnification for all First-Dollar Losses. (d) Notwithstanding anything to the contrary in this Agreement, Seller shall not be required to indemnify the Buyer Indemnitees, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses (other than First-Dollar Losses) that, when combined with the aggregate amount of Losses (other than First-Dollar Losses) that are subject to indemnification by Seller under Section 13.1 of the Related Purchase Agreements, are in excess of an amount equal to five percent (5%) of the total of the Purchase Price plus the aggregate gross purchase price set forth in each Related Purchase Agreement that is consummated. Buyer shall be entitled to indemnification for all First-Dollar Losses. (e) Except to the extent otherwise expressly provided in this Agreement, no right to indemnification under this Article XIII shall be limited by reason of any investigation conducted by any Party at any time or by the decision by a Party to complete the Closing. Notwithstanding the foregoing, Buyer acknowledges that Seller's indemnity obligations contained in Section 13.1 are subject to the applicable limitations set forth in Section 13.3, and that certain obligations and liabilities of Seller are included among the Assumed Liabilities. 47 (f) Neither Party shall have liability for any claim or Loss (A) that is covered by insurance for which the other Party recovers payments in respect of such Loss or with respect to which the other Party otherwise recovers payments in respect of such Loss from any other sources (whether in a lump sum or stream of payments) or (B) that is the type normally recoverable by the Business through rates, but in each case only to the extent of such payments or recovery. With respect to insurance proceeds only, such recovery shall be calculated net of the insured party's out-of-pocket costs relating to claim preparation and settlement. With respect to recovery through rates, if the amount of the Losses that is included in rates is not specifically adjudicated in the related Final Order, the amount of the Losses included in rates will be calculated as follows: (i) if the cost associated with the Losses is booked as an item of operating expense, the amount of such expense included in rates will be the result of the ratio where total test period operating expenses allowed for ratemaking purposes in such Final Order is the numerator and Buyer's total requested test period operating expenses (including the Losses) is the denominator; (ii) if the cost associated with the Losses is booked as an item of rate base, the amount of such rate base included in rates will be the result of the ratio where total test period rate base allowed for ratemaking purposes in such Final Order is the numerator and Buyer's total requested test period rate base (including the Losses) is the denominator. Buyer agrees to use its commercially reasonable efforts to give timely and effective written notice to the appropriate insurance carrier(s) of any occurrence or circumstances which, in the judgment of Buyer consistent with its customary risk management practices, appear likely to give rise to a claim against Buyer that is likely to involve one or more insurance policies of Buyer. Any such notice shall be given in good faith by Buyer without regard to the possibility of indemnification payments by Seller under Section 13.1, and shall be processed by Buyer in good faith and in a manner consistent with its risk management practices involving claims for which no third party contractual indemnification is available. Buyer agrees that (i) if it is entitled to receive payment from Seller for a Loss, and (ii) if Buyer has obtained insurance which may cover the claim or matter giving rise to such Loss, then (iii) such insurance shall be primary coverage and Buyer will make a claim under such insurance (if such claim can be made in good faith) before enforcing its right to receive payment from Seller. If at any time subsequent to the receipt by a Buyer Indemnitee of an indemnity payment from Seller hereunder, such Buyer Indemnitee (or any Affiliate thereof) receives any recovery, settlement or other similar payment with respect to the Loss for which it receives such indemnity payment, such Buyer Indemnitee shall promptly pay to Seller an amount equal to the amount of such recovery, less (for insurance proceeds only) any out-of-pocket costs incurred by such Buyer Indemnitee (or its Affiliates) in connection with claim preparation and settlement, but in no event shall any such payment exceed the amount of such indemnity payment; provided, that if such net recovery reduces the amount of Losses actually incurred by the Buyer Indemnitees to an amount that is then below the deductible amount set forth in Section 13.3(c) and if Seller has made other payments to the Buyer Indemnitees for other Losses in excess of such deductible amount, then Buyer also shall promptly pay to Seller an amount equal to the portion of such payments made by Seller that Seller would not have been obligated to make pursuant to Section 13.3(c) had the Losses of the Buyer Indemnitees not included the Losses covered by such net recovery. No other cost or expense relating to any such recovery shall reduce the amount of such payment to Seller. (g) Notwithstanding any language contained in any Related Document (including deeds and other conveyance documents relating to the Real Property), the representations and warranties of Seller set forth in this Agreement will not be merged into any such Related Document and the indemnification obligations of Seller, and the limitations on such obligations, set forth in this Agreement shall control. No provision set forth in any such Related Document shall be deemed to enlarge, alter or amend the terms or provisions of this Agreement. (h) In the event that the interest on any of the Bonds becomes subject to federal or state income taxation prior to Closing, the representations and warranties of Buyer contained in Section 6.7 with respect to such Bonds shall be null and void ab initio and no action or claim with respect thereto may be brought. 48 Section 13.4 Claims Procedure. (a) All claims for indemnification under Section 13.1 or 13.2, or any other provision of this Agreement except as otherwise expressly provided in this Agreement, shall be asserted and resolved pursuant to this Article XIII. Any Person claiming indemnification hereunder referred to as the "Indemnified Party" and any Person against whom such claims are asserted hereunder is hereinafter referred to as the "Indemnifying Party." In the event that any Losses are asserted against or sought to be collected from an Indemnified Party by a third party, said Indemnified Party shall with reasonable promptness provide to the Indemnifying Party a Claim Notice. The Indemnifying Party shall be relieved of its obligations to indemnify the Indemnified Party with respect to any such Losses only to the extent the Indemnified Party's delay in notifying the Indemnifying Party thereof in accordance with the provisions of this Agreement so prejudice the Indemnifying Party's ability to defend against the Losses. The Indemnifying Party shall have twenty (20) days from the personal delivery or receipt of the Claim Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not it disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such Losses and/or (ii) whether or not it desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Losses; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party (and of which it shall have given notice and opportunity to comment to the Indemnifying Party) and not prejudicial to the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such Losses, the Indemnifying Party shall have the right to defend all appropriate proceedings, and with counsel of its own choosing, which proceedings shall be promptly settled or prosecuted by them to a final conclusion. If the Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Losses that the Indemnifying Party elects to contest or, if appropriate and related to the claim in question, in making any counterclaim against the Person asserting the third party Losses, or any cross-complaint against any Person. No claim may be settled or otherwise compromised without the prior written consent of both the Indemnifying Party and the Indemnified Party. (b) The Indemnified Party shall provide reasonable assistance to the Indemnifying Party and provide access to its books, records and personnel as the Indemnifying Party reasonably requests in connection with the investigation or defense of the Losses. The Indemnifying Party shall promptly upon receipt of reasonable supporting documentation reimburse the Indemnified Party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (c) With regard to third party claims for which Buyer or Seller is entitled to indemnification under Section 13.1 or 13.2, such indemnification shall be paid by the Indemnifying Party upon: (i) the entry of an Order against the Indemnified Party and the expiration of any applicable appeal period; or (ii) a settlement with the consent of the Indemnifying Party, provided that no such consent need be obtained if the Indemnifying Party fails to respond to the Claim Notice as provided in Section 13.4(a). Notwithstanding the foregoing but subject to Section 13.4(a), and provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party as if such expenses are a liability of the Indemnifying Party. 49 Section 13.5 Exclusive Remedy. Except as otherwise provided in Section 6.4, the rights, remedies and obligations of the Buyer Indemnitees and the Seller Indemnitees set forth in this Article XIII will be the exclusive rights, remedies and obligations of such Persons after the Closing with respect to this Agreement, the events giving rise to this Agreement and the transactions provided for herein or contemplated hereby or thereby. No Proceeding for termination or rescission, or claiming repudiation, of this Agreement or the Bill of Sale may be brought or maintained by either party against the other following the Closing Date no matter how severe, grave or fundamental any breach, default or nonperformance may be by one party. Accordingly, the parties hereby expressly waive and forego any and all rights they may possess to bring any such Proceeding. Section 13.6 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND. Section 13.7 Waiver and Release. (a) Buyer, on behalf of itself and each other Buyer Indemnitee, hereby forever waives, relieves, releases and discharges the Seller Indemnitees and their successors and assigns from any and all rights, liabilities, Proceedings (including future Proceedings) and Losses of any Buyer Indemnitee, whether known or unknown at the Closing Date, which any Buyer Indemnitee has or incurs, or may in the future have or incur, arising out of or related to any Assumed Environmental Liability. (b) Seller, on behalf of itself and each other Seller Indemnitee, hereby forever waives, relieves, releases and discharges to Buyer Indemnitees and their successors and assigns from any and all rights, liabilities, Proceedings (including future Proceedings) and Losses of any Seller Indemnitee, whether known or unknown at the Closing Date, which any Seller Indemnitee has or incurs, or may in the future have or incur, arising out of or related to any Retained Environmental Liabilities. 50 ARTICLE XIV GENERAL PROVISIONS Section 14.1 Expenses. Except as otherwise specifically provided herein, each Party will pay all costs and expenses of its performance of and compliance with this Agreement, except Buyer will pay all real estate transfer taxes and real estate recording fees, if any, including expenses of counsel associated with real estate title, transfer and recording issues. Section 14.2 Notices. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been given upon receipt if either (a) personally delivered, (b) sent by prepaid first class mail, and registered or certified and a return receipt requested (c) sent by overnight delivery via a nationally recognized carrier or (d) by facsimile with completed transmission acknowledged: If to Seller, to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: Robert J. DeSantis Telecopier: (203) 614-4625 with a copy to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: L. Russell Mitten, II Telecopier: (203) 614-4651 and: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: J. Michael Love Telecopier: (203) 614-5201 and: Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W. Washington, D.C. 20036 Attention: Jeffry L. Hardin Telecopier: (202) 387-3467 51 If to Buyer, to: Cap Rock Energy 500 W. Wall Street, Suite 400 Midland, TX 79701 Attention: John D. Parker Telecopier: (915) 684-0333 with a copy to: Heller Ehrman White & McAuliffe LLP 701 Fifth Avenue, Suite 6100 Seattle, WA 98104-7098 Attention: Bruce M. Pym Telecopier: (206) 447-0849 or at such other address or number as shall be given in writing by a party to the other party. Section 14.3 Assignment. This Agreement may not be assigned, by operation of law or otherwise, by any party hereto without the prior written consent of the other party hereto, such consent not to be unreasonably withheld; provided, however, in the event of any such assignment by a party by operation of law without the consent of the other party as required above, such other party may consent to such assignment after it has occurred and, in such event, this Agreement and all the provisions hereof shall be binding upon the Person receiving such assignment by operation of law. Notwithstanding the foregoing, (a) Buyer may assign this Agreement, without the prior written consent of Seller, to any direct or indirect wholly-owned subsidiary of Buyer provided such subsidiary assumes in writing all of the duties and obligations of Buyer hereunder (provided that no such assignment by Buyer shall in any way operate to enlarge, alter or change any obligation due to Seller or relieve Buyer of its obligations hereunder if such subsidiary fails to perform such obligations, with the understanding that Buyer shall be jointly and severally liable with such subsidiary for any nonperformance of Buyer's obligations hereunder); and (b) Seller may assign all or part of its rights or delegate all or part of its duties under this Agreement, without the prior written consent of Buyer, to a qualified intermediary chosen by Seller to structure all or part of the transactions contemplated hereby as a like-kind exchange of property covered by Section 1031 of the IRC (provided that no such assignment by Seller shall in any way operate to enlarge, alter or change any obligations due to Buyer or relieve Seller of its obligations hereunder if such qualified intermediary fails to perform such obligations, with the understanding that Seller shall be jointly and severally liable with such qualified intermediary for any nonperformance of Seller's obligations hereunder). Section 14.4 Successor Bound. Subject to the provisions of Section 14.3, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 14.5 Governing Law. The validity, performance, and enforcement of this Agreement and all Related Documents, unless expressly provided to the contrary, shall be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of law of such state. Section 14.6 Dispute Resolution. Except as otherwise provided in Sections 3.3(c) and 6.4, and this Section 14.6, any dispute, controversy or claim between the parties relating to, arising out of or in connection with this Agreement (or any subsequent agreements or amendments thereto), including as to its existence, enforceability, validity, interpretation, performance or breach or as to indemnification or damages, including claims in tort, whether arising before or after the termination of this Agreement (any such dispute, controversy or claim being herein referred to as a "Dispute") shall be settled without litigation and only by use of the following alternative dispute resolution procedure: 52 (a) At the written request of a party, each party shall appoint a knowledgeable, responsible representative to meet and negotiate in good faith to resolve any Dispute. The discussions shall be left to the discretion of the representatives. Upon agreement, the representatives may utilize other alternative dispute resolution procedures such as mediation to assist in the negotiations. Discussions and correspondence among the parties' representatives for purposes of these negotiations shall be treated as confidential information developed for the purposes of settlement, exempt from discovery and production, and without the concurrence of both parties shall not be admissible in the arbitration described below, or in any lawsuit. Documents identified in or provided with such communications, which are not prepared for purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in the arbitration. (b) If negotiations between the representatives of the parties do not resolve the Dispute within 60 days of the initial written request, the Dispute shall be submitted to binding arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules, as then amended and in effect, of the American Arbitration Association (the "Rules"). Either party may demand such arbitration in accordance with the procedures set out in the Rules. The arbitration shall take place in Phoenix, Arizona. The arbitration hearing shall be commenced within 60 days of such party's demand for arbitration. The arbitrator shall have the power to and will instruct each party to produce evidence through discovery (i) that is reasonably requested by the other party to the arbitration in order to prepare and substantiate its case and (ii) the production of which will not materially delay the expeditious resolution of the dispute being arbitrated; each party hereto agrees to be bound by any such discovery order. The arbitrator shall control the scheduling (so as to process the matter expeditiously) and any discovery. The parties may submit written briefs. At the arbitration hearing, each party may make written and oral presentations to the arbitrator, present testimony and written evidence and examine witnesses. No party shall be eligible to receive, and the arbitrator shall not have the authority to award, exemplary or punitive damages. The arbitrator shall rule on the Dispute by issuing a written opinion within 30 days after the close of hearings. The arbitrator's decision shall be binding and final. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. (c) Each party will bear its own costs and expenses in submitting and presenting its position with respect to any Dispute to the arbitrator; provided, however, that if the arbitrator determines that the position taken in the Dispute by the nonprevailing party taken as a whole is unreasonable, the arbitrator may order the nonprevailing party to bear such fees and expenses, and reimburse the prevailing party for all or such portion of its reasonable costs and expenses in submitting and presenting its position, as the arbitrator shall reasonably determine to be fair under the circumstances. Each party to the arbitration shall pay one-half of the fees and expenses of the arbitrator and the American Arbitration Association. (d) Notwithstanding any other provision of this Agreement, (i) either party may commence an action to compel compliance with this Section 14.6 and (ii) if any party, as part of a Dispute, seeks injunctive relief or any other equitable remedy, including specific enforcement, then such party shall be permitted to seek such injunctive or equitable relief in any federal or state court or competent jurisdiction before, during or after the pendency of a mediation or arbitration proceed under this Section 14.6. 53 Section 14.7 Cooperation. Each of the parties hereto agrees to use its commercially reasonable best efforts to take or cause to be taken all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws, regulations or otherwise, to consummate and to make effective the transactions contemplated by this Agreement, including, without limitation, the timely performance of all actions and things contemplated by this Agreement to be taken or done by each of the parties hereto. Section 14.8 Construction of Agreement. The terms and provisions of this Agreement represent the results of negotiations between Buyer and Seller, each of which has been represented by counsel of its own choosing, and neither of which has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms and provisions of this Agreement shall be interpreted and construed in accordance with their usual and customary meanings, and Buyer and Seller hereby waive the application in connection with the interpretation and construction of this Agreement of any rule of law to the effect that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the party whose attorney prepared the executed draft or any earlier draft of this Agreement. The word "including" in this Agreement shall mean including without limitation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified. Section 14.9 Publicity. No party hereto shall issue, make or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby, or otherwise make any disclosures relating thereto, without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that such consent shall not be required where such release or announcement is required by applicable law or the rules or regulations of a securities exchange, in which event the party so required to issue such release or announcement shall endeavor, wherever possible, to furnish an advance copy of the proposed release to the other party. Section 14.10 Waiver. Except as otherwise expressly provided in this Agreement, neither the failure nor any delay on the part of any party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to each party at law or in equity. Section 14.11 Parties in Interest. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies hereunder; provided, however, that the indemnification provisions in Article XIII shall inure to the benefit of the Buyer Indemnitees and the Seller Indemnitees as provided therein. 54 Section 14.12 Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14.13 Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. Section 14.14 Entire Agreement. This Agreement, the Exhibits and Schedules hereto and the documents specifically referred to herein and the Confidentiality Agreement constitute the entire agreement, understanding, representations and warranties of the parties hereto, and supersede all prior agreements, both written and oral, between Buyer and Seller. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Disclosure of any fact or item in any Schedule referenced by a particular paragraph or Section in this Agreement shall, should such fact or item or its contents be expressly or obviously related to any other paragraph or Section, be deemed to be disclosed with respect to that other paragraph or Section whether or not any explicit cross-reference appears therein. Section 14.15 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Section 14.16 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the greatest extent possible. [SIGNATURES APPEAR ON FOLLOWING PAGE] 55 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. CITIZENS UTILITIES COMPANY By: ----------------------------------- Robert J. DeSantis, Chief Financial Officer and Vice President CAP ROCK ELECTRIC COOPERATIVE By: ----------------------------------- Name: Title: CAP ROCK ENERGY CORPORATION By: ----------------------------------- Name: Title: [Signature page to Purchase and Sale Agreement (Arizona Electric) between Citizens Utilities Company, Cap Rock Electric Cooperative and Cap Rock Energy Corporation, dated as of February 11, 2000.] 56 EXECUTION COPY PURCHASE AND SALE AGREEMENT (VERMONT ELECTRIC) between CITIZENS UTILITIES COMPANY, CAP ROCK ELECTRIC COOPERATIVE and CAP ROCK ENERGY CORPORATION Dated as of February 11, 2000 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS.........................................................................................1 Section 1.1 Certain Defined Terms..................................................................1 Section 1.2 Other Defined Terms....................................................................9 ARTICLE II PURCHASE AND SALE...................................................................................9 Section 2.1 Purchase and Sale of Assets............................................................9 Section 2.2 Assumed Liabilities....................................................................9 Section 2.3 Retained Liabilities..................................................................11 Section 2.4 Condition on Assignment or Assumption of Contracts and Rights.........................12 ARTICLE III PURCHASE PRICE.....................................................................................12 Section 3.1 Purchase Price........................................................................12 Section 3.2 Deposit...............................................................................13 Section 3.3 Calculation of Purchase Price.........................................................13 Section 3.4 Prorations and Adjustments as of the Closing Date.....................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................................15 Section 4.1 Organization, Existence and Qualification.............................................15 Section 4.2 Authority Relative to this Agreement and Binding Effect...............................15 Section 4.3 Governmental Approvals................................................................15 Section 4.4 Availability of Funds.................................................................16 Section 4.5 Filings...............................................................................16 Section 4.6 Brokers...............................................................................16 Section 4.7 Independent Investigation.............................................................16 Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility.................16 Section 4.9 Buyer's Financial Statements..........................................................17 Section 4.10 Buyer's Insurance. ...................................................................17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER...........................................................17 Section 5.1 Organization, Existence and Qualification.............................................17 Section 5.2 Authority Relative to this Agreement and Binding Effect...............................17 Section 5.3 Governmental and Other Required Consents..............................................17 Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility.................18 Section 5.5 Title to Assets; Liens................................................................18 Section 5.6 Financial Statements..................................................................18 Section 5.7 Compliance with Legal Requirements; Governmental Permits. ...........................19 Section 5.8 Legal Proceedings; Outstanding Orders. ...............................................19 Section 5.9 Taxes.................................................................................20 Section 5.10 Intellectual Property.................................................................20 Section 5.11 Personal Property.....................................................................20 Section 5.12 Material Contracts; Existing Loan Documents...........................................20 Section 5.13 Employee Benefit Matters..............................................................21 Section 5.14 Environmental Matters.................................................................21 Section 5.15 No Material Adverse Change............................................................22 Section 5.16 State and Federal Regulatory Matters..................................................22 Section 5.17 Brokers...............................................................................23 Section 5.18 Employee Relations....................................................................23
Page Section 5.19 Insurance.............................................................................23 Section 5.20 Accounts Receivable...................................................................23 Section 5.21 Appropriate Knowledge Persons.........................................................24 Section 5.22 Disclaimer............................................................................24 ARTICLE VI COVENANTS..........................................................................................24 Section 6.1 Covenants of Seller...................................................................24 Section 6.2 Covenants of Buyer....................................................................27 Section 6.3 Governmental Filings..................................................................28 Section 6.4 Citizens Marks........................................................................28 Section 6.5 Acknowledgment by Buyer...............................................................29 Section 6.6 Transition Plan. ....................................................................29 Section 6.7 Title Insurance.......................................................................30 Section 6.8 Sale of Generating Assets.............................................................30 Section 6.9 Hydro-Quebec Step-up Indemnity Agreement..............................................31 ARTICLE VII CONDITIONS PRECEDENT...............................................................................31 Section 7.1 Seller's Conditions Precedent to Closing..............................................31 Section 7.2 Buyer's Conditions Precedent to Closing...............................................33 ARTICLE VIII CLOSING............................................................................................34 Section 8.1 Closing...............................................................................34 ARTICLE IX TERMINATION........................................................................................35 Section 9.1 Termination Rights....................................................................35 Section 9.2 Limitation on Right to Terminate: Effect of Termination...............................36 ARTICLE X EMPLOYEE MATTERS...................................................................................37 Section 10.1 Employment of Transferred Employees...................................................37 Section 10.2. Assumption of Collective Bargaining Agreement Obligations.............................38 Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses....................38 Section 10.4 Similarity of Benefit Packages........................................................38 Section 10.5 Defined Benefit Pension Plan..........................................................39 Section 10.6 401(k) Plan...........................................................................39 Section 10.7 Welfare Benefits......................................................................40 Section 10.8 Flexible Spending Accounts............................................................41 Section 10.9 Employment Agreements.................................................................41 Section 10.10 Vacation..............................................................................41 Section 10.11 Severance.............................................................................41
Page ARTICLE XI TAX MATTERS........................................................................................41 Section 11.1 Purchase Price Allocation.............................................................41 Section 11.2 Cooperation with Respect to Like-Kind Exchange........................................42 Section 11.3 Transaction Taxes.....................................................................42 ARTICLE XII ENVIRONMENTAL MATTERS..............................................................................43 Section 12.1 Environmental Due Diligence...........................................................43 ARTICLE XIII INDEMNIFICATION....................................................................................44 Section 13.1 Indemnification by Seller.............................................................44 Section 13.2 Indemnification by Buyer..............................................................45
Page Section 13.3 Limitations on Liability..............................................................45 Section 13.4 Claims Procedure......................................................................48 Section 13.5 Exclusive Remedy......................................................................49 Section 13.6 Indemnification for Negligence........................................................49 Section 13.7 Waiver and Release....................................................................50 ARTICLE XIV GENERAL PROVISIONS..................................................................................50 Section 14.1 Expenses..............................................................................50 Section 14.2 Notices...............................................................................50 Section 14.3 Assignment............................................................................51 Section 14.4 Successor Bound.......................................................................52 Section 14.5 Governing Law.........................................................................52 Section 14.6 Dispute Resolution....................................................................52 Section 14.7 Cooperation...........................................................................53 Section 14.8 Construction of Agreement.............................................................53 Section 14.9 Publicity. ..........................................................................54 Section 14.10 Waiver................................................................................54 Section 14.11 Parties in Interest...................................................................54 Section 14.12 Section and Paragraph Headings........................................................54 Section 14.13 Amendment.............................................................................54 Section 14.14 Entire Agreement......................................................................54 Section 14.15 Counterparts..........................................................................54 Section 14.16 Severability..........................................................................55
LIST OF EXHIBITS Exhibit 7.1(g) Form of Buyer's Opinion of Counsel Exhibit 7.2(g) Form of Seller's Opinion of Counsel Exhibit 8.1(a) Form of Bill of Sale LIST OF SCHEDULES Schedule 1.1(a) Excluded Assets Schedule 1.1(b) Related Purchase Agreements Schedule 2.2(b) Certain Assumed Proceedings Schedule 5.2 Seller's Authority Schedule 5.3 Seller's Governmental and Other Required Consents Schedule 5.5 Encumbrances; Owned Real Property Schedule 5.6(a) Financial Statements Schedule 5.6(b) Certain Liabilities Schedule 5.7 Compliance with Legal Requirements; Governmental Permits Schedule 5.8 Legal Proceedings; Outstanding Orders Schedule 5.9 Taxes Schedule 5.10 Intellectual Property Schedule 5.11 Extraordinary Required Repairs Schedule 5.12 Material Contracts Schedule 5.13 Employee Matters Schedule 5.14 Environmental Matters Schedule 5.15 Material Adverse Changes Schedule 5.16 State and Federal Regulatory Matters Schedule 5.19 Seller's Insurance Schedule 6.1 Conduct of Business Schedule 6.2(c) Citizens' Guarantees and Surety Instruments Schedule 10.1 Active Employees Schedule 10.7 Retirees and "Grandfathered Employees" PURCHASE AND SALE AGREEMENT (VERMONT ELECTRIC) This PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of the 11th day of February, 2000, by and between CITIZENS UTILITIES COMPANY, a Delaware corporation ("Seller"), and CAP ROCK ELECTRIC COOPERATIVE, a Texas corporation, and CAP ROCK ENERGY CORPORATION, a Texas corporation ("Cap Rock Energy"). Cap Rock Cooperative and Cap Rock Energy are sometimes referred to in this Agreement individually as a "Buyer Entity" and collectively as the "Buyer". Capitalized terms used herein shall have the meanings ascribed to them in Article I, unless otherwise provided. W I T N E S S E T H : WHEREAS, Seller owns all of the Assets; and WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets, subject in all respects to the provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article I (such definitions to be equally applicable to both the singular and plural forms of the terms defined): "Affiliates" or "Affiliated Entities" -- entities shall be deemed "Affiliated" as to each other to the extent (i) one of the entities directly or indirectly controls the other, or the direct or indirect control of one of the entities is exercised by the officers, directors, stockholders, or partners of the other entity (whether or not such persons exercise such control in their capacities as officers, directors, stockholders, or partners) or (ii) is deemed to be an Affiliate under existing statutes or regulations of the SEC. "Assets" -- all of the assets, property and interests of every type and description, real, personal or mixed, tangible and intangible, owned by Seller and relating primarily to the Business, other than the Excluded Assets. "Assumed Environmental Liabilities" -- means any of the following: (a) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to the environmental matters or incidents disclosed by Seller on Schedule 5.14 as of the date of execution of this Agreement that remain outstanding as of the Closing Date, it being understood by the parties that the unadjusted Purchase Price reflects Buyer's estimate of any Losses that could arise after the Closing Date with respect to such Environmental Liabilities; (b) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to environmental matters or incidents that are disclosed to Buyer by Seller after the date of execution of this Agreement (including any additional disclosures appearing on Schedule 5.14 as revised by Seller and delivered to Buyer prior to the Closing Date) but prior to the Closing Date that remain outstanding as of the Closing Date, provided that any Losses incurred by Buyer in connection with any such Environmental Liability in any year in excess of $200,000 or in the aggregate (when combined with all other Losses incurred by Buyer in connection with its performance or discharge of other Disclosed Pre-Closing Liabilities) in excess of $2,000,000 shall be Retained Environmental Liabilities and Seller shall be obligated to indemnify Buyer pursuant to Section 13.1 (but subject to the applicable limitations on such obligations provided in Section 13.3(f)) for such Losses incurred by Buyer in the amount of such excess; and (c) Any other Environmental Liability relating to the Business, the Assets, Buyer or any Affiliate, successor or assign of Buyer, to the extent arising or relating to the period after the Closing, including with respect to the removal of asbestos or asbestos-containing materials in connection with any renovation or structural change to any Asset conducted after Closing. "Business" -- means collectively: (a) the electricity, generation, transmission and distribution business conducted by Seller within the State of Vermont through its Vermont Electric division; and (b) the provision of related services and products and the engagement in related activities by Seller within the State of Vermont through its Vermont Electric division. "Capital Budget -- means the capital budget for the Business approved by the Board of Directors of Seller for the year 2000. "Claim Notice" -- means a written notice of a claim given by a party seeking indemnification pursuant to the terms of this Agreement that specifies in reasonable detail the nature of the Losses and the estimated amount of such Losses. "Confidentiality Agreement" -- means that certain confidentiality agreement dated October 21, 1999, between Buyer and Seller. "Consent" -- any approval, consent, ratification, waiver, license, permit, registration, certificate, exemption, legal statute, order, determination or other authorization from any Person. "Contract" -- any agreement, contract, document, instrument, obligation, promise or undertaking (whether written or oral) that is legally binding, including Easements. "Disclosed Pre-Closing Liabilities" means any and all liabilities and obligations relating to or arising from Seller's ownership of the Assets or Seller's conduct or operation of the Business on or prior to the Closing Date that were not disclosed in any Schedule to this Agreement as of the date of execution of this Agreement (and with respect to which Seller had no Knowledge as of the date of execution of this Agreement) and that are disclosed to Buyer by Seller after the date of execution of this Agreement to the extent remaining outstanding or undischarged as of the Closing Date, including the Environmental Liabilities described in clause (b) of the definition of Assumed Environmental Liabilities and the Proceedings described in Section 2.2(c), but expressly excluding any such liabilities and obligations that are Retained Liabilities pursuant to Section 2.3(a), (b), (c) or (d) or with respect to which the Purchase Price is reduced (but only to the extent reduced). 2 "Easements"-- means all easements, rights of way, permits, licenses, and other ways of necessity, whether or not of record. "Encumbrance" -- any charge, adverse claim, lien, mortgage, pledge or security interest. "Environmental Law"-- any Order or Legal Requirement, and any judicial and administrative interpretation thereof and related policies, guidelines and standards, relating to pollution or protection of the environment and natural resources, including those relating to (a) emissions, discharges, Releases or threatened Releases of Hazardous Material into the environment (including ambient air, surface water, groundwater or land), and (b) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material, each as in effect as of the date of determination. "Environmental Liability" -- means any liability, responsibility or obligation arising out of or relating to: (a) the presence of any Hazardous Material in the fixtures, structures, soils, groundwater, surface water or air on, under or about or emanating from the assets and properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by a Person, and any such Hazardous Material emanating to adjoining or other properties; (b) the use, generation, production, manufacture, treatment, storage, disposal, Release, threatened Release, discharge, spillage, loss, seepage or filtration of Hazardous Materials by a Person or its employees, agents or contractors from, on, under or about the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by such Person or the presence therein or thereunder of any underground or above-ground tanks for the storage of fuel oil, gasoline and/or other petroleum products or by-products or other Hazardous Material; (c) the violation or noncompliance or alleged violation or noncompliance by a Person or its employees, agents or contractors of any Environmental Law arising from or related to its or their conduct, actions or operations or the former or current use, operation, ownership, lease, possession, control, occupancy, maintenance or condition of any of such Person's former or current assets or properties; (d) the failure by a Person or its employees, agents, or contractors to have obtained or maintained in effect any Consent required by any Environmental Law as a result of its or their conduct, actions or operations or the use, operation, ownership, lease, control, possession, occupancy, maintenance or condition of such Person's assets or properties; (e) any and all Proceedings arising out of any of the above-described matters, including Proceedings by Governmental Bodies for enforcement, cleanup, removal, treatment, response, remedial or other actions or damages and Proceedings by any third Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief; and (f) any and all remedial work and other corrective action (including investigation or monitoring of site conditions, or any clean-up, containment, restoration or removal) taken by, or the costs of which are imposed upon, a Person arising from any of the above-described matters. "ERISA" - the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that act or any successor law. 3 "Excluded Assets" -- means the following assets of Seller, each of which shall be excluded from the Assets, and not acquired by the Buyer, at Closing: (a) assets that Seller uses in both the Business and in Seller's other gas, electric, communications or water businesses, and which are described generally on Schedule 1.1(a), and Contracts regarding the procurement of services or goods by Seller for use in such in other businesses; (b) cash and cash equivalents in transit, in hand or in bank accounts; (c) except as otherwise set forth in Article X, assets attributable to or related to an Employee Benefit Plan of Seller; (d) the stock record and minute books of Seller, duplicate copies of all books and records transferred to Buyer, all records prepared in connection with the sale of the Business (including bids received from third parties and analysis relating to the Business); (e) assets disposed of by Seller after the date of this Agreement to the extent such dispositions are not prohibited by this Agreement; (f) except to the extent set forth in Section 3.4, rights to refunds of Taxes payable for periods prior to the Closing with respect to the Business, assets, properties or operations of Seller or any member of any affiliated group of which either of them is a member; (g) accounts owing, by and among Seller and its Affiliates; (h) all deferred tax assets or collectibles for periods prior to the Closing; (i) any insurance policy, bond, letter of credit or other similar item, and any cash surrender value in regard thereto; (j) the Citizens Marks; and (k) the other assets listed on Schedule 1.1(a). "Existing Loan Documents"-- means all Contracts relating to the indebtedness for money borrowed by Seller and used in connection with the Business or the Assets as of the date hereof to which Seller is a party, excluding line extension agreements or similar arrangements involving customer advances for construction, it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed. "Final Order" -- an action by a Governmental Body as to which: (a) no request for stay of the action is pending, no such stay is in effect and if any time period is permitted by statute or regulation for filing any request for such stay, such time period has passed; (b) no petition for rehearing, reconsideration or application for review of the action is pending and the time for filing any such petition or application has passed; (c) such Governmental Body does not have the action under reconsideration on its own motion and the time in which such reconsideration is permitted has passed; 4 and (d) no appeal to a court, or a request for stay by a court of the Governmental Body's action is pending or in effect and the deadline for filing any such appeal or request has passed. "Future Regulatory Obligations" -- means all liabilities, responsibilities and obligations relating to the Assets or the Business, including capital expenditure obligations and liabilities of the types that appear as "Accrued Liabilities" and "Non-Current Liabilities" on the Balance Sheet, arising out of any Legal Requirement or other action of any state or federal regulatory commission or local franchising authority, including with respect to all Proceedings of any state regulatory commission relating to the Assets or the Business commenced before or after the Closing Date, regardless of whether the Legal Requirement or other action is or purports to be based on conduct, actions, facts, circumstances or conditions arising, existing or occurring at any time on or prior to the Closing Date, but other than liabilities, responsibilities and obligations (i) relating to any Retained Environmental Liability or (ii) arising out of Seller's violation of any Order or Legal Requirement of such Governmental Body, as in effect and as reasonably interpreted by common industry practice as of the date such violation occurred, that is found by Final Order to have occurred prior to Closing and that is reasonably likely to have a material adverse effect on the Business or the Assets, taken as a whole. "GAAP" -- generally accepted United States accounting principles, applied on a consistent basis. "Generating Assets" -- all of Seller's generating facilities and dams located in the State of Vermont, including the Newport Generating Facility Units 1, 2, 3 and 11, the Troy Generating Facility, and the West Charleston Generating Facility (collectively, the "Generating Facilities"), together with (a) the Real Property associated with such Generating Facilities and dams, including the buildings and other improvements located thereon and approximately 500 acres of unimproved Real Property located around the Generating Facilities; (b) the diesel generator sets of Seller located at the Newport Generating Facility Units 1, 2 and 3; (c) all other tangible personal property located on or relating to the Generating Facilities; and (d) Easements and Consents (to the extent transferrable) relating to such Generating Facilities. "Governmental Body" -- any of the following that possesses competent jurisdiction: (a) federal, state, county, local, municipal or other governmental body; (b) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal); or (c) any governmental body entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Hazardous Materials" -- any waste or other chemical, material or substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, toxic, or a pollutant or a contaminant, or words of similar import, under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including oil, natural gas, petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials, any flammable substances or explosives, any radioactive materials, any toxic wastes of substances, urea formaldehyde foam insulation, toluene or polychlorinated biphenyls. 5 "HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor law, and regulations and rules issued by the U.S. Department of Justice or the Federal Trade Commission pursuant to that act or any successor law. "Hydro-Quebec Contracts" -- means (a) the Firm Power and Energy Contract between Hydro-Quebec and Vermont Joint Owners, dated as of December 4, 1987, as amended (as amended, the "H-Q/VJO Contract"), and (b) the Hydro-Quebec Participation Agreement among the electric utilities named therein, dated as of April 1, 1988, as amended and restated pursuant to Amendment No. 5 to Hydro-Quebec Participation Agreement made as of October 21, 1993 (as amended and restated, the "H-Q Participation Agreement"). "IRC" - the Internal Revenue Code of 1986, as amended. "IRS" -- the Internal Revenue Service or any successor agency. "Knowledge" -- means, with respect to Seller, the actual knowledge of Seller's Chief Financial Officer; President, Citizens Public Services; Vice President of Arizona Energy Operations; and Vice President and General Manager, Vermont Electric Division, or their respective successor. "Legal Requirement" -- any federal, state, county, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, adopted code, principle of common law, regulation, rule, directive, approval, notice, tariff, franchise agreement, statute or treaty. "Losses" -- shall mean all claims, losses, liabilities, causes of action, costs and expenses (including, without limitation, involving theories of negligence or strict liability and including court costs and reasonable attorneys' fees and disbursements in connection therewith). "Material Adverse Effect" -- an occurrence or condition that has a material adverse effect on the operation, financial condition or results of operations of the Business when combined with the businesses and assets being acquired by Buyer or Affiliates of Buyer pursuant to the Related Purchase Agreements, taken as a whole. For purposes of this Agreement, an occurrence or condition shall not constitute a Material Adverse Effect (a) if it arises from general business, economic or financial market conditions, from conditions generally affecting the industries in which the Business competes, or from the transactions contemplated by this Agreement, (b) if it is of the type normally recoverable by the Business through rates, or (c) to the extent that the Business may realize the benefit of insurance maintained by Seller or to the extent that Seller or Buyer may receive or recover payments in respect of such occurrence from any other source (whether in a lump sum or stream of payments). In addition, for purposes of this Agreement any increase in Seller's pro-rata obligations under the Hydro-Quebec Contracts, or any occurrence or condition that could result in such an increase, shall not constitute a Material Adverse Effect. "Material Contract" -- a Contract relating primarily to the Business and involving a total commitment by or to any party thereto of at least $100,000 on an annual basis and which cannot be terminated by Seller with notice of ninety (90) days or less without penalty to Seller. "Order" -- any award, decision, injunction, judgment, order, writ, decree, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, other Governmental Body, or by any arbitrator, each of which possesses competent jurisdiction. 6 "Organizational Documents" -- the articles or certificate of incorporation and the bylaws of a corporation or the comparable organizational and governing documents of other Persons. "Permitted Encumbrances" -- means any of the following: (a) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business and which in the aggregate are not substantial in amount and do not interfere with the present use of the Assets to which they apply; (b) liens for current Taxes and assessments not yet due and payable; (c) usual and customary nonmonetary real property Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) that do not and will not materially interfere with the operation of that portion of the Business currently conducted on such real property; (d) Encumbrances securing the payment or performance of any of the Assumed Liabilities; (e) all applicable zoning ordinances and land use restrictions; (f) with respect to any Asset which consists of a leasehold or other possessory interests in real property, all usual and customary nonmonetary real property Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) to which the underlying fee estate in such real property is subject that do not currently and will not interfere materially with the operation of that portion of the Business currently conducted on such property; and (g) any other Encumbrances, Contracts, obligations, defects or irregularities of any kind whatsoever, affecting the Assets that, individually or in the aggregate, do not have a Material Adverse Effect or that will be terminated, released or waived on or before the Closing Date. "Person" -- any individual, corporation (including any nonprofit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization or Governmental Body. "Proceeding" -- any claim, action, arbitration, hearing, litigation or suit commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PUHCA" - the Public Utility Holding Company Act of 1935, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. "Real Property" -- all real property owned, leased or under Contract by Seller in the operation of the Business, together with all interests in real property (including Easements) used or held for use by Seller in the operation of the Business. "Related Documents" -- any Contract provided for in this Agreement to be entered into by one or more of the parties hereto in connection with the transactions contemplated by this Agreement. 7 "Related Purchase Agreements" -- means those certain purchase agreements between Seller and Buyer or Affiliates of Buyer described on Schedule 1.1(b). "Release" -- any presence, emission, dispersal, disposal, spilling, leaking, emitting, discharging, depositing, pumping, pouring, escaping, leaching, dumping, releasing or migration into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or in, into or from any facility, including the movement of any Hazardous Materials through the air, soil, surface water, groundwater or property. "Representative" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Retained Environmental Liabilities" -- means all Environmental Liabilities of Seller that are described in this Agreement as Retained Environmental Liabilities or that are otherwise not being assumed by Buyer under this Agreement as Assumed Environmental Liabilities. "SEC" -- the United States Securities and Exchange Commission or any successor agency. "Tax" -- any tax (including any income tax, capital gains tax, value-added tax, sales and use tax, franchise tax, payroll tax, withholding tax, property tax or transfer tax), levy, assessment, tariff, duty (including any customs duty), deficiency, franchise fee or payment, payroll tax, utility tax, gross receipts tax or other fee or payment relating to the foregoing, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Governmental Body or for which Seller has any liability as a transferee, pursuant to Treasury Regulation Section 1.1502-6, or pursuant to any other Legal Requirement. "Tax Return" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to any Governmental Body in connection with the determination, assessment, collection or payment of any Tax, or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threatened" -- a claim, dispute, or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing or orally or any notice has been given in writing or orally, and Seller has Knowledge of the same. 8 Section 1.2 Other Defined Terms. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement as indicated below and, whenever such terms are used in this Agreement, they shall have their respective defined meanings. Term Section - ---- ------- Active Employees 10.1 Antitrust Authorities 6.3 Assumed Liabilities 2.2 Balance Sheet 5.6(a) Bill of Sale 8.1 Buyer Indemnitees 13.1 Buyer's Pension Plan 10.5 Buyer Welfare Plans 10.7(a) CERCLA 5.14(e) Citizens Marks 6.4 Closing 8.1 Closing Date 8.1 Deposit 3.2 Employee Plans 5.13 Environmental Data 12.1(c) Estimated Purchase Price 3.3(a) Financial Statements 5.6 Purchase Price 3.1 Retained Liabilities 2.3 Seller Indemnitees 13.2 Seller's Pension Plan 10.5 Seller's 401(k) Plan 10.6 Seller Welfare Plan 10.7 Transaction Taxes 11.3 Transferred Employee 10.1 ARTICLE II PURCHASE AND SALE Section 2.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions contained herein, at the Closing, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase and accept delivery from Seller, all of the Assets. Section 2.2 Assumed Liabilities. In further consideration for the sale of the Assets at the Closing, Buyer will assume and agree to pay, perform and discharge when due, all liabilities and obligations, of every kind or nature, arising out of or relating to: (a) Buyer's ownership or use of the Assets and the conduct or operation of the Business by Buyer, in each case after the Closing Date, including all liabilities, responsibilities and obligations relating to or arising from the following: 9 (i) Transferred Employees (except to the extent otherwise provided in Article X), including any termination of any Transferred Employee for any reason (including constructive dismissal) and Buyer's hiring practices or decisions; (ii) Performance of the Contracts included among the Assets (except that Buyer shall not assume any liabilities or obligations for any breach or default by, or payment obligations of, Seller under any such Contract occurring or arising or accruing on or prior to the Closing Date); (iii) Customer advances, customer deposits and construction advances, unperformed service obligations, Easement relocation obligations, and engineering and construction required to complete scheduled construction, construction work in progress, and other capital expenditure projects, in each case relating to the Business and outstanding on or arising after the Closing Date; (iv) Future Regulatory Obligations; (v) Assumed Environmental Liabilities; (vi) One-half of the Transaction Taxes arising out of the sale of the Assets to Buyer hereunder; (vii) Proceedings based on conduct, actions, facts, circumstances or conditions arising or occurring after the Closing Date, Proceedings in respect of Future Regulatory Obligations regardless of when filed, and Proceedings arising from or related to any other Assumed Liability; and (viii) Items addressed in Section 3.1(d) to the extent resulting in a decrease in the Purchase Price; (b) the Proceedings described as Assumed Liabilities in Schedule 2.2(b) and Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings; and (c) all Proceedings involving Seller, the Assets or the Business based on conduct, actions, facts, circumstances or conditions arising or occurring on or before the Closing Date that are pending or Threatened as of the Closing Date and that are disclosed to Buyer by Seller after the date of execution of this Agreement but prior to the Closing Date (except any such Proceedings described as Retained Liabilities in Schedule 2.2(b) and any such Proceedings relating to the Retained Liabilities described in Sections 2.3(a), (b), (c), (d), and (f)), provided that any Losses incurred by Buyer in connection with any such individual Proceeding in excess of $200,000 or in connection with all such Proceedings in excess of $2,000,000 in the aggregate (when combined with all other Losses incurred by Buyer in connection with its performance or discharge of other Disclosed Pre-Closing Liabilities) shall be Retained Liabilities and Seller shall be obligated to indemnify Buyer pursuant to Section 13.1 (but subject to the applicable limitations on such obligations provided in Section 13.3(f)) for such Losses incurred by Buyer in the amount of such excess; The liabilities, responsibilities and obligations to be assumed by Buyer pursuant to this Section 2.2 are hereinafter collectively referred to as the "Assumed Liabilities." Buyer hereby irrevocably and unconditionally waives and releases Seller from all Assumed Liabilities and all liabilities or obligations 10 relating to the Business or the Assets to the extent arising from events or occurrences after the Closing or to the extent otherwise relating to the period after the Closing, including any liabilities created or which arise by statute or common law, including CERCLA (it being understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Notwithstanding anything in this Section 2.2 to the contrary, "Assumed Liabilities" shall not include any liabilities, responsibilities or obligations expressly stated to be Retained Liabilities pursuant to Section 2.3. Section 2.3 Retained Liabilities. Buyer shall not assume and at the Closing Seller shall retain and pay, perform and discharge when due, all of the liabilities and obligations relating to or arising from Seller's ownership of the Assets and Seller's conduct or operation of the Business on and prior to the Closing Date, except to the extent any such liability or obligation is included among the Assumed Liabilities, including liabilities and obligations relating to or arising from the following (collectively referred to herein as the "Retained Liabilities"): (a) all indebtedness for money borrowed by Seller (including items due to Seller's Affiliates) other than payment obligations arising after the Closing Date under any equipment lease listed in Part VII of Schedule 5.12 or under any line extension Contracts or similar construction arrangements, it being understood and agreed that such leases, Contracts and similar arrangements do not create indebtedness for money borrowed; (b) Taxes of Seller or the Business with respect to ownership or use of the Assets and Seller's conduct and operation of the Business on and prior to the Closing Date; (c) Excluded Assets; (d) Non-Transferred Employees, the Seller's Employee Benefit Plans and Employee Plans (except to the extent otherwise provided in Article X) and any breach or default by, or payment obligations of, Seller with respect to any Transferred Employee occurring or arising or accruing on or prior to the Closing Date (except to the extent any such payment obligation becomes the responsibility and obligation of Buyer in accordance with Article X); (e) Proceedings involving Seller, the Assets or the Business based on conduct (including Seller's performance under any Contract included among the Assets), action, facts, circumstances or conditions arising or occurring on or before the Closing Date, including Proceedings described as Retained Liabilities on Schedule 2.2(b) but expressly excluding any such liabilities or obligations relating to any Proceeding described as Assumed Liabilities on Schedule 2.2(b) and any Proceeding relating to (x) Assumed Liabilities (subject to the proviso set forth in Section 2.2(c) with respect to the Proceedings described in Section 2.2(c)), (y) Future Regulatory Obligations and (z) Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings; (f) Retained Environmental Liabilities; and (g) One-half of the Transaction Taxes arising out of the sale of the Assets, to Buyer hereunder. Seller hereby irrevocably and unconditionally waives and releases Buyer from all Retained Liabilities including any liabilities created or which arise by statute or common law, including CERCLA (it being 11 understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Section 2.4 Condition on Assignment or Assumption of Contracts and Rights. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign or assume any Contract or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment or assumption thereof, without the Consent of a third party thereto, would constitute a breach thereof. Any transfer or assignment to Buyer by Seller of any property or property rights or any Contract which requires the Consent of any third party shall be made subject to such Consent being obtained. If such Consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights of Seller thereunder so that Buyer would not in fact receive all such rights, Seller will, at its expense, cooperate with Buyer in any arrangement reasonably designed to provide for Buyer, at Buyer's cost, the benefits under any such Contract including, without limitation, enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereto arising out of the breach or cancellation by such third party or otherwise To the extent that Buyer does receive the benefits of any such Contract pursuant to the preceding sentence, such Contract shall be a Contract deemed to have been assigned or transferred to Buyer pursuant to Section 2.2(a)(ii). ARTICLE III PURCHASE PRICE Section 3.1 Purchase Price. Subject to the terms and conditions of this Agreement, the aggregate purchase price for the Assets (the "Purchase Price") shall be an amount equal to $38,000,000 in cash, as adjusted in accordance with the following provisions and with such adjustments determined pursuant to Section 3.3: (a) Such amount will be increased by the aggregate amount of all accounts receivable, earned but unbilled revenue, and materials and supplies inventory of the Business, in each case outstanding as of the Closing Date and other than any such items that are due from Seller's Affiliates. (b) Such amount will be decreased by the aggregate amount of all accounts payable, customer deposits and unexpended cash from customer advances for construction, in each case to the extent relating to the Business and outstanding as of the Closing Date and other than any such items that are due to Seller's Affiliates. (c) Such amount will be increased by the aggregate amount of all (i) capital expenditures relating to the Business that are accrued by Seller between the date of the Balance Sheet and the Closing Date (including expenditures recorded in the Construction Work in Progress account of the Business as of the Closing Date and relating to such period), (ii) without duplication, expenditures to purchase materials, supplies and other capital items that are dedicated to, but as of Closing have not been used in, the construction or improvement of the property, plant or equipment relating to the Business and (iii) without duplication, other expenditures recorded as an asset of the Business as of the Closing Date and relating to such period to the extent such expenditures are normally recoverable through rates, including expenditures recorded in the Preliminary Survey and Investigation account of the Business, in each case to the extent such expenditures are not prohibited by this Agreement. 12 (d) Such amount will be decreased or increased, as appropriate, by an aggregate amount equal to the total amount payable to or by Buyer pursuant to Section 3.4. (e) Such amount will be decreased by $3,000,000 if Seller sells the Generating Assets on or prior to the Closing Date. Section 3.2 Deposit. Concurrently with its execution of this Agreement, Buyer has deposited with Seller $380,000 in cash. By 5:00 p.m. East Coast Time on Wednesday, March 15, 2000, Buyer shall deliver to Seller an irrevocable letter of credit from a reputable financial institution with an expiration date of at least 21 months after the date of execution of this Agreement (the "Letter of Credit"), as and for an earnest money deposit, in the amount of $1,900,000 (the "Deposit") and appropriately conditioned in accordance with the terms of Section 9.2(c). If Seller receives the Letter of Credit by such deadline, then Seller promptly shall refund to Buyer the $380,000 in cash previously provided by Buyer. If Buyer shall fail to deliver the Letter of Credit by such deadline, then (i) Buyer shall continue using its best efforts to arrange for the Letter of Credit to be delivered to Seller and (ii) Seller may retain, as liquidated damages, the $380,000 in cash previously delivered to Seller, free of any claims by Buyer or any other Person with respect thereto. The parties hereby acknowledge that the extent of damages to Seller occasioned by Buyer's failure to deliver the Letter of Credit to Seller by March 15, 2000, would be impossible or extremely difficult to ascertain and that $380,000 is a fair and reasonable estimate of such damages under the circumstances. Section 3.3 Calculation of Purchase Price. (a) Any of the items included in clauses (a) through (e) of Section 3.1 that cannot be calculated in a timely fashion as of the Closing Date shall be estimated by Seller in good faith based upon the account balance of such item at the end of the month for which Seller's books are closed next preceding the Closing Date, with such adjustments as may be appropriate to reflect changes in such account balance occurring between such month-end and the Closing Date. Any such estimated amounts shall be set forth in a certificate of Seller delivered to Buyer at least five (5) business days prior to the Closing Date, which certificate shall set forth an estimate of the Purchase Price (the "Estimated Purchase Price"), including such estimated amounts and shall be accompanied by reasonably detailed supporting documentation. (b) Within one hundred twenty (120) days after the Closing Date, Seller shall notify Buyer of the actual amount as recorded on Seller's books and records for the Business of any 13 items that were estimated in arriving at the Estimated Purchase Price, as well as the prorations and adjustments required to be made under Section 3.4 below. Buyer may dispute any amount so determined by Seller, by written notice to Seller within fifteen (15) days after receipt of Seller's notice. If Buyer does not so dispute any item, the party owing the difference between the Estimated Purchase Price and the Purchase Price shall pay such difference to the other party within ten (10) days after the expiration of such fifteen (15) day period, plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment. If Buyer disputes the actual amount of any item, the undisputed amount plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment shall be paid promptly by the owing party. If such dispute cannot be resolved within sixty (60) days after the giving of Buyer's notice that there exists a disputed amount, then an independent auditor mutually agreeable to Buyer and Seller shall, upon written notice from either Buyer or Seller, resolve such dispute within sixty (60) days after receipt of such notice. The fees and expenses of such independent auditor shall be allocated between Buyer and Seller so that Seller's share of such fees and expenses shall be in the same proportion that the aggregate amount of such remaining disputed amounts so submitted by Buyer to such auditor that is unsuccessfully disputed by Buyer (as finally determined by such auditor) bears to the total amount of such remaining disputed amounts so submitted by Buyer to such auditor. Any determination by such independent auditor shall be binding and conclusive upon the parties without further appeal therefrom. Within ten (10) days after the independent auditor shall have resolved such dispute, the party owing the determined amount shall pay such determined amount to the other party, plus interest at 8.25% per annum on such determined amount from the Closing Date to (but not including) the date of payment. Section 3.4 Prorations and Adjustments as of the Closing Date. (a) Buyer and Seller agree that the following items relating to the Assets and the Business shall be adjusted and allocated as of the Closing Date, with Seller to be responsible for and to receive the benefit of the same for the period through and including the Closing Date and Buyer to be responsible for and to receive the benefit of the same after the Closing Date; (i) real and personal property taxes, assessments and annual registration fees; (ii) water, sewer and other similar types of taxes, and installments on special benefit assessments and regulatory assessments; (iii) electric, gas, telephone and other utility charges; (iv) payroll expenses, payroll taxes, reimbursable employee business expenses and the financial cost of the accrued vacation time of the Transferred Employees, in each case as recorded on Seller's books for the Business as of the Closing Date; (v) rents under leases transferred to or assumed by Buyer; (vi) charges under maintenance, service and other Contracts and fees under licenses transferred to or assumed by Buyer and not included in the items described in Section 3.1(a); (vii) deposits of Seller to the extent transferable to Buyer; (viii) prepaid and accrued expenses; 14 (ix) sales, franchise, gross receipts and other similar Taxes based upon revenues; and (x) petty cash. (b) The items listed in Section 3.4(a) above shall be estimated item by item by Seller and reflected on the certificate and supporting documentation to be delivered to Buyer pursuant to Section 3.3(a) and finally determined in accordance with Section 3.3(b). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Section 4.1 Organization, Existence and Qualification. Each Buyer Entity is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Texas, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which it is a party. Buyer Entity is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state in which the failure to be so qualified or in good standing would materially adversely affect the business or properties of Buyer. By Closing, Cap Rock Energy will be, duly qualified and in good standing as a foreign corporation licensed to do business in the State of Vermont. Section 4.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Buyer have been duly authorized by Buyer's Board of Directors, which constitutes all necessary corporate action required on the part of Buyer for such authorizations. The execution, delivery and performance of this Agreement and the Related Documents by Buyer will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Buyer, or (b) a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Contract to which Buyer is a party or by which its assets are bound, or (c) a violation of any Order of any Governmental Body. This Agreement constitutes, and the Related Documents to be executed by Buyer when executed and delivered will constitute, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. Section 4.3 Governmental Approvals. Except for those Consents described in Schedule 5.3 to the extent applicable to Buyer, no Consent of any Governmental Body is required to be obtained by Buyer in connection with the execution and delivery by Buyer of this Agreement or the Related Documents or the consummation of the transactions contemplated by this Agreement or the Related Documents. Buyer has no knowledge of any facts or circumstances relating to Buyer or its Affiliates that reasonably would be likely to preclude or prolong the receipt of such required Consents. 15 Section 4.4 Availability of Funds. Buyer will have available on the Closing Date sufficient funds to enable it to consummate the transactions contemplated by this Agreement, and Buyer or the Affiliates of Buyer that are buyers of the assets and businesses being acquired pursuant to the Related Purchase Agreements will have available at the Closing Date sufficient funds to enable them to consummate the transactions contemplated by the Related Purchase Agreements. Buyer understands and agrees that its failure to arrange for such funding by May 15, 2000 (which date shall be extended by Seller for up to three consecutive thirty-day periods if Buyer can reasonably demonstrate to Seller at the end of such period that Buyer is making reasonable progress towards arranging such funding), or to have such funds available by the Closing, will permit Seller in either case to terminate this Agreement under Section 9.1 and to exercise its rights under Section 9.2(c). Section 4.5 Filings. No statement furnished by Buyer for inclusion in any filing with any Governmental Body in connection with obtaining such Governmental Body's Consent for the consummation of the transactions contemplated by this Agreement will contain, as of the date such information is so provided, any untrue statement of a material fact or will omit to state, as of the date such information is so provided, any material fact which is necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. Section 4.6 Brokers. No broker or finder has acted for or on behalf of Buyer or any Affiliate of Buyer in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Buyer or any Affiliate of Buyer for which Seller or any Affiliate of Seller has or will have any liability or obligations (contingent or otherwise). Section 4.7 Independent Investigation. Buyer is knowledgeable about the businesses engaged in by Seller through its Vermont Electric division and of the usual and customary practices of companies engaged in businesses similar to such businesses and has had access to the Assets, the officers and employees of Seller, and the books, records and files of Seller relating to the Business and the Assets. In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely on the basis of its own independent due diligence investigation of the Business and upon the representations and warranties made in this Agreement and in any other document or instrument delivered by Seller pursuant hereto. Accordingly, Buyer acknowledges that Seller has not made, and Seller is expressly disclaiming and negating any representation or warranty (other than those express representations and warranties made in Article V), express, implied, at common law, by statute or otherwise, relating to the Business. Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility. Buyer is a "public utility company" (as such term is defined in PUHCA). Neither Buyer nor any of its Affiliates is a "holding company", a "subsidiary" of a "public utility company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. 16 Section 4.9 Buyer's Financial Statements. The consolidated financial statements of Buyer for its most recently ended fiscal year heretofore delivered to Seller were prepared in accordance with GAAP applied on a consistent basis, except for changes concurred in by Buyer's accountants and disclosed in said financial statements, throughout the periods specified, and present fairly in all material respects the financial condition and results of operations of the businesses of Buyer as of the dates thereof and for the periods then ended (subject, in the case of unaudited financial statements, to normal year-end adjustments). Section 4.10 Buyer's Insurance. Within five (5) business days after the date of execution of this Agreement, Buyer will deliver to Seller a schedule that lists the Buyer's policies and contracts in effect as of the date hereof for casualty and property insurance covering its assets and properties and the operation of its business, together with the risks insured against, coverage limits and deductible amounts. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER Section 5.1 Organization, Existence and Qualification. Seller is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct the Business as it is now being conducted, to own or use the Assets, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which Seller is a party. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of the State of Vermont and each other state in which the failure to be so qualified or in good standing would have a Material Adverse Effect. Section 5.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Seller have been duly authorized by all requisite corporate action. Except as set forth in Schedule 5.2, the execution, delivery and performance of this Agreement and the Related Documents by Seller will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Seller, (b) to Seller's Knowledge, a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Material Contract to which Seller is a party or by which any of the Assets are bound, or (c) a violation of any Order of any Governmental Body, except for such exceptions to the foregoing clauses (b) and (c) that, will be cured, waived or otherwise remedied on or prior to the Closing Date. This Agreement constitutes and the Related Documents to be executed by Seller when executed and delivered will constitute valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. No Person has any agreement, option, warrant, subscription, understanding, or commitment, or any right or privilege capable of becoming an agreement, option or commitment for the purchase of the Assets of any other interest in the Business. Section 5.3 Governmental and Other Required Consents. Except as set forth in Schedule 5.3, no Consent of any Governmental Body or third Person is required to be obtained by Seller in connection with the execution and delivery by Seller of this Agreement or the Related Documents or the consummation by Seller of the transactions contemplated by this Agreement or the Related Documents, other than (i) any Consent the failure of which to obtain would not be material to the 17 operation or conduct of the Business after Closing and (ii) any Consent that is obtained or made on or prior to the Closing Date. Seller has no Knowledge of any facts or circumstances relating to Seller or its Affiliates, other than those relating to the auction process in which Buyer was selected, and other bidders were not selected, to acquire the Business or relating to the matters disclosed in any Schedule referred to in this Agreement, that would be reasonably likely to preclude or prolong the receipt of such required Consents. Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility. Seller is a "public utility company" (as such term is defined in PUHCA). Seller is not a "holding company", a "subsidiary" of a "public utility company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. Section 5.5 Title to Assets; Liens. Seller has good and indefeasible title to the Assets, including the Assets reflected in the Financial Statements, except those disposed of since the date of the Financial Statements in the ordinary course of business or otherwise disposed of in accordance with this Agreement. None of the Assets are subject to any Encumbrance except (i) Encumbrances described in Schedule 5.5 and (ii) Permitted Encumbrances. Schedule 5.5 lists each parcel of Real Property owned in fee simple that is a part of the Assets. To Seller's Knowledge, except as set forth in Schedule 5.5, Seller owns or possesses all Easements necessary to conduct the Business as now being conducted without any known conflict with the rights of others. Except as set forth in Schedule 5.5, (a) Seller enjoys peaceful and undisturbed possession under all real property leases included in the Assets, and to the Knowledge of Seller, all such leases are valid and in full force and effect; (b) all rents due to date from Seller on each such lease have been paid; (c) Seller has not received notice that it is in default under any such lease; and (d) to the Knowledge of Seller, there exists no event, occurrence, condition or act (including the consummation of the transactions contemplated by this Agreement) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default by Seller under such lease. Except as set forth in Schedule 5.5, all buildings, structures and equipment that are a part of the Assets lie wholly within the boundaries of the Real Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person. Seller has adequate rights of ingress and egress for operation of the Business in the ordinary course consistent with past practices. None of the buildings, structures or equipment that are a part of the Assets, nor the operation and maintenance thereof, violates any restrictive covenant. Section 5.6 Financial Statements. (a) Schedule 5.6(a) sets forth the unaudited balance sheet for the Business as at September 30, 1999 (the "Balance Sheet") and unaudited statement of income of the Business for the nine-month period ended September 30, 1999 (collectively, the "Financial Statements"). Except as set forth in Schedule 5.6(a), the Financial Statements have been prepared on a pre-tax basis in accordance, in all material respects, with GAAP applied on a basis consistent with prior periods. Except as set forth in Schedule 5.6(a), the Balance Sheet presents fairly in all material respects the financial condition of the Business as of its date and the income statement included in the Financial Statements presents fairly in all material respects the results of operations of the Business for the periods covered thereby. The books and records of Seller from which the Financial Statements were prepared were complete and accurate in all material respects at the time of such preparation. 18 (b) Except as disclosed in Schedule 5.6(b), Seller has no liabilities with respect to the Business or the Assets which would constitute Assumed Liabilities, either direct or indirect, matured or unmatured or absolute, contingent or otherwise, except: (1) those liabilities set forth in the Financial Statements or referred to in the notes to the Financial Statements and not heretofore paid or discharged; (2) those liabilities relating to or arising from matters disclosed in any other Schedule hereto; (3) liabilities arising in the ordinary course of business consistent with past practices under any Contract or Legal Requirements; (4) those liabilities incurred, consistent with past practices, in or as a result of the ordinary course of business since the Balance Sheet Date which do not and could not be reasonably expected to, in the aggregate, result in a Material Adverse Effect; (5) those liabilities and obligations that are the subject of Article X; and (6) those liabilities, which, if outstanding as of the Closing Date, would result in a decrease to the Purchase Price in accordance with Section 3.1(b) or (d). Section 5.7 Compliance with Legal Requirements; Governmental Permits. Except as set forth in Schedule 5.7: (a) Seller is in substantial compliance with each Legal Requirement or Order that is applicable to it, to the conduct or operation of the Business, or to the ownership or use of any of the Assets; (b) Seller possesses all Consents from Governmental Bodies required by any applicable Legal Requirement or Order necessary to permit the operation of the Business in the manner in which it is currently being conducted by Seller; (c) all such Consents are in full force and effect; and (d) Seller has not received notice from any Governmental Body of its intent to revoke or terminate of such Consent. Section 5.8 Legal Proceedings; Outstanding Orders. Except as set forth in Schedule 5.8, there is no pending or Threatened Proceeding (a) that has been commenced against Seller or the Business other than Proceedings affecting other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings, or (b) as of the date of this Agreement, that challenges, or that may have the effect of preventing, delaying, making illegal, restricting or otherwise interfering with, the transactions contemplated hereby. Schedule 5.8 lists each outstanding Order against Seller which relates to or arises out of the conduct of the Business or the ownership, condition or operation of the Business or the Assets which would be considered material to a reasonably prudent purchaser of the Business in its reasonable business judgment, other than any Orders relating to rates, tariffs and similar matters arising in the ordinary course of business and other than any Order applicable to other Persons engaged in a business similar to the Business such as generic or industry-wide Orders. 19 Section 5.9 Taxes. All Tax Returns required to be filed by or on behalf of Seller or requests for extensions to file such Tax Returns have been timely filed, and Seller has paid and discharged or made adequate provision for all Taxes that are required to be paid or remitted by or on behalf of Seller. There are no pending audits or other examinations relating to any Tax matters relating to the Business or the Assets except as set forth in Schedule 5.9. There are no Tax Encumbrances on the Assets, except for liens for Taxes not yet due and payable or for Taxes that Seller is contesting in good faith through appropriate proceedings. As of the date of this Agreement, Seller has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax relating to the Business or the Assets except as set forth in Schedule 5.9. Except as set forth in Schedule 5.9, none of the Assets include stock of a corporation or interests in a partnership or limited liability company. Seller is not a party to any safe harbor lease within the meaning of IRC Section 168(f)(8), as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. Seller is not a "foreign person" as defined in IRC Section 1445(f)(3) and Buyer is not required to withhold tax on the purchase of the Assets of Seller by reason of IRC Section 1445. Seller has not entered into any agreement with respect to the performance of services that would require a payment, and Seller is not requiring Buyer pursuant to this Agreement to make any payment (including but not limited to the payments described in Section 10.11 of this Agreement), that would result in a nondeductible expense pursuant to IRC Section 280G or an excise tax to the recipient of such payment pursuant to IRC Section 4999. Section 5.10 Intellectual Property. Schedule 5.10 lists all patents, trademarks, service marks and copyrights used or held for use by Seller primarily in the operation of the Business. Seller has no Knowledge of (i) any infringement or claimed infringement by Seller of any patent, trademark, service mark or copyright of others or (ii) any infringement of any patent, trademark, service mark or copyright owned by or under license to Seller. Section 5.11 Personal Property. Except for normal wear and tear, the tangible Assets, taken as a whole, are in good operating condition and in a state of reasonable maintenance and repair. The buildings, structures and equipment that are a part of the Assets are structurally sound, are in good operating condition and repair and are adequate for the uses to which they are being put, and none of such buildings, structures or equipment is in need of maintenance or repairs, except in each case, for the Assets described in Schedule 5.11 and for Assets in need of ordinary and routine maintenance and repairs that will not, individually or in the aggregate, have a Material Adverse Effect. Section 5.12 Material Contracts; Existing Loan Documents. Schedule 5.12 contains, to Seller's Knowledge, a complete and correct list as of the date hereof of all Material Contracts (other than line extension Contracts and similar construction arrangements), including all Existing Loan Documents. To Seller's Knowledge, (i) each Material Contract is in full force and effect and enforceable against the parties thereto, (ii) there are no defaults and Seller has not rescinded nor given notice of a default or claimed default under any such Material Contract, and (iii) no event has occurred which with notice or lapse of time, or both, would constitute a default thereunder. Except as set forth in Schedule 5.12, Seller is not obligated under any Contract relating to the Business or the Assets with respect to industrial development bonds or other obligations with respect to which the interest thereon is excluded from gross income of the holder for federal or state income tax purposes. 20 Section 5.13 Employee Benefit Matters. (a) Schedule 5.13 lists (i) each "Employee Benefit Plan," as such term is defined in Section 3(3) of ERISA, which is covered by any provision of ERISA and which is maintained or contributed to by Seller or its Affiliates for the benefit of the Active Employees; (ii) each other material fringe benefit plan, policy or arrangement currently maintained or contributed to by Seller or its Affiliates for the benefit of Active Employees which provides for pension, retirement, deferred compensation, bonuses, incentive compensation, profit sharing, stock options, severance, employee insurance coverage or similar employee benefits (collectively, "Employee Plans"); and (iii) each collective bargaining, union or other employee association agreement, employment, managerial, advisory, and consulting agreement, change-in-control agreement, employee confidentiality agreement, and all other material agreements, policies, or arrangements maintained or contributed to by Seller or its Affiliates for the Active Employees or by which Seller is bound with respect to the Business. Seller has made available to Buyer accurate and complete copies of all such documents and (if applicable) summary plan descriptions with respect to such plans, agreements and arrangements, or summary description(s) of any such plans, agreements or arrangements not otherwise in writing. (b) Seller's Pension Plan and Seller's 401(k) Plan are the only Employee Benefit Plans which are intended to be qualified under Section 401(a) of the IRC. (c) Each Employee Benefit Plan has been established and administered in all material respects in accordance with its terms, ERISA and the applicable provisions of the IRC. Section 5.14 Environmental Matters. (a) Except as listed in Schedule 5.14, since December 31, 1996, Seller has not received a written notice from a Governmental Body that Seller is in violation of any Environmental Law arising out of Seller's ownership, use or operation of the Assets or the operation of the Business. (b) Except as listed in Schedule 5.14, there are no Proceedings pending or Threatened with respect to Seller's compliance with Environmental Laws and relating to the Business or the Assets. To Seller's Knowledge, there is no reasonable basis for any such Proceeding that would impose any liability or obligation that would have or would reasonably be expected to have a Material Adverse Effect. (c) Except as listed in Schedule 5.14, Seller possesses all certificates, permits and authorizations required by any Environmental Law for Seller's ownership, use or operation of the Assets or the operation of the Business. (d) Except as set forth in Schedule 5.14, no environmental remediation of any Release is occurring on any Real Property included in the Assets nor has Seller issued a request for proposal or otherwise asked an environmental remediation contractor to begin plans for any such environmental remediation. Except as set forth in Schedule 5.14, to Seller's Knowledge, during or prior to the period of Seller's ownership or operation of the Business there were no Releases or threatened Releases which would reasonably be expected to have a Material Adverse Effect. (e) Except as set forth in Schedule 5.14, none of the Real Property is (i) situated in a federal "Superfund" site or, to Seller's Knowledge, in any federal "Superfund" study area designated 21 under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), or (ii) to Seller's Knowledge, situated in any site or study area designated under any state statute comparable to CERCLA. Section 5.15 No Material Adverse Change. Except as set forth in Schedule 5.15, between the date of the Balance Sheet and the date of execution of this Agreement: (a) no Material Adverse Effect has occurred; (b) except for actions taken in connection with the contemplated sale of the Business and this Agreement and except for conversion to the SAP financial reporting system, between the date of the Balance Sheet and the date of execution of this Agreement, the Business has been conducted in the ordinary course, consistent with past practices; (c) there has not been any increase in the salary, wage, bonus, grants, awards, benefits or other compensation payable or that could become payable by Seller to its officers, directors and employees with respect to the Business or any amendment of any of the Employee Plans, Seller's Pension Plan and Seller's 401(k) Plan other than increases or amendments in the ordinary course of the Business, consistent with past practices (which may include normal periodic performance reviews and related compensation and benefit increases and the provision of new individual compensation and benefits for promoted or newly hired officers and employees on terms consistent with past practice), nor has Seller granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus, in each case to any such officer, director, or employee, other than pursuant to preexisting agreements, arrangements or bonus plans, or taken any action that would result in the payment of any amounts, or the accelerated vesting of any rights or benefits, under any Employee Plan, Seller's Pension Plan or Seller's 401(k) Plan; (d) there has been no change in any method of accounting or accounting practice of the Business; (e) Seller has not sold, mortgaged, pledged or encumbered the Business or the Assets, other than sales of Assets in the ordinary course of business; and (f) no agreement or commitment to do any of the actions contemplated by clauses (c), (d) or (e) above has been entered into. Section 5.16 State and Federal Regulatory Matters. (a) Schedule 5.16 reflects all of the currently pending filings relating to the Business heretofore made by Seller before state or federal regulatory commissions and each other currently pending Proceeding of such state or federal regulatory commission which would be considered material to a reasonably prudent purchaser of the Business in its reasonable business judgment, other than any currently pending Proceeding that also is applicable to other Persons engaged in a business similar to the Business such as generic or industry-wide Proceedings. (b) All currently effective material filings relating to the Business heretofore made by Seller with state or federal regulatory commissions were made in compliance with Legal Requirements then applicable thereto and the information contained therein was true and correct in all material respects as of the respective dates of such filings. 22 Section 5.17 Brokers. Except for Morgan Stanley & Co. Incorporated, no broker or finder has acted for or on behalf of Seller or any Affiliate of Seller in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Seller or any Affiliate of Seller for which Buyer has or will have any liabilities or obligations (contingent or otherwise). Section 5.18 Employee Relations. Except as disclosed in Schedule 5.18, as of the execution of this Agreement (i) there is no strike, slowdown, picket, work stoppage or other labor dispute or disturbance on the part of the employees of Seller with respect to the Business pending or Threatened, and Seller has not experienced any such strike, slowdown, picket, work stoppage or other labor dispute or disturbance with respect to the Business within the past two years, (ii) no grievance, unfair labor practice charge or any arbitration Proceeding arising out of or under any collective bargaining agreement relating to the Business exists or is pending on the date hereof, (iii) Seller is not the subject of a Proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it to bargain with any labor organization as to wages or conditions of employment with respect to the Business, (iv) Seller is not aware of any activity involving Seller's employees seeking to certify a collective bargaining unit or engaging in other organizational activity with respect to the Business, (v) Seller is currently in compliance in all material respects with respect to the Business with all applicable Legal Requirements relating to the employment of labor, including those related to wages, hours and collective bargaining, and is not liable for any arrearages of wages, penalties or other sums for failure to comply with any of the foregoing and (vi) there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or Threatened before any Governmental Body regarding any person or entity currently or formerly employed by Seller with respect to the Business. Section 5.19 Insurance. Schedule 5.19 lists the Seller's property and casualty insurance policies and contracts in effect as of the date hereof in connection with the Business. Except as disclosed in Schedule 5.19, (i) each material insurance policy thereof is in full force and effect, (ii) Seller is not in default with respect to its obligations under any such policy and (iii) Seller has not received any notice of cancellation or termination with respect to any material insurance policy thereof. Section 5.20 Accounts Receivable. All accounts receivable and earned but unbilled revenue reflected in the Financial Statements represent actual indebtedness to Seller incurred by the applicable account debtors in the ordinary course of business consistent with past practices. To Seller's Knowledge, all accounts receivable and earned but unbilled revenue reflected in the Financial Statements are good and collectible at the aggregate recorded amounts thereof, net of any reserve for doubtful accounts reflected therein. 23 Section 5.21 Appropriate Knowledge Persons. The individuals identified in the definition of "Knowledge" are agents, employees or officers of Seller and certain of such individuals have primary decisionmaking responsibility for the day-to-day operations, management, maintenance and repair of the Assets and the Business, and they have served in such capacities for more than twelve (12) months. Section 5.22 Disclaimer. Except as otherwise expressly set forth in this Agreement or in any other document or instrument delivered by Seller pursuant hereto, Seller expressly disclaims any representations or warranties of any kind or nature, express or implied, as to the condition, value or quality of the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by Seller, and Seller SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED, "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL FAULTS AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION THEREOF. ARTICLE VI COVENANTS Section 6.1 Covenants of Seller. Seller agrees to observe and perform the following covenants and agreements: (a) Conduct of the Business Prior to the Closing Date. With respect to the Business, except (i) as contemplated in this Agreement or in Schedule 6.1, (ii) as required by any Legal Requirement or Order or (iii) as otherwise expressly consented to in writing by Buyer which consent will not be unreasonably withheld or delayed, prior to the Closing, Seller will, with respect to the Business. (1) Not make or permit any material change in the general nature of the Business; (2) Maintain and conduct the Business in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy, and maintain the Assets in their present condition, reasonable wear and tear excepted, subject to retirements in the ordinary course of business, use all reasonable efforts to preserve intact the present business organization and the relationship with customers, suppliers and others having business dealings with the Business; (3) Not enter into any material transaction or Material Contract other than in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy; (4) Not purchase, sell, lease, dispose of or otherwise transfer or make any Contract for the purchase, sale, lease, disposition or transfer of, or subject to Encumbrance, any material Assets other than in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy; 24 (5) Not hire any new employee unless such employee is a bona fide replacement for either a presently-filled position or a vacancy in an authorized position with the Business; (6) Not make any capital expenditure or capital expenditure commitment in excess of $200,000 in the aggregate that is not included in the Capital Budget except in the event of service interruption, emergency or casualty loss, and use commercially reasonable efforts to make capital expenditures in accordance with the Capital Budget; (7) Comply in all material respects with all applicable Legal Requirements and Orders, including without limitation those relating to the filing of reports, the timely filing of Tax Returns and the payment of Taxes due to be paid prior to the Closing, other than those Taxes contested in good faith; (8) Except in the ordinary course of business consistent with past practices or in accordance with the terms of any existing Contract, Employee Plan or collective bargaining agreement, not grant any material increase or change in total compensation or benefits (taken as a whole) to any of the Transferred Employees or, except as permitted by Section 10.2, enter into any employment, severance or similar Contract with any Person or amend any such existing Contracts to increase any amounts payable thereunder or benefits provided thereunder; (9) Not terminate any Material Contract; (10) Not create, incur, assume, guarantee or otherwise become liable with respect to any indebtedness for money borrowed other than in the ordinary course of business (it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed), except in connection with additional borrowings under the Existing Loan Documents and any renewal, extension, rearrangement or refunding of any indebtedness created under or evidenced by the Existing Loan Documents, and except pursuant to advances made by Seller to the Business; or (11) Not make any material filings with any Governmental Body prior to consulting with Buyer except for filings made in the ordinary course of business consistent with past practices. (b) Access to the Business, Assets and Records; Updating Information. (1) From and after the date hereof and until the Closing Date, Seller shall permit Buyer and its Representatives to have, on reasonable notice and at reasonable times, reasonable access to the Business, the Assets and all books, papers and records to the extent that they reasonably relate to the ownership, operation, obligations and liabilities of the Business and the Assets; provided, however, that such access shall not unreasonably interfere with the operation of the Business; and provided, further, that Buyer hereby agrees to defend, indemnify and hold harmless Seller from and against all Losses arising out of or relating to the negligence or willful misconduct of Buyer or its Representatives in connection with Buyer's access provided pursuant to this Section 6.1(b)(1). Without limiting the application of the Confidentiality Agreement, all documents or information furnished by Seller hereunder shall be subject to the Confidentiality Agreement. 25 (2) Seller will notify Buyer as promptly as practicable of any significant change in the ordinary course of business for the Business and of any material Proceedings (Threatened or pending) involving or affecting the Business or the transactions contemplated by this Agreement, and shall use reasonable efforts to keep Buyer fully informed of such events. (c) Consents. Seller will use its commercially reasonable efforts to obtain all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business and all Consents listed in Schedule 5.3. (d) Exclusivity. Until consummation of the transactions contemplated hereby or termination of this Agreement pursuant to Section 9.1, neither Seller nor its Affiliates, representatives, officers, directors, employees or agent will, directly or indirectly, (1) submit, solicit, initiate, encourage or discuss any proposal or offer from any Person (other than Buyer or its Affiliates) or enter into any agreement or accept any offer relating to any (i) reorganization, liquidation or dissolution of the Business; (ii) merger or consolidation involving the Business; (iii) purchase or sale of substantially all of the Assets; or (iv) similar transaction or business combination involving the Business or the Assets, or (2) furnish any information with respect to, assist or participate in or facilitate in any other manner any effort or attempt by any Person or do or seek to do any of the foregoing. Seller shall notify Buyer promptly if any Person makes any proposal, offer, inquiry or contact with respect to an action described in clauses (i) through (iv) above. (e) Noncompetition. (i) From the Closing Date through the third (3rd) anniversary thereof, Seller agrees that neither it nor any of its Affiliates will (i) directly, or indirectly through one or more entities, own, manage, operate, control, be employed by or participate in the ownership, management, operation or control, or have a financial interest in, any Person which is engaged in the Business within the State of Vermont, provided, however, that the foregoing shall not prevent the purchase or ownership of shares which constitute less than five percent (5%) of the outstanding equity securities of a publicly-held company; or (ii) divert or direct any Person who is, at that time, a customer or supplier of the Business away from the Business. (ii) Seller acknowledges that it has carefully read all the terms of this Section 6.1(e), and agrees that (A) the same are necessary for the reasonable and proper protection of the value of the Business, (B) each and every covenant is reasonable with respect to such matter, length of time and the geographical area described, and (C) that irrespective of all other conditions, the covenants and restrictions in clause (i) above shall be operative during the full period and throughout the geographical area described. In the event any court finds any such restraint or limitation to be unreasonable, then it is the intent of the parties that such court should determine the maximum restraint or limitation which is reasonable and enforcement will be of that restraint or limitation. (iii) Because of the immediate and irreparable damage that would be caused to Buyer as a result of the breach of the covenants of Seller contained in this Section 6.1(e), for which Buyer would not have other adequate remedy, Seller agrees that, in the event of any such breach, Buyer shall be entitled to seek, from any court of competent jurisdiction, an injunction against any further breach by Seller. In addition, Buyer shall be entitled to pursue any other remedies available under applicable laws or equitable principles. Each party waives any requirements for security of the posting 26 of any bond or other surety in connection with any temporary or permanent award or injunctive, mandatory or other equitable relief. Section 6.2 Covenants of Buyer. Buyer agrees to observe and perform the following covenants and agreements: (a) Consents. Buyer will use its commercially reasonable efforts to assist Seller in obtaining all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business, and will use its commercially reasonable efforts to obtain all Consents listed in Schedule 4.2 and Schedule 4.3. (b) Access to Information. After Closing, Buyer will, and will cause its Representatives to, afford to Seller, including its Representatives, at Seller's expense, reasonable access to all books, records, files and documents related to the Business to the extent necessary to permit Seller to prepare and file its tax returns and to prepare for and participate in any investigation with respect thereto, to prepare for and participate in any other investigation and defend any Proceedings relating to or involving Seller or the Business for which Seller may be responsible, to discharge its obligations under this Agreement and the other Related Documents to which its is a party and for other reasonable purposes and will afford Seller reasonable assistance in connection therewith. Buyer will cause such records to be maintained for not less than seven years from the Closing Date and will not dispose of such records without first offering in writing to deliver them to Seller; provided, however, that in the event that Buyer transfers all or a portion of the Business to any third party during such period, Buyer may transfer to such third party all or a portion of the books, records, files and documents related thereof, provided such third party transferee expressly assumes in writing the obligations of Buyer under this Section 6.2(b). In addition, after the Closing Date, at Seller's request, Buyer shall make available to Seller and its Affiliates, employees, representatives and agents, those employees of Buyer requested by Seller in connection with any Proceeding, including to provide testimony, to be deposed, to act as witnesses and to assist counsel; provided, however, that (x) such access to such employees shall not unreasonably interfere with the normal conduct of the operations of Buyer and (y) Seller shall reimburse Buyer for the allocated time charges of such employees and the out-of-pocket costs reasonably incurred by Buyer in making such employees available to Seller. (c) Citizens Guarantees and Surety Instruments. Buyer shall use its commercially reasonable efforts to assist Seller in obtaining full and complete releases on the guarantees, letters of credit, bonds and other surety instruments listed in Schedule 6.2(c). For purposes of this Section 6.2(c), reasonable efforts shall include: (i) Buyer's assumption of the Contracts on the terms set forth in this Agreement; and (ii) an obligation on the part of Buyer to provide a guaranty, letter of credit, bond or other surety instrument at Closing to the extent required by any Contract assumed by Buyer at Closing and, in general, an equivalent surety instrument to be substituted for any surety instrument provided by Citizens to any beneficiary in connection with the Business. (d) Other Covenants of Buyer. Buyer agrees to submit to regulation by the appropriate state regulatory commission to the same extent as such state regulatory commission currently regulates Seller in connection with the Business. Buyer also agrees to make no filings with such state regulatory commission or take any other action in connection with any Proceeding or Legal Requirement relating to any other businesses conducted by Seller that also are subject to regulation by such state regulatory commission. 27 Section 6.3 Governmental Filings. (a) HSR Act Filing. Buyer and Seller shall comply promptly with the notice and reporting requirements of the HSR Act. Buyer and Seller shall comply substantially with any additional requests for information, including requests for production of documents and production of witnesses for interviews or depositions, made by the Antitrust Division of the United States Department of Justice, the United States Federal Trade Commission or the antitrust or competition law authorities of any other jurisdiction (the "Antitrust Authorities"). Buyer shall exercise its commercially reasonable efforts, and Seller shall cooperate fully with Buyer, to prevent the entry in any Proceeding brought by an Antitrust Authority or any Governmental Body which would prohibit, make unlawful or delay the consummation of the transactions contemplated by this Agreement. Seller shall not oppose any efforts of Buyer, including Buyer's proffer of consent to any Order, to complete lawfully the transactions contemplated by this Agreement, and shall cooperate in good faith with Buyer and the Antitrust Authorities to the same effect. (b) Other Regulatory Filings. Buyer and Seller will, as soon as reasonably practicable following the execution of this Agreement, prepare and file with each Governmental Body, including the appropriate state regulatory commission, requests for such Consents as may be necessary for the transfer of the Assets in accordance with the terms of this Agreement. Buyer and Seller will diligently pursue such Consents and will cooperate with each other in seeking such Consents. To this end, the parties agree to make available the personnel and other resources of their respective organizations in order to accomplish actions reasonably required by them to obtain all such Consents. (c) Actions Not Required. Notwithstanding anything to the contrary contained in this Agreement, in connection with or as a condition to receiving any Consent, neither Seller nor Buyer shall be required (A) to divest, abandon, license or take similar action with respect to any assets (tangible or intangible) of it or any of its respective Affiliates, or (B) to expend material sums of money or grant any material financial or other accommodations (other than as contemplated hereby). Section 6.4 Citizens Marks. Buyer acknowledges and agrees with Seller that Seller has the absolute and exclusive proprietary right to all names, marks, trade names, trademarks and corporate symbols and logos incorporating "Citizens" and "CZN" (collectively and together with all other names, marks, trade names, trademarks and corporate symbols and logos owned by Seller or any of its Affiliates, the "Citizens Marks"), all rights to which and the goodwill represented thereby and pertaining thereto are being retained by Seller. Within ninety (90) days after the Closing Date, Buyer shall cease using any Citizens Mark and shall remove from the Assets any and all Citizens Marks. Thereafter, Buyer shall not use any Citizens Mark in connection with the sale of any products or services or otherwise in the conduct of its businesses. In the event that Buyer breaches this Section 6.4, Seller shall be entitled to specific performance of this Section 6.4 and to injunctive relief against further violations, as well as any other remedies at law or in equity available to Seller. 28 Section 6.5 Acknowledgment by Buyer. In order to induce Seller to enter into and perform this Agreement and the Related Documents, Buyer acknowledges and agrees with Seller as follows: (a) To the extent any representation or warranty of Seller made herein is, to the knowledge of Buyer acquired prior to the date of execution of this Agreement, untrue or incorrect, (i) Buyer shall have no rights under this Agreement or any Related Documents by reason of such untruth or inaccuracy, and (ii) any such representation or warranty by Seller shall be deemed to be amended to the extent necessary to render it consistent with such knowledge of Buyer. As used in this Agreement, the "knowledge of Buyer" means the actual knowledge of John D. Parker, Buyer's Chief Financial Officer. (b) EXCEPT AS SET FORTH IN THIS AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO, NONE OF SELLER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES MAKES ANY REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY INFORMATION, WRITTEN OR ORAL, FURNISHED TO OR PREPARED AT THE REQUEST OF BUYER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES WITH RESPECT TO THE BUSINESS OR THE ASSETS. (c) THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT AND IN ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF SELLER TO BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND BY THE RELATED DOCUMENTS THERE ARE NO REPRESENTATIONS, WARRANTIES, COVENANTS, UNDERSTANDINGS OR AGREEMENTS, ORAL OR WRITTEN, IN RELATION THERETO BETWEEN THE PARTIES OTHER THAN THOSE INCORPORATED HEREIN AND THEREIN. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED BY SELLER PURSUANT HERETO, BUYER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, BY OR ON BEHALF OF SELLER OR ITS AFFILIATES OR REPRESENTATIVES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED IN SECTIONS 5.7, 5.11 AND 5.14, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF SELLER WITH RESPECT TO THE CONDITION OF THE ASSETS, COMPLIANCE WITH ENVIRONMENTAL LAWS AND ENVIRONMENTAL PERMITS OR THE PRESENCE OR RELEASES OF HAZARDOUS MATERIAL IN THE FIXTURES, SOILS, GROUNDWATER, SURFACE WATER OR AIR ON, UNDER OR ABOUT OR EMANATING FROM ANY OF THE PROPERTIES OR ASSETS OF SELLER. Section 6.6 Transition Plan. Within 30 days after the execution date of this Agreement, Buyer shall deliver to Seller a list of its proposed representatives to a joint transition team, which shall include expertise from various functional specialties associated or involved in providing billing, payroll and other support services provided to the Business by any automated or manual process using facilities or employees that are not included among the Assets or Transferred Employees. Seller will add its representatives to such team within 15 days after receipt of Buyer's list. Such team will be responsible for preparing as soon as reasonably practicable after the execution date of this Agreement and at least 60 days prior to the Closing Date, and timely implementing, a transition plan which will identify and describe substantially all of the various transition activities that the parties will cause to occur 29 before and after the Closing and any other transfer of control matters that any party reasonably believes should be addressed in such transition plan, including (i) the payment, collection, remittance and/or other appropriate arrangements with respect to the items addressed in Sections 3.1(a), 3.1(b) and 3.4; and (ii) identification, selection and hiring by Buyer on or after the Closing Date of employees of Seller who provide support services to the Business but who are not included among the Active Employees. If requested by either party, the terms and conditions governing such transition activities will be more fully set forth in a Transition Agreement reasonably satisfactory to the parties. Buyer and Seller shall use their commercially reasonable efforts to cause their Representatives on such transition team to cooperate in good faith and take all reasonable steps necessary to develop a mutually acceptable transition plan by no later than 120 days after the date of this Agreement. Section 6.7 Title Insurance. Prior to Closing, Seller shall cooperate with Buyer and use commercially reasonable efforts to assist Buyer if Buyer desires to obtain ALTA title insurance commitments (collectively, the "Title Commitments," and each a "Title Commitment"), in final form, from one or more title insurance companies (collectively, the "Title Company"), committing the Title Company (subject only to the satisfaction of any industry standard requirements contained in the Title Commitment) to issuing ALTA (or its local equivalent) form of title insurance policies insuring good, valid, indefeasible fee simple title to the owned Real Estate in Buyer, in all cases, at Buyer's sole expense and in the respective amounts that Buyer requests prior to Closing, subject to no Encumbrances or other exceptions to title other than Permitted Encumbrances (collectively the "Title Policies"). On or prior to the Closing Date, Seller shall execute and deliver, or cause to be executed and delivered, to the Title Company, at no cost to Seller, any customary affidavits, standard gap indemnities and similar documents reasonably requested by the Title Company in connection with the issuance of the Title Commitments or the Title Policies; provided that such efforts and Buyers' request for Title Policies or Title Commitments shall, in no event, result in any delay in the consummation of the transactions contemplated by this Agreement. Section 6.8 Sale of Generating Assets. Seller shall use its commercially reasonable efforts, prior to Closing, to negotiate, to enter into and to consummate, prior to Closing, a definitive purchase and sale agreement, containing terms and conditions reasonably acceptable to Seller and for an adjusted purchase price of at least $3,000,000, with a third Person regarding the sale to and purchase by such third Person of the Generating Assets and the assumption by such third Person of related obligations and liabilities of Seller. Upon the full execution of such an agreement, the Generating Assets shall automatically be deemed to be Excluded Assets for all purposes of this Agreement and Seller shall deliver to Buyer revised Schedules reflecting changes that result as a consequence of the Generating Assets becoming Excluded Assets. Buyer shall cooperate fully with Seller, and shall not oppose Seller's efforts to sell the Generating Assets separately from the other Assets. Seller also may enter into, and Buyer agrees to assume at Closing or separately to enter into at Closing, any power purchase agreement that Seller and the buyer of the Generating Assets may agree to enter into as part of such purchase and sale transaction, provided such power purchase agreement is approved by the Vermont Public Services Board. 30 Section 6.9 Hydro-Quebec Step-up Indemnity Agreement. Within 30 days after the execution date of this Agreement, the parties jointly shall establish a working group of appropriate subject matter experts who shall be instructed to prepare, within 120 days after the date of execution of this Agreement, a comprehensive agreement (the "Hydro-Quebec Step-Up Indemnity Agreement"), for execution by the parties at Closing, setting forth the following terms and procedures, together with any other appropriate arrangements that either party believes should be included in such agreement: (a) It is the intention of the parties that Seller's obligations under the Hydro-Quebec Contracts shall not be increased or enlarged as a result of the sale of the Assets hereunder or by any act or omission of Buyer, but shall remain to the same extent and in the same amount as if such sale of the Assets did not occur. Accordingly, Seller shall agree to indemnify and hold harmless Buyer from and against any and all Losses arising out of or resulting from Section 17.3 of H-Q/VJO Contract or Sections 6.1, 6.2, 6.3 or 6.4 of the H-Q Participation Agreement to the same extent (but only to such extent) that Seller would have incurred such Losses had Seller continued to own the Assets as of the time the event giving rise to such Losses occurred. (b) Without the prior written consent of Seller (which may be withheld in Seller's sole discretion), Buyer shall not amend, modify, waive or agree to the waiver of any provision of the Hydro-Quebec Contracts if such action could adversely affect the rights or obligations of Seller. (c) Buyer shall notify Seller as promptly as practicable of any significant change or development with respect to the Hydro-Quebec Contracts or the parties thereto. (d) Buyer shall take all commercially reasonable steps to mitigate such Losses, including exercising all rights available to it under the Hydro-Quebec Contracts to resell the additional power it purchases thereunder and enforcing its rights against the other purchasing parties to the Hydro-Quebec Contracts. Such rights shall be exercised by Buyer in good faith and in a manner consistent with its business practices involving claims for which no third party contractual indemnification is available. (e) To the fullest extent permitted, Seller shall be subrogated to any rights or claims that Buyer may have against any of the other power purchasing parties under the Hydro-Quebec Contracts in connection with the event giving rise to such Losses. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Seller's Conditions Precedent to Closing. The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Buyer's representations and warranties in this Agreement shall have been true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the date of this Agreement and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall be true and correct in all respects) as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement, except that 31 representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Buyer shall have been performed and complied with in all material respects prior to or at the Closing Date. (c) Certificate. Buyer shall execute and deliver to Seller a certificate of an authorized officer of Buyer, dated the Closing Date, stating that the conditions specified in Sections 7.1(a) and 7.1(b) of this Agreement have been satisfied. (d) Governmental Approvals and Other Consents. The Vermont Public Services Board shall have issued an Order approving the transactions contemplated hereby, the terms and conditions of such Order shall be acceptable in all material respects to Seller in its reasonable discretion and shall have no significant adverse effect on Seller's acquisition and divestiture activities in the State of Vermont (including the divestiture of the Assets), and such Order shall have become a Final Order. Seller also shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby and to transfer the Assets to Buyer without incurring material liability under any Legal Requirement, Order or Contract, including all Consents required by the Hydro-Quebec Contracts to assign such Contracts to Buyer. (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated without there being in effect a Legal Requirement enjoining or restraining consummation of such transaction. (f) Injunctions. On the Closing Date, there shall be no Proceedings pending which seek, and no Orders which operate, to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Seller shall have received from counsel to Buyer an opinion in the form of Exhibit 7.1(g). (h) Documents. Buyer shall have delivered all the certificates, instruments, contracts and other documents specified to be delivered by it hereunder on or before the Closing Date, including pursuant to Section 8.1, and shall have taken such actions as Seller may have requested pursuant to Section 11.2 hereof. (i) Sale of Generating Assets. Any agreement entered into by Seller in accordance with Section 6.8 shall have been consummated prior to the Closing Date or Seller shall be satisfied that such transaction will be consummated concurrently with the Closing. 32 Section 7.2 Buyer's Conditions Precedent to Closing. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Seller's representations and warranties in this Agreement shall have been true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the date of this Agreement and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall be true and correct in all respects) as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement; except (i) that representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period, and (ii) to the extent that any failure of such representations and warranties to be true and correct as aforesaid when taken in the aggregate would not have a Material Adverse Effect. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Seller shall have been performed and complied with in all material respects prior to or at the Closing Date, except where the failure to so perform or comply when taken in the aggregate would not have a Material Adverse Effect. (c) Certificate. Seller shall execute and deliver to Buyer a certificate of an authorized officer of Seller, dated the Closing Date, stating that the conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement have been satisfied. (d) Governmental Approvals. The Vermont Public Services Board shall have issued an Order approving the transactions contemplated hereby, such Order shall not contain any restrictions or conditions (other than those in effect on the date of this Agreement or requiring that the regulatory treatment with respect to the Business in existence as of the date of this Agreement applicable to Seller be continued following the Closing) which would have a material adverse effect on the operation, financial condition or results of operations of the Business, and such Order shall have become a Final Order. In addition, Seller shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby other than those the failure of which to obtain would not have a material adverse effect on the operation, financial condition or results of operations of the Business. (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. (f) Injunctions. On the Closing Date, there shall be no Proceedings pending which seek, and no Orders which operate, to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Buyer shall have received from L. Russell Mitten II, Vice President and General Counsel of Seller, an opinion in the form of Exhibit 7.2(g) hereto. 33 (h) Documents. Seller shall have delivered all of the certificates, instruments, contracts and other documents specified to be delivered by it hereunder, including pursuant to Section 8.1, and shall have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as promptly as practicable after the Closing such records (including customer and employee records) necessary to own and operate the Business. (i) No Material Adverse Change. Since the date of execution of this Agreement, no Material Adverse Effect shall have occurred that has continuing effect as of the Closing Date. (j) Hydro-Quebec Step-Up Indemnity Agreement. Seller shall have executed and delivered to Buyer the Hydro-Quebec Step-Up Indemnity Agreement contemplated by Section 6.9 and such agreement shall be reasonably satisfactory to Buyer. ARTICLE VIII CLOSING Section 8.1 Closing. The closing of the purchase and sale of the Assets (the "Closing") will take place at the offices of Fleischman and Walsh, L.L.P., 1400 Sixteenth Street, N.W., Suite 600, Washington, D.C. 20036, on the last calendar day of the month in which the conditions specified in Sections 7.1(d) and 7.2(d) have been satisfied, unless another time, date and place is agreed to in writing by the parties. The date of the Closing is referred to in this Agreement as the "Closing Date." The transactions to be consummated on the Closing Date shall be deemed to have been consummated as of 11:59 p.m. on the Closing Date. At the Closing the following events shall occur, each event being deemed to have occurred simultaneously with the other events. (a) Bill of Sale. Seller and Buyer shall execute and deliver the Bill of Sale and Assignment and Assumption Agreement in the form of Exhibit 8.1(a) hereto (the "Bill of Sale"). (b) Payment of Purchase Price. As provided below, Buyer will pay to Seller an amount equal to the Estimated Purchase Price by wire transferring such amount, in lawful money of the United States of America in immediately available funds, to such account as Seller shall have designed by notice to Buyer. If the Closing Date is not a business day on which financial institutions are open and operating, then on or before the last business day on which financial institutions are open and operating before the Closing Date, Buyer shall deliver the Estimated Purchase Price to Buyer's lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Estimated Purchase Price in an interest-bearing account mutually agreed upon by Seller and Buyer. At Closing, Buyer shall sign and deliver to Seller a statement which confirms that the Closing has occurred and which instructs the Escrow Agent to transfer to Seller the funds representing the Estimated Purchase Price, plus an amount representing the interest earned after the Closing Date until the date the funds are transferred, to an account that Seller shall designate at least two (2) business days prior to the date the funds are required to be transferred hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and expenses of Escrow Agent shall be paid one-half by Seller and one-half by Buyer. (c) Other Related Documents. To the extent consistent with the other provisions of this Agreement, Seller (or the appropriate Affiliate of Seller) and Buyer shall execute and deliver such other Related Documents (including special warranty deeds, conveyances, certificates of title, bills of sale, assignment and assumption instruments and FIRPTA affidavits) reasonably requested by a party that are necessary in order to satisfy any applicable Legal Requirements relating to the transfer of the 34 Assets to Buyer or the assumption of the Assumed Liabilities by Buyer or which are customarily given in the State of Vermont to accomplish transfers of assets of the type involved; provided, however, that nothing in this clause (c) shall obligate Seller or any Affiliate of Seller to execute or deliver any document that affects, in a manner adverse to Seller and in a manner not required by the terms of this Agreement, Seller's liability to Buyer as expressed herein and in the Bill of Sale. (d) FIRPTA Certificate. Seller shall execute and deliver to Buyer a certification of nonforeign status within the meaning of Treasury Regulations Section 1.1445-2. ARTICLE IX TERMINATION Section 9.1 Termination Rights. This Agreement may be terminated in its entirety at any time prior to the Closing: (a) By the mutual written agreement of Seller and Buyer; (b) By Buyer, on the one hand, or Seller, on the other hand, in writing if there shall be in effect a nonappealable Order prohibiting , enjoining or restricting the transactions contemplated by this Agreement; (c) By Buyer, upon the breach in any material respect of any of the representations and warranties of Seller contained herein or in the failure by Seller to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Seller, provided that such breach or failure is reasonably likely to result in a Material Adverse Effect and is not cured or otherwise addressed by Seller in a manner reasonably acceptable to Buyer within 30 days of Seller's receipt of a written notice from Buyer that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); (d) By Seller, upon the breach in any material respect of any of the representations and warranties of Buyer contained herein or the failure by Buyer to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Buyer, provided that such breach or failure is not cured or otherwise addressed by Buyer in a manner reasonably acceptable to Seller within 30 days of Buyer's receipt of a written notice from Seller that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); (e) By either party in writing if the Closing has not occurred within fifteen (15) months after the execution date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 9.1(e) will not be available to any party that is in material breach of its representations, warranties, covenants or agreements contained herein; and provided, further, that if Closing has not occurred within such period of time because the conditions precedent to Closing set forth in Sections 7.1(d) and 7.2(d) have not been fulfilled, then such period of time shall be automatically extended by an additional six (6) months; (f) By Seller or Buyer, as appropriate, if any Governmental Body whose Consent is required to fulfill a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) 35 or in Section 7.2(d) (with respect to Buyer) has affirmatively indicated that such Consent will not be given or will contain terms or conditions (or, if such Consent has been obtained, contains terms or conditions) that, in the reasonable business judgment of Seller or Buyer, as appropriate, will result in a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to Buyer) not being satisfied; (g) By Seller if by the deadline set forth in Section 4.4 (as such deadline may have been extended by Seller), Buyer fails to obtain from a reputable financial institution a binding commitment letter, in form and substance reasonably satisfactory to Seller, obligating such financier to provide the necessary funds to Buyer at Closing to enable Buyer to consummate the transactions contemplated by this Agreement; or (h) By Seller if both (i) Buyer's financier fails to advance loan proceeds to Buyer with which to fund the payments required to be made by Buyer at Closing or such financier affirmatively indicates, for no reason or for any reason other than the proper termination of this Agreement pursuant to any other provision of this Section 9.1, that such funding will not be provided to Buyer by such financier and (ii) Buyer is unable to arrange, to Seller's reasonable satisfaction, replacement funding from any other source within forty-five (45) days after the occurrence of the event described in the preceding clause (i). Section 9.2 Limitation on Right to Terminate: Effect of Termination. (a) A party shall not be allowed to exercise any right of termination pursuant to Section 9.1 if the event giving rise to the termination right shall be due to the willful failure of such party seeking to terminate this Agreement to perform or observe in any material respect any of the covenants or agreements hereof to be performed or observed by such party. (b) If this Agreement is terminated as permitted under Section 9.1, such termination shall be without liability of or to any party to this Agreement, or any shareholder or Representative of such party; provided, however, that if such termination shall result from the willful failure of any party to fulfill a condition to the performance of any other party or to perform a covenant of this Agreement or from a material and willful breach by any party to this Agreement (it being understood that the failure to cure a breach shall not, by itself, be a willful breach of this Agreement), then such party shall (subject to the limitation set forth in the last sentence of this Section 9.2(b)) be fully liable for any and all damages sustained or incurred by the other party. If prior to Closing either party to this Agreement resorts to legal proceedings to enforce this Agreement, the prevailing party in such proceedings shall be entitled to recover all costs incurred by such party including reasonable attorney's fees, in addition to any other relief to which such party may be entitled; provided, however, and notwithstanding anything to the contrary in this Agreement, in no event shall either party be entitled to receive any punitive, indirect or consequential damages. (c) If (i) Seller terminates this Agreement pursuant to Section 9.1(d), Section 9.1(g) or Section 9.1(h) or (ii) this Agreement is terminated by either party pursuant to Section 9.1(e) or 9.1(f) because the requisite Consent from the applicable state regulatory commission has not been obtained, or because such Governmental Body has affirmatively indicated that its Consent will not be given, due in whole or in part to concerns about Buyer's qualifications or capabilities, unless such Governmental Body also has affirmatively indicated that its Consent is being withheld due in part to concerns about Seller's operation of the Business or ownership of the Assets, then Seller may present a sight draft under the Letter of Credit, and thereby retain either all of the Deposit (if clause (i) is applicable) or $380,000 36 (if clause (ii) is applicable), (or, if there is no Letter of Credit or if the Letter of Credit does not permit Seller to present a sight draft in such circumstances, then Buyer shall pay to Seller in cash an amount equal to the Deposit or $380,000, as the case may be, within five (5) business days after the effective date of termination of this Agreement), in either case, as liquidated damages free of any claims by Buyer or any other Person with respect thereto (the parties hereby acknowledging that the extent of damages to Seller occasioned by such breach or default or failure by Buyer would be impossible or extremely difficult to ascertain and that the amount to be paid to Seller is a fair and reasonable estimate of such damages under the circumstances). If this Agreement is terminated for any reason other than as set forth in the preceding sentence, then Seller shall promptly deliver the Letter of Credit to Buyer, free of any claims by Seller or any other Person with respect thereto. ARTICLE X EMPLOYEE MATTERS Section 10.1 Employment of Transferred Employees. (a) Schedule 10.1 lists each division, and the total number of salaried and hourly, nonunion and union, employees actively employed as of the date of this Agreement in each division by Seller or its Affiliates whose primary duties relate to the Business ("Active Employees"). As of the Closing Date, Buyer shall employ all Active Employees of Seller employed in the Business being acquired ("Transferred Employees") in the same comparable positions, and at the same compensation level (including wages, salary and bonuses) as were in effect with Seller immediately prior to the Closing Date. Buyer reserves the right to restructure positions and functions as it deems appropriate so long as reassignment does not result in materially diminished responsibilities or a reduction in compensation. For purposes of the preceding sentence, "Active Employees" shall include all full-time and part-time employees, employees on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, on short-term disability, on layoff with recall rights, and employees on other leaves of absences where there is a legal or contractual right to reinstatement. Notwithstanding the foregoing, nothing in this Agreement shall operate to prevent or prohibit Buyer from making changes in compensation of Transferred Employees based on demotions arising for cause. (b) Prior to the execution date of this Agreement, Seller has delivered to Buyer a list of the persons who would have been Transferred Employees had the Closing Date occurred on December 31, 1999, showing the following information for each such person: (i) the name of each such person; (ii) the name of his or her current employer; (iii) his or her current base pay, 1998 bonus that was paid in 1999 and the projected 1999 bonus that will be paid in 2000; (iv) his or her hire date, any rehire date (if available) and years of service; (v) his or her then-current position and job title; (vi) whether such employee is subject to a collective bargaining agreement or represented by a labor organization and, if so, the name of the union and local, (vii) whether such employee is on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, short-term disability, on layoff with recall rights, or on other leave of absence with a legal or contractual right to reinstatement. Seller shall update such list as of the end of each calendar quarter occurring between the execution date hereof and the Closing Date, in each case assuming the Closing Date had occurred on such date, and shall deliver such updated lists to Buyer within ten (10) days after the end of each such calendar quarter. 37 Section 10.2. Assumption of Collective Bargaining Agreement Obligations. On and after the Closing Date, Buyer, shall assume all of the Seller's obligations under, and be bound by the provisions of, each collective bargaining agreement to the extent of provisions covering Transferred Employees. Each collective bargaining agreement shall be identified on a Schedule 10.2 to be prepared by Seller and submitted to Buyer on or before the Closing Date. Seller shall cooperate with Buyer in Buyer's efforts to contact the unions representing Transferred Employees. Seller may extend, renew or enter into a new Contract to replace any collective bargaining agreement that will expire prior to December 31, 2000, provided that Seller shall consult with Buyer regarding the terms and conditions of any such extension, renewal or replacement of any such collective bargaining agreement. Notwithstanding the foregoing provisions of this Section 10.2, Buyer shall not be obligated to assume any new collective bargaining agreement that contains terms and conditions that, when taken as a whole, are materially more onerous on the employer than the terms and conditions, taken as a whole, of the collective bargaining agreement that was replaced by such new collective bargaining agreement. Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses. From and after the Closing Date, Transferred Employees shall accrue no additional benefits under any Employee Benefit Plan, or Employee Plan of Seller or its Affiliates. Seller and Buyer shall pro-rate the obligation to pay any bonuses declared by Seller after the Closing Date that would have been payable to the Transferred Employees had the Transferred Employees remained employed by Seller or its Affiliates throughout the calendar year in which the Closing Date occurs, in accordance with the provisions of any Employee Benefit Plan or Employee Plan of Seller under which such bonus would have been paid. For Transferred Employees entitled to such bonus, Buyer shall be obligated to pay that portion of each such bonus determined by multiplying the amount of such bonus by a fraction, the numerator of which is the number of days from and after the Closing Date through the end of the calendar year in which the Closing Date occurs, and the denominator of which is 365. Seller shall be obligated to pay the balance of any such bonuses. Section 10.4 Similarity of Benefit Packages. As of the Closing Date, and except as otherwise expressly provided in this Article X, Buyer shall include each Transferred Employee in a benefit package providing benefits that are in the aggregate substantially similar to those provided by Seller to such Transferred Employees immediately prior to the Closing Date. Notwithstanding the foregoing, to the extent that one or more collective bargaining agreements being assumed by Buyer contains provisions pertaining to employee benefits, Buyer shall provide the Transferred Employees covered by such agreements with benefits that are identical to those required to be provided under the terms of such agreements. Except as otherwise expressly provided in this Article X, Buyer shall treat all service and compensation credited to each such Transferred Employee as if such service and compensation had been rendered to, and paid by, Buyer for all purposes under Buyer's benefit plans, arrangements, and policies. 38 Section 10.5 Defined Benefit Pension Plan. (a) At least fifteen days prior to the Closing Date, Seller shall take any and all actions necessary to cease benefit accruals and fully vest all Transferred Employees in their accrued benefits under the Citizens Pension Plan ("Seller's Pension Plan"). Seller shall retain all liabilities and assets for pension benefits accrued through the Closing Date by Transferred Employees and retirees of the Business under Seller's Pension Plan. (b) As of the Closing Date, Buyer shall cause all union Transferred Employees to be included in a qualified defined benefit pension plan providing benefits identical to the benefits provided under the Seller's Pension Plan ("Buyer's Pension Plan"). Buyer shall take all actions necessary to cause Buyer's Pension Plan to recognize the service that all union Transferred Employees had under Seller's Pension Plan for purposes of such Employees' eligibility to participate, vesting, attainment of retirement dates, subsidized benefits, and entitlement to optional forms of payment. Section 10.6 401(k) Plan. (a) Buyer shall take all action necessary to ensure that, as of the Closing Date, it includes Transferred Employees in a qualified 401(k) plan providing for matching contributions at least equivalent to that provided to the Transferred Employee under Citizens 401(k) Savings Plan ("Seller's 401(k) Plan") immediately prior to the Closing Date. Buyer shall take all actions necessary to cause Buyer's 401(k) Plan to recognize the service that the Transferred Employees had in Seller's 401(k) Plan for purposes of determining such Employees' eligibility to participate, vesting, attainment of retirement dates, contribution levels and, if applicable, eligibility for optional forms of benefit payments. Buyer shall cause the trustee of Buyer's 401(k) Plan to accept transfers and direct rollovers from Seller's 401(k) Plan of the vested account balances of Transferred Employees, including transfers of outstanding loan balances and related promissory notes, subject to compliance with applicable law. (b) Seller shall vest Transferred Employees in their account balances under Seller's 401(k) Plan as of the Closing Date. Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan an amount of cash equal to the value of the account balances of the Transferred Employees under Seller's 401(k) Plan; except that to the extent that the account balances consist of outstanding loans, Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan the promissory notes and related documents evidencing such loans. (c) After the transfer of assets and liabilities pursuant to this Section, Buyer shall assume all liabilities for the benefits payable with respect to Transferred Employees under Seller's 401(k) Plan, and Seller and Seller's 401(k) Plan shall have no liability for such benefits. (d) In connection with the transfer of assets and liabilities under this Section, Seller and Buyer shall cooperate in making all appropriate filings, and providing all applicable notices, required by the IRC or ERISA. Buyer shall deliver to Seller a copy of Buyer's 401(k) Plan, and a copy of the most recent determination letter from the IRS with respect to such Plan, together with a certification to the effect that no events have occurred since the date of the determination letter that would adversely affect the Plan's qualified status. 39 Section 10.7 Welfare Benefits. (a) Buyer shall take all action necessary and appropriate to ensure that, as of the Closing Date, Buyer maintains employee welfare benefit plans (including retiree medical benefits) for the benefit of Transferred Employees that, in the case of nonunion Transferred Employees are, in the aggregate, comparable to those benefits provided by Seller under its corresponding welfare benefit plans (the "Buyer's Nonunion Welfare Plans"), and in the case of union Transferred Employees are identical to those benefits provided to union Transferred Employees under Seller's corresponding welfare benefit plans (the "Buyer's Bargained Welfare Plans"), as in effect immediately prior to the Closing Date. The Buyer's Nonunion Welfare Plans and the Buyer's Bargained Welfare Plans are hereinafter referred to collectively as the "Buyer Welfare Plans." For purposes of determining eligibility to participate, and entitlement to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be credited with service, determined under the terms of the corresponding welfare plans maintained by Seller on the Closing Date (hereinafter referred to collectively as the "Seller Welfare Plans"). Any restrictions on coverage for pre-existing conditions, actively at work requirements, waiting periods, and requirements for evidence of insurability under the Buyer Welfare Plans shall be waived in the Buyer Welfare Plans for Transferred Employees, and Transferred Employees shall receive credit under the Buyer Welfare Plans for co-payments, payments under a deductible limit made by them, and for out-of-pocket maximums applicable to them during the plan year of the Seller Welfare Plan in which the Closing Date occurs. As soon as practicable after the Closing Date, Seller shall deliver to Buyer a list of the Transferred Employees who had credited service under a Seller Welfare Plan, together with each such Transferred Employee's service, co-payment, deductible and out-of-pocket payment amounts under such plan. (b) Buyer shall provide or cause to be provided retiree medical, dental, and life benefits to each retiree of the Business identified in Schedule 10.7 as updated as of the Closing Date (the "Retirees"), to each Transferred Employee who is considered to be a "grandfathered employee" (as hereinafter defined), and to each union Transferred Employee who otherwise is eligible for such retiree benefits, under the same terms and conditions as applied to such Retiree or Transferred Employee immediately prior to the Closing Date, and Seller shall have no obligation or liability, contingent or otherwise, to provide retiree medical, dental or life benefits to any such Retiree or Transferred Employee on or after the Closing Date. For purposes of this Section 10.7, a "grandfathered employee" is a union or nonunion Transferred Employee, who was at least age 55 with at least 10 years of service as defined in the Seller's Pension Plan by December 31, 1997, and who retires after December 31, 1997. Schedule 10.7 identifies each Active Employee who is a "grandfathered employee" and each union Active Employee who otherwise is eligible for such retiree benefits. Buyer agrees not to terminate or materially modify those post-retirement benefit provisions covering "grandfathered" Transferred Employees, eligible union Transferred Employees, Retirees, their spouses and dependents that are in effect immediately prior to the Closing Date. (c) Within sixty (60) days after the Closing, Seller agrees to transfer to an exempt trust established by Buyer under Section 501(c)(9) of the IRC ("Buyer's VEBA") the amount held under any trust established by Seller under Section 501(c)(9) of the IRC ("Seller's VEBA") to fund post-retirement health care and life insurance benefits for the Business. Such amount shall be determined based upon Seller's internal recordkeeping. Buyer agrees that Buyer's VEBA will apply an amount at least equal to the sum of the assets transferred from Seller's VEBA (and earnings thereon calculated at the rate of return generated by Buyer's VEBA) to provide post-retirement health care and life insurance benefits after the Closing Date to the Retirees and, as applicable, the Transferred Employees who become eligible for such benefits after Closing. Upon Closing, Buyer shall be responsible for all 40 obligations of Seller to provide post-retirement health care and life insurance benefits to such Transferred Employees and Retirees, and Seller and Seller's VEBA shall cease to have any liability, contingent or otherwise, for such benefits. Section 10.8 Flexible Spending Accounts. Seller shall transfer to Buyer's flexible benefits plan any balances standing to the credit of Transferred Employees under Seller's flexible benefits plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing Date a list of those Transferred Employees that have participated in the health or dependent care reimbursement accounts of Seller, together with their elections made prior to the Closing Date with respect to such account, and balances standing to their credit as of the Closing Date. Section 10.9 Employment Agreements. Buyer shall assume all obligations of each employment agreement to which Seller or its Affiliates is a party and which covers any Transferred Employee immediately prior to the Closing Date. Section 10.10 Vacation. Seller shall pay to Transferred Employees any "banked" vacation credited to them on or prior to the Closing Date. On or after the Closing Date, Buyer shall provide to each Transferred Employee vacation in an amount equal to the Transferred Employee's vacation entitlement for the year of the Closing reduced by the number of vacation days that such Transferred Employee has taken on or before the Closing. Section 10.11 Severance. In the event that Buyer terminates the services of any Transferred Employee within twelve (12) months following the Closing Date without cause, Buyer shall provide to any such Transferred Employee severance or separation pay benefits that are at least equal to the benefits that would have been paid by Seller had Seller continued to employ such Transferred Employee through such twelve month period ending on the employee's date of termination from Buyer; provided, however, that if a collective bargaining agreement that is applicable to a union Transferred Employee would provide for a greater benefit to be paid by Buyer, the terms and conditions of such agreement shall instead be applicable. "Cause" for termination shall consist of: (a) any act of dishonesty or fraud; (b) an employee's conviction of a crime involving fraud, embezzlement or any other act of moral turpitude; (c) an employee's gross negligence or willful misconduct in the performance of his duties; (d) an employee's engagement in acts seriously detrimental to the Business or reputation of Buyer; (e) an employee's failure to abide by lawful policies of Buyer; and (f) the employee's failure to abide by the directives of the employee's superior. ARTICLE XI TAX MATTERS Section 11.1 Purchase Price Allocation. Buyer and Seller shall use their good faith efforts to agree upon the allocation (the "Allocation") of the Purchase Price, the Assumed Liabilities and other relevant items (including, for example, adjustments to the Purchase Price) to the individual assets or classes of assets as required by Section 1060 of the IRC and the Treasury Regulations promulgated thereunder. If Buyer and Seller agree to such Allocation, Buyer and Seller covenant and agree that, except to the extent that the IRS or other Governmental Body successfully challenges such Allocation, (i) the values assigned to the assets by the parties' mutual agreement shall be conclusive and final for all purposes, (ii) Buyer and Seller shall file all federal Tax Returns, including IRS Form 8594, in accordance with such Allocation, and (iii) neither Buyer nor Seller will take any position before any Governmental Body or in any Proceeding that is in any way inconsistent with such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation, Buyer and Seller 41 covenant and agree to file, and to cause their respective Affiliates to file, all Tax Returns and schedules thereto (including, for example, amended returns, claims for refund, and those returns and forms required under Section 1060 of the IRC and any Treasury regulations promulgated thereunder) consistent with each of such party's good faith Allocations, unless otherwise required because of a change in any Legal Requirement. Section 11.2 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that Seller may, at Seller's election prior to the Closing Date, direct Buyer to acquire any portion of the Assets by delivering all or a portion of the Purchase Price to a "qualified intermediary" (as defined in Treasury Regulations ss.1.1031(k) - (l)(g)(4)) as to assist Seller in structuring the relinquishment of the Assets to qualify as part of a like-kind exchange of property covered by Section 1031 of the IRC. If Seller so elects, Buyer shall cooperate with Seller (but without being required to incur any out-of-pocket costs in the course thereof) in connection with Seller's efforts to effect such like-kind exchange, which cooperation shall include, without limitation, taking such actions as Seller reasonably requests in order to enable Seller to qualify such transfer as part of a like-kind exchange of property covered by Section 1031 of the IRC (including any actions required to facilitate the use of a "qualified intermediary"), and Buyer agrees that Seller may assign all or part of its rights and delegate all or part of its obligations under this Agreement to a person or entity acting as a qualified intermediary to the extent necessary to qualify the transfer of the Assets as part of a like-kind exchange of property covered by Section 1031 of the IRC, provided, however, that no such assignment shall relieve Seller of any of its obligations under this Agreement. Buyer and Seller agree in good faith to use reasonable efforts to coordinate the transactions contemplated by this Agreement with any other transactions engaged in by either Buyer or Seller; provided that such efforts are not required to include an unreasonable delay in the consummation of the transactions contemplated by this Agreement. Seller agrees to pay any additional Transaction Taxes that may be imposed as a result of any like-kind exchange contemplated by this Section 11.2 and to reimburse Buyer for any additional out-of-pocket legal fees and expenses incurred by Buyer in connection with any such exchange. Section 11.3 Transaction Taxes. Buyer and Seller shall each bear and be responsible for paying one-half of any sales, use, transfer, documentary, registration (other than any annual registration fees), business and occupation and other similar Taxes (including related penalties (civil or criminal), additions to tax and interest) imposed by any Governmental Body with respect to the transfer of Assets (including the Real Property) to Buyer ("Transaction Taxes"), regardless of whether the tax authority seeks to collect such Taxes from Seller or Buyer. Seller shall prepare all tax filings related to any Transaction Taxes (other than with respect to Real Property and motor vehicle title transfer and registration, which shall be prepared by Buyer). Fifteen (15) days prior to making such filings, the filing party shall provide to the nonfiling party the filing party's workpapers for the nonfiling party's review and approval. The nonfiling party shall provide to the filing party approval or disapproval of such workpapers within ten (10) days of delivery by the filing party. The filing party shall be responsible for (i) administering the payment of such Transaction Taxes, (ii) defending or pursuing any Proceedings related thereto, and (iii) paying any expenses related thereto, in each case subject to reimbursement by the nonfiling party for one-half of such payments and expenses. Each party shall give prompt written notice to the other of any proposed adjustment or assessment of any Transaction Taxes with respect to the transaction, or of any examination of said transaction in a sales, use, transfer or similar tax audit. In any Proceedings, whether formal or informal, the filing party shall control the defense of such Proceedings, but shall permit the nonfiling party to participate in the defense of such proceeding and shall take all actions and execute all documents required to allow such participation. Neither party shall negotiate a settlement or compromise of any Transaction Taxes without the prior written consent of the other, which consent shall not be unreasonably withheld. 42 ARTICLE XII ENVIRONMENTAL MATTERS Section 12.1 Environmental Due Diligence. (a) Right to Conduct Environmental Due Diligence. Regarding environmental matters, Buyer has completed its initial environmental due diligence prior to execution of this Agreement, including a review of the Environmental Data. Buyer also has required Seller to make the representations concerning environmental matters set forth in Section 5.14, upon which Buyer is relying. In light of these actions, Buyer agrees not to conduct additional environmental due diligence (including employee interviews and sampling of any media or wastewater) except in accordance with this Section 12.1. All activities of Buyer regarding environmental due diligence shall be conducted to minimize any inconvenience or interruption of the normal use and enjoyment of the Business and the Assets. (b) Delivery of Environmental Reports. Seller has made available to Buyer before the date of execution of this Agreement copies of all written environmental audits, reports or studies in Seller's possession of which Seller has Knowledge and which were prepared after December 31, 1996, concerning the existence or possible existence of Hazardous Materials on, or under or adjacent to any of the Real Property or relating to potential Environmental Liability of Seller in connection with the Business or the Assets. Buyer shall provide to Seller copies of all reports, assessments and other information composed or compiled by Buyer or Buyer's environmental consultant(s) promptly following Buyer's receipt thereof. Buyer shall treat all such information delivered to, or composed or compiled by, Buyer or Buyer's environmental consultant(s) as Environmental Data in accordance with the procedures of Section 12.1(c). (c) Confidentiality of Environmental Data. All audits, reports and studies delivered to or prepared by Buyer and all other information collected and generated as a result of Buyer's environmental due diligence ("Environmental Data") will be subject to the terms and conditions of the Confidentiality Agreement, except as otherwise expressly provided in this Section 12.1. Neither Buyer nor its environmental consultant(s) shall disclose or release any Environmental Data without the prior written consent of Seller and all such information shall be kept strictly confidential. The Environmental Data shall be prepared at the request of counsel to Buyer and, to the fullest extent permitted by law, shall be the work product of such counsel and constitute confidential attorney/client communications. The Environmental Data shall be transferred among Buyer and its consultant(s) in a manner that will preserve, to the greatest extent possible, such privileges. Buyer expressly agrees that until the Closing, it will not distribute the Environmental Data to any third party without Seller's prior written consent. After the Closing, each Party agrees that it will not distribute the Environmental Data to any third party without the other's prior written consent, except as required by law or by express provisions of its corporate compliance program if the other Party is provided written notice at least ten (10) days prior to such distribution, provided, however, that for a period of two (2) years after the Closing Date, Buyer may distribute the Environmental Data to any potential purchaser of the Assets only after first notifying the Seller. (d) Environmental Consultants. Buyer may retain one or more outside environmental consultants to assist in its environmental due diligence concerning the Assets and shall notify Seller of the environmental consultant or consultants Buyer intends to retain. Thereafter, Seller shall have five (5) days after receipt of such notification to notify Buyer in writing of Seller's objection (which must be for good cause) and substantiate the basis for that objection. If Seller does not object 43 for good cause and substantiate that objection within said five (5) day period, Seller shall be deemed to have consented to Buyer's selection. (e) Phase I Reviews. Buyer has conducted various environmental assessment activities with respect to the Assets, including reviewing existing environmental reports, correspondence, permits and related materials regarding the Assets, but excluding inspecting individual sites. Buyer may not conduct any further Phase I environmental assessment activities with respect to the Assets without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. Any permitted Phase I environmental assessment activities shall not include any sampling or intrusive testing. (f) Phase II Reviews. Buyer may not conduct any Phase II environmental assessment activities with respect to the Assets (including, but not limited to, the taking and analysis of soil, surface water and groundwater samples, testing of buildings, drilling wells, taking soil borings and excavating) without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. (g) Additional Due Diligence. Notwithstanding the foregoing, if prior to Closing Seller receives notice of any Proceeding or Threatened Proceeding arising under Environmental Laws or if Seller otherwise acquires Knowledge that is reasonably likely to require a change to Schedule 5.14, Seller promptly shall notify Buyer of the same and Buyer may request that Seller authorize Buyer to conduct specific additional environmental due diligence measures if and to the extent that such measures are required to determine the extent of any potential Environmental Liability relating thereto. Such authorization shall not be unreasonably withheld, conditioned or delayed by Seller. Any such additional environmental due diligence shall be conducted at Buyer's sole expense. (h) Indemnity for Due Diligence Activities. Buyer hereby agrees to indemnify and hold harmless Seller, Seller's Affiliates and their respective officers, directors, employees, agents, successors and assigns from and against any and all Losses with respect to persons or property arising out of or resulting from any site visit by Buyer or its environmental consultant(s) and resulting from an act or omission of Buyer or its environmental consultant(s), provided, however, that such indemnity shall not extend to Losses resulting from the discovery of pre-existing damage or other pre-existing conditions of the Assets. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Seller. From and after Closing and subject to the other provisions of this Article XIII, Seller shall indemnify and hold harmless Buyer, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Buyer Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Seller in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing; and 44 (c) the Retained Liabilities, including the Retained Environmental Liabilities. Section 13.2 Indemnification by Buyer. From and after Closing and subject to the other provisions of this Article XIII, Buyer shall indemnify and hold harmless Seller, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Seller Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Buyer in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing; and (c) Assumed Liabilities, including the Assumed Environmental Liabilities. Section 13.3 Limitations on Liability. Notwithstanding anything to the contrary in this Agreement, the liability of Seller and Buyer under this Agreement and any documents delivered in connection herewith or contemplated hereby shall be limited as follows: (a) IN NO EVENT SHALL SELLER BE LIABLE TO THE BUYER INDEMNITEES, OR SHALL BUYER BE LIABLE TO THE SELLER INDEMNITEES, FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however, that if Buyer or Seller is held liable to a third party for any of such damages and Seller or Buyer, respectively is obligated to indemnify the other for the matter that gave rise to such damages, then Seller or Buyer, as appropriate, shall be liable for, and obligated to reimburse the other for, such damages. (b) Except as provided below, the representations, warranties, covenants and agreements of Seller and Buyer set forth in this Agreement shall survive the Closing for the applicable period of time set forth below in this Section 13.3(b), and all representations, warranties, covenants and agreements of Seller and Buyer under this Agreement and the indemnities granted by Seller and Buyer in Section 13.1 or Section 13.2, respectively, shall terminate at 5:00 p.m., local time in Stamford, Connecticut, on the appropriate anniversary of the Closing Date or on the expiration of the applicable statute of limitations (or extensions or waivers thereof), as the case may be, as set forth below in this Section 13.3(b); provided, however, that such indemnities shall survive with respect only to the specific matters that is the subject of a proper Claim Notice delivered in good faith in compliance with the requirements of this Section 13.3 until the earlier to occur of (A) the date on which a final nonappealable resolution of the matter described in such Claim Notice has been reached or (B) the date on which the matter described in such Claim Notice has otherwise reached final resolution. (1) The representations and warranties of Seller contained in Section 5.9 (Taxes), the covenants and agreements of Seller relating to Taxes, and the related indemnity obligations of Seller contained in Section 13.1 shall terminate on, and no action or claim with respect thereto may be brought following, the expiration of the applicable statute of limitations (or extensions or waivers thereof). (2) The representations and warranties of Seller contained in Section 5.5 (Title to Assets; Liens) and the related indemnity obligations of Seller contained in Section 13.1 shall 45 terminate on, and no action or claim with respect thereto may be brought after, the third anniversary of the Closing Date. (3) The representations and warranties of Sellers contained in Section 5.14 (Environmental Matters) and the related indemnity obligations of Sellers contained in Section 13.1 shall terminate on, and no action or claim with respect thereto may be brought after, the fourth anniversary of the Closing Date. (4) All other representations and warranties of Seller and Buyer contained in this Agreement and the related indemnity obligations of Buyer and Seller contained in this Agreement shall terminate on, and no further action or claim with respect thereto may be brought after, the second anniversary of the Closing Date. (5) Except as set forth in the proviso to this clause (5), the indemnity obligations of Seller contained in Section 13.1 with respect to any Retained Liability shall terminate on, and no action or claim with respect thereto may be brought after, the second anniversary of the Closing Date, provided that the indemnity obligations of Seller contained in Section 13.1 for (i) Retained Liabilities relating to Taxes shall survive until the expiration of the applicable statute of limitations (or extensions or waivers thereof); (ii) Retained Environmental Liabilities with respect to which Seller had no Knowledge as of the Closing Date shall survive until the fourth anniversary of the Closing Date; and (iii) Retained Liabilities described in Sections 2.3(a), (c) and (d), Retained Liabilities relating to the Proceedings listed in Schedule 2.2(b) as Retained Liabilities, and any Disclosed Pre-Closing Liability (and any liability or obligation that would have been a Disclosed Pre-Closing Liability had Seller disclosed such liability or obligation to Buyer if Seller had Knowledge of such liability or obligation as of the Closing Date) shall survive for an unlimited period of time. The Retained Liabilities described in clauses (i) and (iii) of this Section 13.3(b)(5) are collectively referred to hereinafter as the "Specified Retained Liabilities. (6) The indemnity obligations of Buyer contained in Section 13.2 with respect to any Assumed Liability shall survive for an unlimited period of time. (7) Notwithstanding the foregoing, the Parties acknowledge that Buyer shall be entitled to indemnification by Seller for Losses incurred by Buyer in respect of any intentional or reckless misrepresentation or omission or fraud by Seller without any time limitation (it being understood that the failure to cure a breach shall not, by itself, be an intentional or reckless act or omission). In no event shall any amounts be recovered from Seller or Buyer under Section 13.1 or Section 13.2, respectively, or otherwise for any matter for which a Claim Notice is not delivered to Seller or Buyer, as the case may be, prior to the close of business on the applicable date set forth above. (c) Notwithstanding anything to the contrary in this Agreement, Seller shall not be required to indemnify the Buyer Indemnities, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses (other than Losses incurred by Buyer in respect of the Specified Retained Liabilities and any intentional or reckless misrepresentation or omission or fraud by Seller, it being understood that the failure to cure a breach shall not, by itself, be an intentional or reckless act or omission (the "First-Dollar Losses")) until the Buyer Indemnitees have suffered Losses (determined after giving effect to the provisions of Section 13.3(f) and other than First-Dollar Losses) that, when taken together with all other claims for Losses (other than First-Dollar Losses) under Section 13.1 of each of the Related Purchase Agreements, are in excess of a deductible in an amount equal to two percent (2%) of the total of the Purchase Price plus the aggregate gross purchase price set forth in each Related 46 Purchase Agreement that is consummated, after which point Seller will be obligated only to indemnify the Buyer Indemnitees from and against further Losses other than First-Dollar Losses in excess of such deductible. Buyer shall be entitled to indemnification for all First-Dollar Losses. (d) Notwithstanding anything to the contrary in this Agreement, Seller shall not be required to indemnify the Buyer Indemnitees, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses (other than First-Dollar Losses) that, when combined with the aggregate amount of Losses (other than First-Dollar Losses) that are subject to indemnification by Seller under Section 13.1 of the Related Purchase Agreements, are in excess of an amount equal to five percent (5%) of the total of the Purchase Price plus the aggregate gross purchase price set forth in each Related Purchase Agreement that is consummated. Buyer shall be entitled to indemnification for all First-Dollar Losses. (e) Except to the extent otherwise expressly provided in this Agreement, no right to indemnification under this Article XIII shall be limited by reason of any investigation conducted by any Party at any time or by the decision by a Party to complete the Closing. Notwithstanding the foregoing, Buyer acknowledges that Seller's indemnity obligations contained in Section 13.1 are subject to the applicable limitations set forth in Section 13.3, and that certain obligations and liabilities of Seller are included among the Assumed Liabilities. (f) Neither Party shall have liability for any claim or Loss (A) that is covered by insurance for which the other Party recovers payments in respect of such Loss or with respect to which the other Party otherwise recovers payments in respect of such Loss from any other sources (whether in a lump sum or stream of payments) or (B) that is the type normally recoverable by the Business through rates, but in each case only to the extent of such payments or recovery. With respect to insurance proceeds only, such recovery shall be calculated net of the insured party's out-of-pocket costs relating to claim preparation and settlement. With respect to recovery through rates, if the amount of the Losses that is included in rates is not specifically adjudicated in the related Final Order, the amount of the Losses included in rates will be calculated as follows: (i) if the cost associated with the Losses is booked as an item of operating expense, the amount of such expense included in rates will be the result of the ratio where total test period operating expenses allowed for ratemaking purposes in such Final Order is the numerator and Buyer's total requested test period operating expenses (including the Losses) is the denominator; (ii) if the cost associated with the Losses is booked as an item of rate base, the amount of such rate base included in rates will be the result of the ratio where total test period rate base allowed for ratemaking purposes in such Final Order is the numerator and Buyer's total requested test period rate base (including the Losses) is the denominator. Buyer agrees to use its commercially reasonable efforts to give timely and effective written notice to the appropriate insurance carrier(s) of any occurrence or circumstances which, in the judgment of Buyer consistent with its customary risk management practices, appear likely to give rise to a claim against Buyer that is likely to involve one or more insurance policies of Buyer. Any such notice shall be given in good faith by Buyer without regard to the possibility of indemnification payments by Seller under Section 13.1, and shall be processed by Buyer in good faith and in a manner consistent with its risk management practices involving claims for which no third party contractual indemnification is available. Buyer agrees that (i) if it is entitled to receive payment from Seller for a Loss, and (ii) if Buyer has obtained insurance which may cover the claim or matter giving rise to such Loss, then (iii) such insurance shall be primary coverage and Buyer will make a claim under such insurance (if such claim can be made in good faith) before enforcing its right to receive payment from Seller. If at any time subsequent to the receipt by a Buyer Indemnitee of an indemnity payment from Seller hereunder, such Buyer Indemnitee (or any Affiliate thereof) receives any recovery, settlement or other similar payment with respect to the Loss for which it receives such indemnity payment, such Buyer Indemnitee shall promptly pay to Seller an amount equal to the amount of such recovery, less (for insurance proceeds only) any out-of-pocket costs 47 incurred by such Buyer Indemnitee (or its Affiliates) in connection with claim preparation and settlement, but in no event shall any such payment exceed the amount of such indemnity payment; provided, that if such net recovery reduces the amount of Losses actually incurred by the Buyer Indemnitees to an amount that is then below the deductible amount set forth in Section 13.3(c) and if Seller has made other payments to the Buyer Indemnitees for other Losses in excess of such deductible amount, then Buyer also shall promptly pay to Seller an amount equal to the portion of such payments made by Seller that Seller would not have been obligated to make pursuant to Section 13.3(c) had the Losses of the Buyer Indemnitees not included the Losses covered by such net recovery. No other cost or expense relating to any such recovery shall reduce the amount of such payment to Seller. (g) Notwithstanding any language contained in any Related Document (including deeds and other conveyance documents relating to the Real Property), the representations and warranties of Seller set forth in this Agreement will not be merged into any such Related Document and the indemnification obligations of Seller, and the limitations on such obligations, set forth in this Agreement shall control. No provision set forth in any such Related Document shall be deemed to enlarge, alter or amend the terms or provisions of this Agreement. Section 13.4 Claims Procedure. (a) All claims for indemnification under Section 13.1 or 13.2, or any other provision of this Agreement except as otherwise expressly provided in this Agreement, shall be asserted and resolved pursuant to this Article XIII. Any Person claiming indemnification hereunder referred to as the "Indemnified Party" and any Person against whom such claims are asserted hereunder is hereinafter referred to as the "Indemnifying Party." In the event that any Losses are asserted against or sought to be collected from an Indemnified Party by a third party, said Indemnified Party shall with reasonable promptness provide to the Indemnifying Party a Claim Notice. The Indemnifying Party shall be relieved of its obligations to indemnify the Indemnified Party with respect to any such Losses only to the extent the Indemnified Party's delay in notifying the Indemnifying Party thereof in accordance with the provisions of this Agreement so prejudice the Indemnifying Party's ability to defend against the Losses. The Indemnifying Party shall have twenty (20) days from the personal delivery or receipt of the Claim Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not it disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such Losses and/or (ii) whether or not it desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Losses; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party (and of which it shall have given notice and opportunity to comment to the Indemnifying Party) and not prejudicial to the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such Losses, the Indemnifying Party shall have the right to defend all appropriate proceedings, and with counsel of its own choosing, which proceedings shall be promptly settled or prosecuted by them to a final conclusion. If the Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Losses that the Indemnifying Party elects to contest or, if appropriate and related to the claim in question, in making any counterclaim against the Person asserting the third party Losses, or any cross-complaint against any Person. No claim may be settled or otherwise compromised without the prior written consent of both the Indemnifying Party and the Indemnified Party. (b) The Indemnified Party shall provide reasonable assistance to the Indemnifying Party and provide access to its books, records and personnel as the Indemnifying Party reasonably 48 requests in connection with the investigation or defense of the Losses. The Indemnifying Party shall promptly upon receipt of reasonable supporting documentation reimburse the Indemnified Party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (c) With regard to third party claims for which Buyer or Seller is entitled to indemnification under Section 13.1 or 13.2, such indemnification shall be paid by the Indemnifying Party upon: (i) the entry of an Order against the Indemnified Party and the expiration of any applicable appeal period; or (ii) a settlement with the consent of the Indemnifying Party, provided that no such consent need be obtained if the Indemnifying Party fails to respond to the Claim Notice as provided in Section 13.4(a). Notwithstanding the foregoing but subject to Section 13.4(a), and provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party as if such expenses are a liability of the Indemnifying Party. Section 13.5 Exclusive Remedy. Except as otherwise provided in Section 6.4, the rights, remedies and obligations of the Buyer Indemnitees and the Seller Indemnitees set forth in this Article XIII will be the exclusive rights, remedies and obligations of such Persons after the Closing with respect to this Agreement, the events giving rise to this Agreement and the transactions provided for herein or contemplated hereby or thereby. No Proceeding for termination or rescission, or claiming repudiation, of this Agreement or the Bill of Sale may be brought or maintained by either party against the other following the Closing Date no matter how severe, grave or fundamental any breach, default or nonperformance may be by one party. Accordingly, the parties hereby expressly waive and forego any and all rights they may possess to bring any such Proceeding. Section 13.6 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND. 49 Section 13.7 Waiver and Release. (a) Buyer, on behalf of itself and each other Buyer Indemnitee, hereby forever waives, relieves, releases and discharges the Seller Indemnitees and their successors and assigns from any and all rights, liabilities, Proceedings (including future Proceedings) and Losses of any Buyer Indemnitee, whether known or unknown at the Closing Date, which any Buyer Indemnitee has or incurs, or may in the future have or incur, arising out of or related to any Assumed Environmental Liability. (b) Seller, on behalf of itself and each other Seller Indemnitee, hereby forever waives, relieves, releases and discharges to Buyer Indemnitees and their successors and assigns from any and all rights, liabilities, Proceedings (including future Proceedings) and Losses of any Seller Indemnitee, whether known or unknown at the Closing Date, which any Seller Indemnitee has or incurs, or may in the future have or incur, arising out of or related to any Retained Environmental Liabilities. ARTICLE XIV GENERAL PROVISIONS Section 14.1 Expenses. Except as otherwise specifically provided herein, each Party will pay all costs and expenses of its performance of and compliance with this Agreement, except Buyer will pay all real estate transfer taxes and real estate recording fees, if any, including expenses of counsel associated with real estate title, transfer and recording issues. Section 14.2 Notices. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been given upon receipt if either (a) personally delivered, (b) sent by prepaid first class mail, and registered or certified and a return receipt requested (c) sent by overnight delivery via a nationally recognized carrier or (d) by facsimile with completed transmission acknowledged: If to Seller, to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: Robert J. DeSantis Telecopier: (203) 614-4625 with a copy to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: L. Russell Mitten, II Telecopier: (203) 614-4651 50 and: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: J. Michael Love Telecopier: (203) 614-5201 and: Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W. Washington, D.C. 20036 Attention: Jeffry L. Hardin Telecopier: (202) 387-3467 If to Buyer, to: Cap Rock Energy 500 W. Wall Street, Suite 400 Midland, TX 79701 Attention: John D. Parker Telecopier: (915) 684-0333 with a copy to: Heller Ehrman White & McAuliffe LLP 701 Fifth Avenue, Suite 6100 Seattle, WA 98104-7098 Attention: Bruce M. Pym Telecopier: (206) 447-0849 or at such other address or number as shall be given in writing by a party to the other party. Section 14.3 Assignment. This Agreement may not be assigned, by operation of law or otherwise, by any party hereto without the prior written consent of the other party hereto, such consent not to be unreasonably withheld; provided, however, in the event of any such assignment by a party by operation of law without the consent of the other party as required above, such other party may consent to such assignment after it has occurred and, in such event, this Agreement and all the provisions hereof shall be binding upon the Person receiving such assignment by operation of law. Notwithstanding the foregoing, (a) Buyer may assign this Agreement, without the prior written consent of Seller, to any direct or indirect wholly-owned subsidiary of Buyer provided such subsidiary assumes in writing all of the duties and obligations of Buyer hereunder (provided that no such assignment by Buyer shall in any way operate to enlarge, alter or change any obligation due to Seller or relieve Buyer of its obligations hereunder if such subsidiary fails to perform such obligations, with the understanding that Buyer shall be jointly and severally liable with such subsidiary for any nonperformance of Buyer's obligations hereunder); and (b) Seller may assign all or part of its rights or delegate all or part of its duties under this Agreement, without the prior written consent of Buyer, to a qualified intermediary chosen by Seller to structure all or part of the transactions contemplated hereby as a like-kind exchange of property covered by Section 1031 of the IRC (provided that no such assignment by Seller shall in any way operate to enlarge, alter or change any obligations due to Buyer or relieve Seller of its obligations hereunder if such qualified intermediary fails to perform such obligations, with the understanding that Seller shall be 51 jointly and severally liable with such qualified intermediary for any nonperformance of Seller's obligations hereunder). Section 14.4 Successor Bound. Subject to the provisions of Section 14.3, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 14.5 Governing Law. The validity, performance, and enforcement of this Agreement and all Related Documents, unless expressly provided to the contrary, shall be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of law of such state. Section 14.6 Dispute Resolution. Except as otherwise provided in Sections 3.3(c) and 6.4, and this Section 14.6, any dispute, controversy or claim between the parties relating to, arising out of or in connection with this Agreement (or any subsequent agreements or amendments thereto), including as to its existence, enforceability, validity, interpretation, performance or breach or as to indemnification or damages, including claims in tort, whether arising before or after the termination of this Agreement (any such dispute, controversy or claim being herein referred to as a "Dispute") shall be settled without litigation and only by use of the following alternative dispute resolution procedure: (a) At the written request of a party, each party shall appoint a knowledgeable, responsible representative to meet and negotiate in good faith to resolve any Dispute. The discussions shall be left to the discretion of the representatives. Upon agreement, the representatives may utilize other alternative dispute resolution procedures such as mediation to assist in the negotiations. Discussions and correspondence among the parties' representatives for purposes of these negotiations shall be treated as confidential information developed for the purposes of settlement, exempt from discovery and production, and without the concurrence of both parties shall not be admissible in the arbitration described below, or in any lawsuit. Documents identified in or provided with such communications, which are not prepared for purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in the arbitration. (b) If negotiations between the representatives of the parties do not resolve the Dispute within 60 days of the initial written request, the Dispute shall be submitted to binding arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules, as then amended and in effect, of the American Arbitration Association (the "Rules"). Either party may demand such arbitration in accordance with the procedures set out in the Rules. The arbitration shall take place in Phoenix, Arizona. The arbitration hearing shall be commenced within 60 days of such party's demand for arbitration. The arbitrator shall have the power to and will instruct each party to produce evidence through discovery (i) that is reasonably requested by the other party to the arbitration in order to prepare and substantiate its case and (ii) the production of which will not materially delay the expeditious resolution of the dispute being arbitrated; each party hereto agrees to be bound by any such discovery order. The arbitrator shall control the scheduling (so as to process the matter expeditiously) and any discovery. The parties may submit written briefs. At the arbitration hearing, each party may make written and oral presentations to the arbitrator, present testimony and written evidence and examine witnesses. No party shall be eligible to receive, and the arbitrator shall not have the authority to award, exemplary or punitive damages. The arbitrator shall rule on the Dispute by issuing a written opinion within 30 days after the close of hearings. The arbitrator's decision shall be binding and final. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 52 (c) Each party will bear its own costs and expenses in submitting and presenting its position with respect to any Dispute to the arbitrator; provided, however, that if the arbitrator determines that the position taken in the Dispute by the nonprevailing party taken as a whole is unreasonable, the arbitrator may order the nonprevailing party to bear such fees and expenses, and reimburse the prevailing party for all or such portion of its reasonable costs and expenses in submitting and presenting its position, as the arbitrator shall reasonably determine to be fair under the circumstances. Each party to the arbitration shall pay one-half of the fees and expenses of the arbitrator and the American Arbitration Association. (d) Notwithstanding any other provision of this Agreement, (i) either party may commence an action to compel compliance with this Section 14.6 and (ii) if any party, as part of a Dispute, seeks injunctive relief or any other equitable remedy, including specific enforcement, then such party shall be permitted to seek such injunctive or equitable relief in any federal or state court or competent jurisdiction before, during or after the pendency of a mediation or arbitration proceed under this Section 14.6. Section 14.7 Cooperation. Each of the parties hereto agrees to use its commercially reasonable best efforts to take or cause to be taken all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws, regulations or otherwise, to consummate and to make effective the transactions contemplated by this Agreement, including, without limitation, the timely performance of all actions and things contemplated by this Agreement to be taken or done by each of the parties hereto. Section 14.8 Construction of Agreement. The terms and provisions of this Agreement represent the results of negotiations between Buyer and Seller, each of which has been represented by counsel of its own choosing, and neither of which has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms and provisions of this Agreement shall be interpreted and construed in accordance with their usual and customary meanings, and Buyer and Seller hereby waive the application in connection with the interpretation and construction of this Agreement of any rule of law to the effect that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the party whose attorney prepared the executed draft or any earlier draft of this Agreement. The word "including" in this Agreement shall mean including without limitation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified. 53 Section 14.9 Publicity. No party hereto shall issue, make or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby, or otherwise make any disclosures relating thereto, without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that such consent shall not be required where such release or announcement is required by applicable law or the rules or regulations of a securities exchange, in which event the party so required to issue such release or announcement shall endeavor, wherever possible, to furnish an advance copy of the proposed release to the other party. Section 14.10 Waiver. Except as otherwise expressly provided in this Agreement, neither the failure nor any delay on the part of any party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to each party at law or in equity. Section 14.11 Parties in Interest. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies hereunder; provided, however, that the indemnification provisions in Article XIII shall inure to the benefit of the Buyer Indemnitees and the Seller Indemnitees as provided therein. Section 14.12 Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14.13 Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. Section 14.14 Entire Agreement. This Agreement, the Exhibits and Schedules hereto and the documents specifically referred to herein and the Confidentiality Agreement constitute the entire agreement, understanding, representations and warranties of the parties hereto, and supersede all prior agreements, both written and oral, between Buyer and Seller. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Disclosure of any fact or item in any Schedule referenced by a particular paragraph or Section in this Agreement shall, should such fact or item or its contents be expressly or obviously related to any other paragraph or Section, be deemed to be disclosed with respect to that other paragraph or Section whether or not any explicit cross-reference appears therein. Section 14.15 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 54 Section 14.16 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the greatest extent possible. [SIGNATURES APPEAR ON FOLLOWING PAGE] 55 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. CITIZENS UTILITIES COMPANY By: ------------------------------------ Robert J. DeSantis, Chief Financial Officer and Vice President CAP ROCK ELECTRIC COOPERATIVE By: ------------------------------------ Name: Title: CAP ROCK ENERGY CORPORATION By: ------------------------------------ Name: Title: [Signature page to Purchase and Sale Agreement (Vermont Electric) between Citizens Utilities Company, Cap Rock Electric Cooperative and Cap Rock Energy Corporation, dated as of February 11, 2000.] 56 EX-10.30 4 EXHIBIT 10.30 EXECUTION COPY -------------- PURCHASE AND SALE AGREEMENT (KAUAI ELECTRIC) between CITIZENS UTILITIES COMPANY and KAUAI ISLAND UTILITY CO-OP Dated as of February 11, 2000 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS.....................................................................................1 Section 1.1 Certain Defined Terms....................................................................1 Section 1.2 Other Defined Terms......................................................................8 ARTICLE II PURCHASE AND SALE...............................................................................9 Section 2.1 Purchase and Sale of Assets..............................................................9 Section 2.2 Assumed Liabilities......................................................................9 Section 2.3 Retained Liabilities....................................................................11 Section 2.4 Condition on Assignment or Assumption of Contracts and Rights...........................11 ARTICLE III PURCHASE PRICE.................................................................................12 Section 3.1 Purchase Price..........................................................................12 Section 3.2 Deposit.................................................................................13 Section 3.3 Calculation of Purchase Price...........................................................13 Section 3.4 Prorations and Adjustments as of the Closing Date.......................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................................................14 Section 4.1 Organization, Existence and Qualification...............................................14 Section 4.2 Authority Relative to this Agreement and Binding Effect.................................15 Section 4.3 Governmental Approvals..................................................................15 Section 4.4 Availability of Funds...................................................................15 Section 4.5 Filings.................................................................................15 Section 4.6 Brokers.................................................................................15 Section 4.7 Independent Investigation...............................................................16 Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility...................16 Section 4.9 Buyer's Financial Statements. ..........................................................16 Section 4.10 Buyer's Insurance.......................................................................16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................16 Section 5.1 Organization, Existence and Qualification...............................................16 Section 5.2 Authority Relative to this Agreement and Binding Effect.................................16 Section 5.3 Governmental and Other Required Consents................................................17 Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility...................17 Section 5.5 Title to Assets; Liens..................................................................17 Section 5.6 Financial Statements....................................................................17 Section 5.7 Compliance with Legal Requirements; Governmental Permits. .............................18 Section 5.8 Legal Proceedings; Outstanding Orders. .................................................18 Section 5.9 Taxes...................................................................................18 Section 5.10 Intellectual Property...................................................................19 Section 5.11 Personal Property.......................................................................19 Section 5.12 Material Contracts; Existing Loan Documents.............................................19 Section 5.13 Employee Benefit Matters................................................................19 Section 5.14 Environmental Matters...................................................................20 Section 5.15 No Material Adverse Change..............................................................20 Section 5.16 State Regulatory Matters................................................................20 Section 5.17 Brokers.................................................................................21 Section 5.18 Disclaimer..............................................................................21
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Page ARTICLE VI COVENANTS......................................................................................21 Section 6.1 Covenants of Seller.....................................................................21 Section 6.2 Covenants of Buyer......................................................................23 Section 6.3 Governmental Filings....................................................................24 Section 6.4 Citizens Marks..........................................................................24 Section 6.5 Acknowledgment by Buyer.................................................................25 Section 6.6 Transition Plan. ......................................................................26 Section 6.7 IDRB Obligations........................................................................26 ARTICLE VII CONDITIONS PRECEDENT...........................................................................29 Section 7.1 Seller's Conditions Precedent to Closing................................................29 Section 7.2 Buyer's Conditions Precedent to Closing.................................................30 ARTICLE VIII CLOSING........................................................................................32 Section 8.1 Closing.................................................................................32 ARTICLE IX TERMINATION....................................................................................33 Section 9.1 Termination Rights......................................................................33 Section 9.2 Limitation on Right to Terminate: Effect of Termination.................................34 ARTICLE X EMPLOYEE MATTERS...............................................................................35 Section 10.1 Employment of Transferred Employees.....................................................35 Section 10.2 Assumption of Collective Bargaining Agreement Obligations...............................35 Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses......................35 Section 10.4 Similarity of Benefit Packages..........................................................36 Section 10.5 Defined Benefit Pension Plan............................................................36 Section 10.6 401(k) Plan.............................................................................36 Section 10.7 Welfare Benefits........................................................................37 Section 10.8 Flexible Spending Accounts..............................................................38 Section 10.9 Employment Agreements...................................................................38 Section 10.10 Vacation................................................................................38 Section 10.11 Severance...............................................................................38 Section 10.12 Plant Closing Notice....................................................................39 ARTICLE XI TAX MATTERS....................................................................................39 Section 11.1 Purchase Price Allocation...............................................................39 Section 11.2 Cooperation with Respect to Like-Kind Exchange..........................................39 Section 11.3 Transaction Taxes.......................................................................40 ARTICLE XII ENVIRONMENTAL MATTERS..........................................................................40 Section 12.1 Environmental Due Diligence.............................................................40 ARTICLE XIII INDEMNIFICATION................................................................................42 Section 13.1 Indemnification by Seller...............................................................42 Section 13.2 Indemnification by Buyer................................................................42 Section 13.3 Limitations on Seller's Liability.......................................................43 Section 13.4 Claims Procedure........................................................................44 Section 13.5 Exclusive Remedy........................................................................45 Section 13.6 Indemnification for Negligence..........................................................46 Section 13.7 Waiver and Release......................................................................46
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Page ARTICLE XIV GENERAL PROVISIONS.............................................................................46 Section 14.1 Expenses................................................................................46 Section 14.2 Notices.................................................................................46 Section 14.3 Assignment..............................................................................47 Section 14.4 Successor Bound.........................................................................48 Section 14.5 Governing Law...........................................................................48 Section 14.6 Dispute Resolution......................................................................48 Section 14.7 Cooperation.............................................................................49 Section 14.8 Construction of Agreement...............................................................49 Section 14.9 Publicity. ............................................................................50 Section 14.10 Waiver..................................................................................50 Section 14.11 Parties in Interest.....................................................................50 Section 14.12 Section and Paragraph Headings..........................................................50 Section 14.13 Amendment...............................................................................50 Section 14.14 Entire Agreement........................................................................50 Section 14.15 Counterparts............................................................................50 Section 14.16 Severability............................................................................50
54 LIST OF EXHIBITS Exhibit 6.7 Form of IDRB Obligations Agreement Exhibit 7.1(g) Form of Buyer's Opinion of Counsel Exhibit 7.2(g) Form of Seller's Opinion of Counsel Exhibit 8.1(a) Form of Bill of Sale LIST OF SCHEDULES Schedule 1.1(a) Assumed IDRB Indebtedness Schedule 1.1(b) Excluded Assets Schedule 2.2(d) Certain Assumed Proceedings Schedule 4.2 Buyer's Authority Schedule 4.3 Buyer's Governmental Approvals Schedule 5.2 Seller's Authority Schedule 5.3 Seller's Governmental and Other Required Consents Schedule 5.5 Encumbrances; Owned Real Property Schedule 5.6(a) Financial Statements Schedule 5.6(b) Certain Liabilities Schedule 5.7 Compliance with Legal Requirements; Governmental Permits Schedule 5.8 Legal Proceedings; Outstanding Orders Schedule 5.9 Taxes Schedule 5.10 Intellectual Property Schedule 5.12 Material Contracts Schedule 5.13 Employee Matters Schedule 5.14 Environmental Matters Schedule 5.15 Material Adverse Changes Schedule 5.16 State Regulatory Matters Schedule 6.1 Conduct of Business Schedule 6.2(c) Citizens' Guarantees and Surety Instruments Schedule 10.1 Active Employees Schedule 10.7 Retirees and "Grandfathered Employees" 55 PURCHASE AND SALE AGREEMENT (KAUAI ELECTRIC) This PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of the 11th day of February, 2000, by and between CITIZENS UTILITIES COMPANY, a Delaware corporation ("Seller"), and Kauai Island Utility Co-Op, a cooperative association formed pursuant to the provision of Chapter 421C of the Hawaii Revised Statutes ("Buyer"). Capitalized terms used herein shall have the meanings ascribed to them in Article I, unless otherwise provided. W I T N E S S E T H : WHEREAS, Seller owns all of the Assets; and WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets, subject in all respects to the provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article I (such definitions to be equally applicable to both the singular and plural forms of the terms defined): "Affiliates" or "Affiliated Entities" -- entities shall be deemed "Affiliated" as to each other to the extent (i) one of the entities directly or indirectly controls the other, or the direct or indirect control of one of the entities is exercised by the officers, directors, stockholders, or partners of the other entity (whether or not such persons exercise such control in their capacities as officers, directors, stockholders, or partners) or (ii) is deemed to be an Affiliate under existing statutes or regulations of the SEC. "Assets" -- all of the assets, property and interests of every type and description, real, personal or mixed, tangible and intangible, owned by Seller and relating primarily to the Business, other than the Excluded Assets. "Assumed Environmental Liabilities" -- means any of the following: (a) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to the environmental matters or incidents either disclosed by Seller on Schedule 5.14 as of the date of execution of this Agreement or otherwise known to Buyer on or before the date of execution of this Agreement that remain outstanding as of the Closing Date, it being understood by the parties that the unadjusted Purchase Price reflects Buyer's estimate of any Losses that could arise after the Closing Date with respect to such Environmental Liabilities; (b) All Environmental Liabilities of Seller relating to the Business or the Assets and arising from or relating to the environmental matters or incidents either disclosed to Buyer by Seller after the date of execution of this Agreement (including any additional disclosures appearing on Schedule 5.14 as revised by Seller and delivered to Buyer prior to the Closing Date) or otherwise known to Buyer as of the Closing Date that remain outstanding as of the Closing Date, other than any such Environmental Liabilities that are properly designated by Buyer as New Material Environmental Liabilities in accordance with Section 12.1(g) and that by the Closing Date have not been remedied or responded to by Seller in a manner reasonably satisfactory to Buyer; (c) All Environmental Liabilities of Seller relating to the Business or the Assets that were outstanding or had arisen on or before the Closing Date but with respect to which Seller had no Knowledge as of the Closing Date; and (d) Except for the Retained Environmental Liabilities, any other Environmental Liability of Seller relating to the Business or the Assets, Buyer or any Affiliate, successor or assign of Buyer, whether arising or relating to the period before or after the Closing, including with respect to the removal of asbestos or asbestos-containing materials in connection with any renovation or structural change to any Asset conducted after Closing. "Assumed IDRB Indebtedness" -- means the liabilities and obligations from and after the Closing Date (except as set forth below) with respect to the indebtedness of Seller owing to the issuer of the Bonds and arising under the Loan Agreements included among the IDRB Documents set forth in Schedule 1.1(a). "Assumed IDRB Indebtedness" shall include the outstanding principal amount and the accrued but unpaid interest owed by Seller on the debt obligations set forth in the first sentence of this definition. "Bonds" -- means any of the bonds issued pursuant to the Indentures of Trust, the proceeds from the issuance of which were advanced to Seller and used in connection with the Business or the Assets of the Business pursuant to any of the IDRB Documents. "Business" -- means collectively: (a) the regulated electricity generation, transmission and distribution business conducted by Seller on the island of Kauai, Hawaii through its Kauai Electric division; and (b) the provision of related services and products and the engagement in related activities by Seller on the island of Kauai, Hawaii through its Kauai Electric division. "Buyer's IDRB Obligations"-- means the obligations of Buyer set forth in Sections 6.7(a) and 6.7(c), in the Retained IDRB Obligations Agreement to be executed and delivered by Buyer on or prior to the Closing Date in accordance with Sections 6.7(a) and 8.1(d), and in the assumption agreement that is executed and delivered by Buyer at Closing in accordance with Section 8.1(d). "Capital Budget -- means the capital budget for the Business approved by the Board of Directors of Seller for the year 2000. "Claim Notice" -- means a written notice of a claim given by a party seeking indemnification pursuant to the terms of this Agreement that specifies in reasonable detail the nature of the Losses and the estimated amount of such Losses. "Confidentiality Agreement" -- means that certain confidentiality agreement dated October 15, 1999, between Buyer and Seller. "Consent" -- any approval, consent, ratification, waiver, or other authorization from any Person. 2 "Contract" -- any agreement, contract, document, instrument, obligation, promise or undertaking (whether written or oral) that is legally binding, including Easements. "Easements"-- means all easements, rights of way, permits, licenses, and other ways of necessity, whether or not of record. "Encumbrance" -- any charge, adverse claim, lien, mortgage, pledge or security interest. "Environmental Law"-- any Order or Legal Requirement, and any judicial and administrative interpretation thereof and related policies, guidelines and standards, relating to pollution or protection of the environment and natural resources, including those relating to (a) emissions, discharges, Releases or threatened Releases of Hazardous Material into the environment (including ambient air, surface water, groundwater or land), and (b) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material, each as in effect as of the date of determination. "Environmental Liability" -- means any liability, responsibility or obligation arising out of or relating to: (a) the presence of any Hazardous Material in the fixtures, structures, soils, groundwater, surface water or air on, under or about or emanating from the assets and properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by a Person, and any such Hazardous Material emanating to adjoining or other properties; (b) the use, generation, production, manufacture, treatment, storage, disposal, Release, threatened Release, discharge, spillage, loss, seepage or filtration of Hazardous Materials by a Person or its employees, agents or contractors from, on, under or about the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by such Person or the presence therein or thereunder of any underground or above-ground tanks for the storage of fuel oil, gasoline and/or other petroleum products or by-products or other Hazardous Material; (c) the violation or noncompliance or alleged violation or noncompliance by a Person or its employees, agents or contractors of any Environmental Law arising from or related to its or their conduct, actions or operations or the former or current use, operation, ownership, lease, possession, control, occupancy, maintenance or condition of any of such Person's former or current assets or properties; (d) the failure by a Person or its employees, agents, or contractors to have obtained or maintained in effect any certificate, permit or authorization required by any Environmental Law as a result of its or their conduct, actions or operations or the use, operation, ownership, lease, control, possession, occupancy, maintenance or condition of such Person's assets or properties; (e) any and all Proceedings arising out of any of the above-described matters, including Proceedings by Governmental Bodies for enforcement, cleanup, removal, treatment, response, remedial or other actions or damages and Proceedings by any third Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief; and (f) any and all remedial work and other corrective action (including investigation or monitoring of site conditions, or any clean-up, containment, restoration or removal) taken by, or the costs of which are imposed upon, a Person arising from any of the above-described matters. 3 "ERISA" - the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that act or any successor law. "Excluded Assets" -- means the following assets of Seller, each of which shall be excluded from the Assets, and not acquired by the Buyer, at Closing: (a) assets that Seller uses in both the Business and in Seller's other gas, electric, communications or water businesses, the material items of which are described on Schedule 1.1(b), and Contracts regarding the procurement of services or goods by Seller for use in such in other businesses; (b) cash and cash equivalents in transit, in hand or in bank accounts; (c) except as otherwise set forth in Article X, assets attributable to or related to a Benefit Plan of Seller; (d) the stock record and minute books of Seller, duplicate copies of all books and records transferred to Buyer, all records prepared in connection with the sale of the Business (including bids received from third parties and analysis relating to the Business) and all IDRB Documents; (e) assets disposed of by Seller after the date of this Agreement to the extent such dispositions are not prohibited by this Agreement; (f) except to the extent set forth in Section 3.4, rights to refunds of Taxes payable with respect to the Business, assets, properties or operations of Seller or any member of any affiliated group of which either of them is a member; (g) accounts owing, by and among Seller and its Affiliates; (h) all deferred tax assets or collectibles; (i) any insurance policy, bond, letter of credit or other similar item, and any cash surrender value in regard thereto; (j) the Citizens Marks; and (k) the other assets listed on Schedule 1.1(b). "Existing Loan Documents"-- means all Contracts relating to the indebtedness for money borrowed by Seller and used in connection with the Business or the Assets as of the date hereof to which Seller is a party, including all IDRB Documents, but excluding line extension agreements or similar arrangements involving customer advances for construction, it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed. "Final Order" -- an action by a Governmental Body as to which: (a) no request for stay of the action is pending, no such stay is in effect and if any time period is permitted by statute or regulation for filing any request for such stay, such time period has passed; (b) no petition for rehearing, 4 reconsideration or application for review of the action is pending and the time for filing any such petition or application has passed; (c) such Governmental Body does not have the action under reconsideration on its own motion and the time in which such reconsideration is permitted has passed; and (d) no appeal to a court, or a request for stay by a court of the Governmental Body's action is pending or in effect and the deadline for filing any such appeal or request has passed. "Future Regulatory Obligations" -- means all liabilities, responsibilities and obligations relating to the Assets or the Business, including capital expenditure obligations and liabilities of the types that appear as "Accrued Liabilities" and "Non-Current Liabilities" on the Balance Sheet, arising out of any Legal Requirement or other action of any Governmental Body, including with respect to all Proceedings of any state regulatory commission relating to the Assets or the Business commenced before or after the Closing Date, regardless of whether the Legal Requirement or other action is or purports to be based on conduct, actions, facts, circumstances or conditions arising, existing or occurring at any time on or prior to the Closing Date, but other than relating to any Retained Environmental Liability. "GAAP" -- generally accepted United States accounting principles, applied on a consistent basis. "Governmental Body" -- any of the following that possesses competent jurisdiction: (a) federal, state, county, local, municipal or other governmental body; (b) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal); or (c) any governmental body entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Hazardous Materials" -- any waste or other chemical, material or substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, toxic, or a pollutant or a contaminant, or words of similar import, under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including oil, natural gas, petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials, any flammable substances or explosives, any radioactive materials, any toxic wastes of substances, urea formaldehyde foam insulation, toluene or polychlorinated biphenyls. "HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor law, and regulations and rules issued by the U.S. Department of Justice or the Federal Trade Commission pursuant to that act or any successor law. "IDRB Documents" -- means the Loan Agreements, the Tax Regulatory Agreements and Tax Representations and Project Certificates listed in Schedule 5.12. "IDRB Indebtedness" -- means the indebtedness of Seller owing to the issuers of the Bonds and arising under the Loan Agreements included among the IDRB Documents. The IDRB Indebtedness is described further in Schedule 5.12 and in Exhibit 6.7. "IRC" -- the Internal Revenue Code of 1986, as amended. "IRS" -- the Internal Revenue Service or any successor agency. 5 "Knowledge" -- means, with respect to Seller, the actual knowledge of Seller's Chief Financial Officer; President, Citizens Public Services; or the Vice President and General Manager of Kauai Electric, or their respective successors. "Legal Requirement" -- any federal, state, county, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, adopted code, principle of common law, regulation, rule, directive, approval, notice, tariff, franchise agreement, statute or treaty. "Losses" -- shall mean all claims, losses, liabilities, causes of action, costs and expenses (including, without limitation, involving theories of negligence or strict liability and including court costs and reasonable attorneys' fees and disbursements in connection therewith). "Material Adverse Effect" -- an occurrence or condition that has a material adverse effect on the operation, financial condition or results of operations of the Business, taken as a whole. For purposes of this Agreement, an occurrence or condition shall not constitute a Material Adverse Effect (a) if it arises from general business, economic or financial market conditions, from conditions generally affecting the industries in which the Business competes, or from the transactions contemplated by this Agreement, (b) if it is of the type normally recoverable by the Business through rates, or (c) to the extent that the Business may realize the benefit of insurance maintained by Seller or to the extent that Seller or Buyer may receive or recover payments in respect of such occurrence from any other source (whether in a lump sum or stream of payments). "Material Contract" -- a Contract relating primarily to the Business and involving a total commitment by or to any party thereto of at least $250,000 on an annual basis and which cannot be terminated by Seller with notice of ninety (90) days or less without penalty to Seller. "Order" -- any award, decision, injunction, judgment, order, writ, decree, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, other Governmental Body, or by any arbitrator, each of which possesses competent jurisdiction. "Organizational Documents" -- the articles or certificate of incorporation and the bylaws of a corporation or the comparable organizational and governing documents of other Persons. "Permitted Encumbrances" -- means any of the following: (a) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business and which in the aggregate are not substantial in amount and do not interfere with the present use of the Assets to which they apply; (b) liens for current Taxes and assessments not yet due and payable; (c) usual and customary nonmonetary real property Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) that do not and will not materially interfere with the operation of that portion of the Business currently conducted on such real property; (d) Encumbrances securing the payment or performance of any of the Assumed Liabilities; 6 (e) all applicable zoning ordinances and land use restrictions; (f) with respect to any Asset which consists of a leasehold or other possessory interests in real property, all Encumbrances, covenants, imperfections in title, Easements, restrictions and other title matters (whether or not the same are recorded) to which the underlying fee estate in such real property is subject that do not currently interfere materially with the operation of that portion of the Business currently conducted on such property; and (g) any other Encumbrances, Contracts, obligations, defects or irregularities of any kind whatsoever, affecting the Assets that, individually or in the aggregate, are not such as are reasonably likely to have a Material Adverse Effect or that will be terminated, released or waived on or before the Closing Date. "Person" -- any individual, corporation (including any nonprofit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization or Governmental Body. "Proceeding" -- any claim, action, arbitration, hearing, litigation or suit commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PUHCA" - the Public Utility Holding Company Act of 1935, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. "Real Property" -- all real property owned or leased by Seller in the operation of the Business, together with all interests in real property (including Easements) used or held for use by Seller in the operation of the Business. "Related Documents" -- any Contract provided for in this Agreement to be entered into by one or more of the parties hereto in connection with the transactions contemplated by this Agreement. "Release" -- any presence, emission, dispersal, disposal, spilling, leaking, emitting, discharging, depositing, pumping, pouring, escaping, leaching, dumping, releasing or migration into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or in, into or from any facility, including the movement of any Hazardous Materials through the air, soil, surface water, groundwater or property. "Representative" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Retained Environmental Liabilities" -- means Environmental Liability of Seller that Buyer has properly designated to be a New Material Environmental Liability in accordance with Section 12.1(g) and that has not been remedied or responded to by Seller prior to Closing in a manner reasonably satisfactory to Buyer. "Retained IDRB Indebtedness" -- means the indebtedness of Seller owing to the issuer of the Bonds and arising under the Loan Agreements included among the IDRB Documents but only to the extent not included in the Assumed IDRB Indebtedness. 7 "SEC" -- the United States Securities and Exchange Commission or any successor agency. "Tax" -- any tax (including any income tax, capital gains tax, value-added tax, sales and use tax, franchise tax, payroll tax, withholding tax or property tax), levy, assessment, tariff, duty (including any customs duty), deficiency, franchise fee or payment, payroll tax, utility tax, gross receipts tax or other fee or payment, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Governmental Body. "Tax Return" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threatened" -- a claim, dispute, or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing or any notice has been given in writing, and Seller has Knowledge of the same. Section 1.2 Other Defined Terms. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement as indicated below and, whenever such terms are used in this Agreement, they shall have their respective defined meanings. Term Section - ---- ------- Active Employees 10.1 Antitrust Authorities 6.3 Assumed Liabilities 2.2 Balance Sheet 5.6(a) Bill of Sale 8.1 Buyer Indemnitees 13.1 Buyer's Pension Plan 10.5 Buyer Welfare Plans 10.7(a) CERCLA 5.14(e) Citizens Marks 6.4 Closing 8.1 Closing Date 8.1 Deposit 3.2 Employee Plans 5.13 Environmental Data 12.1(c) Estimated Purchase Price 3.3(a) Financial Statements 5.6 Purchase Price 3.1 Retained Liabilities 2.3 Seller Indemnitees 13.2 Seller's Pension Plan 10.5 Seller's 401(k) Plan 10.6 Seller Welfare Plan 10.7 Transaction Taxes 11.3 Transferred Employee 10.1 8 ARTICLE II PURCHASE AND SALE Section 2.1 Purchase and Sale of Assets. Upon the terms and subject to the conditions contained herein, at the Closing, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase and accept delivery from Seller, all of the Assets. Section 2.2 Assumed Liabilities. In further consideration for the sale of the Assets at the Closing, Buyer will assume and agree to pay, perform and discharge when due, all liabilities and obligations, of every kind or nature, arising out of or relating to: (a) Seller's ownership of the Assets and Seller's conduct or operation of the Business, on and prior to the Closing Date, other than the Retained Liabilities; (b) the Buyer's IDRB Obligations, including the Assumed IDRB Indebtedness; (c) Buyer's ownership or use of the Assets and the conduct or operation of the Business by Buyer, in each case after the Closing Date, including all liabilities, responsibilities and obligations relating to or arising from the following: (i) Transferred Employees (except to the extent otherwise provided in Article X and except for any continuing obligations for any workers compensation claims where the basis of the claim occurred on or before the Closing Date), including any termination of any Transferred Employee for any reason (including constructive dismissal) and Buyer's hiring practices or decisions; (ii) Performance of the Contracts included among the Assets (except that Buyer shall not assume any liabilities or obligations for any breach or default by, or payment obligations of, Seller under any such Contract occurring or arising or accruing on or prior to the Closing Date); (iii) Customer advances, customer deposits and construction advances, unperformed service obligations, Easement relocation obligations, and engineering and construction required to complete scheduled construction, construction work in progress, and other capital expenditure projects, in each case relating to the Business and outstanding on or arising after the Closing Date; (iv) Future Regulatory Obligations; (v) Assumed Environmental Liabilities; (vi) Transaction Taxes arising out of the sale of the Assets to Buyer hereunder; (vii) Proceedings based on conduct, actions, facts, circumstances or conditions arising or occurring after the Closing Date, Proceedings in respect of Future Regulatory Obligations regardless of when filed, and Proceedings arising from or related to any other Assumed Liability; and (viii) Items addressed in Section 3.1(d) to the extent resulting in a decrease in the Purchase Price; and 9 (4) the Proceedings described in Schedule 2.2(d) as Assumed Liabilities; and (5) all Proceedings involving Seller, the Assets or the Business based on conduct, actions, facts, circumstances or conditions arising or occurring on or before the Closing Date that are pending or Threatened as of the Closing Date and that are disclosed to Buyer by Seller after the date of execution of this Agreement but prior to the Closing Date (except any such Proceedings described as Retained Liabilities on Schedule 2.2(d) and any such Proceedings relating to the Retained Liabilities described in Sections 2.3(a), (b), (c), (d), and (f)), provided that any Losses incurred by Buyer in connection with any such individual Proceeding in excess of $200,000 shall be Retained Liabilities and Seller shall be obligated to indemnify Buyer pursuant to Section 13.1 (but subject to limitations on such obligations provided in Section 13.3) for such Losses incurred by Buyer in the amount of such excess; The liabilities, responsibilities and obligations to be assumed by Buyer pursuant to this Section 2.2 are hereinafter collectively referred to as the "Assumed Liabilities." Buyer hereby irrevocably and unconditionally waives and releases Seller from all Assumed Liabilities and all liabilities or obligations relating to the Business or the Assets to the extent arising from events or occurrences after the Closing or to the extent otherwise relating to the period after the Closing, including any liabilities created or which arise by statute or common law, including CERCLA (it being understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Notwithstanding anything in this Section 2.2 to the contrary, "Assumed Liabilities" shall not include any liabilities, responsibilities or obligations expressly stated to be Retained Liabilities pursuant to Section 2.3. 10 Section 2.3 Retained Liabilities. Buyer shall not assume and at the Closing Seller shall retain and pay, perform and discharge when due, all of the liabilities and obligations relating to or arising from the following (collectively referred to herein as the "Retained Liabilities"): (a) all obligations of Seller under the IDRB Documents except to the extent also included in Buyer's IDRB Obligations or the Assumed IDRB Indebtedness, and any other indebtedness for money borrowed by Seller (including items due to Seller's Affiliates) other than payment obligations arising after the Closing Date under any equipment lease listed in Part VII of Schedule 5.12 or under any line extension Contracts or similar construction arrangements, it being understood and agreed that such leases, Contracts and similar arrangements do not create indebtedness for money borrowed; (b) Taxes of Seller based on income and any motor vehicle registration Taxes for periods prior to the year in which Closing occurs; (c) Excluded Assets; (d) Non-Transferred Employees, the Seller's Employee Benefit Plans and Employee Plans (except to the extent otherwise provided in Article X) and any breach or default by, or payment obligations of, Seller with respect to any Transferred Employee occurring or arising or accruing on or prior to the Closing Date (except to the extent any such payment obligation becomes the responsibility and obligation of Buyer in accordance with Article X); (e) Proceedings involving Seller, the Assets or the Business based on conduct (including Seller's performance under any Contract included among the Assets), action, facts, circumstances or conditions arising or occurring on or before the Closing Date including Proceedings described as Retained Liabilities in Schedule 2.2(d), but expressly excluding any such liabilities or obligations relating to any Proceeding described as Assumed Liabilities in Schedule 2.2(d) and any Proceeding relating to (x) Assumed Liabilities (subject to the proviso set forth in Section 2.2(e) with respect to the Proceedings described in Section 2.2(e)), (y) Future Regulatory Obligations and (z) Proceedings affecting the industries in which the Business competes; and (f) Retained Environmental Liabilities. Seller hereby irrevocably and unconditionally waives and releases Buyer from all Retained Liabilities including any liabilities created or which arise by statute or common law, including CERCLA (it being understood that this shall not constitute a waiver and release of any claims arising out of the contractual relationships and indemnification arrangements between Buyer and Seller). Section 2.4 Condition on Assignment or Assumption of Contracts and Rights. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign or assume any Contract or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment or assumption thereof, without the Consent of a third party thereto, would constitute a breach thereof. Any transfer or assignment to Buyer by Seller of any property or property rights or any Contract which requires the Consent of any third party shall be made subject to such Consent being obtained. If such Consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights of Seller thereunder so that Buyer would not in fact receive all such rights, Seller will cooperate with Buyer in any arrangement reasonably designed to provide for Buyer, at Buyer's cost, the benefits under any such Contract including, without limitation, enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereto arising out of the breach or cancellation by such third party or otherwise To the extent that Buyer does receive the benefits of any such Contract pursuant to the preceding sentence, such Contract shall be a Contract deemed to have been assigned or transferred to Buyer pursuant to Section 2.2(c)(ii). 11 ARTICLE III PURCHASE PRICE Section 3.1 Purchase Price. Subject to the terms and conditions of this Agreement, the aggregate purchase price for the Assets (the "Purchase Price") shall be an amount equal to $270,000,000 in cash, as adjusted in accordance with the following provisions and with such adjustments determined pursuant to Section 3.3, and the assumption by Buyer at Closing of the Assumed Liabilities (including the Assumed IDRB Indebtedness): (a) Such amount will be increased by the aggregate amount of all accounts receivable, earned but unbilled revenue and the materials and supplies inventory of the Business, in each case outstanding as of the Closing Date and other than any such items that are due from Seller's Affiliates. (b) Such amount will be decreased by the aggregate amount of all accounts payable, customer deposits and unexpended cash from customer advances for construction, in each case to the extent relating to the Business and outstanding as of the Closing Date and other than any such items that are due to Seller's Affiliates. (c) Such amount will be increased by the aggregate amount of all (i) capital expenditures relating to the Business that are accrued by Seller between September 30, 1999, and the Closing Date (including expenditures recorded in the Construction Work in Progress account of the Business as of the Closing Date and relating to such period), net of all depreciation expense relating to such new property, plant and equipment accrued by Seller during such periods; (ii) without duplication, expenditures to purchase materials, supplies and other capital items that are dedicated to, but as of Closing have not been used in, the construction or improvement of the property, plant or equipment relating to the Business and (iii) without duplication, other expenditures recorded as an asset of the Business as of the Closing Date and relating to such period to the extent such expenditures are normally recoverable through rates, including expenditures recorded in the Preliminary Survey and Investigation account of the Business. (d) Such amount will be decreased or increased, as appropriate, by an aggregate amount equal to the total amount payable to or by Buyer pursuant to Section 3.4. (e) Such amount will be decreased by the aggregate amount of the Assumed IDRB Indebtedness as of the Closing Date. 12 Section 3.2 Deposit. Concurrently with the execution of this Agreement, Buyer has delivered to Seller an irrevocable letter of credit from National Rural Utilities Cooperative Finance Corporation (the "Letter of Credit"), as and for an earnest money deposit, in the amount of $13,500,000 (the "Deposit"). The Letter of Credit has been appropriately conditioned in accordance with the terms of Section 9.2(c). Section 3.3 Calculation of Purchase Price. (a) Any of the items included in clauses (a) through (e) of Section 3.1 that cannot be calculated in a timely fashion as of the Closing Date shall be estimated by Seller in good faith based upon the account balance of such item at the end of the month for which Seller's books are closed next preceding the Closing Date, with such adjustments as may be appropriate to reflect changes in such account balance occurring between such month-end and the Closing Date. Any such estimated amounts shall be set forth in a certificate of Seller delivered to Buyer at least five (5) business days prior to the Closing Date, which certificate shall set forth an estimate of the Purchase Price (the "Estimated Purchase Price"), including such estimated amounts and shall be accompanied by reasonably detailed supporting documentation. (b) Within one hundred twenty (120) days after the Closing Date, Seller shall notify Buyer of the actual amount as recorded on Seller's books and records for the Business of any items that were estimated in arriving at the Estimated Purchase Price, as well as the prorations and adjustments required to be made under Section 3.4 below. Buyer may dispute any amount so determined by Seller, by written notice to Seller within fifteen (15) days after receipt of Seller's notice. If Buyer does not so dispute any item, the party owing the difference between the Estimated Purchase Price and the Purchase Price shall pay such difference to the other party within ten (10) days after the expiration of such fifteen (15) day period, plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment. If Buyer disputes the actual amount of any item, the undisputed amount plus interest at 8.25% per annum on such amount from the Closing Date to (but not including) the date of payment shall be paid promptly by the owing party. If such dispute cannot be resolved within sixty (60) days after the giving of Buyer's notice that there exists a disputed amount, then an independent auditor mutually agreeable to Buyer and Seller shall, upon written notice from either Buyer or Seller, resolve such dispute within sixty (60) days after receipt of such notice. The fees and expenses of such independent auditor shall be allocated between Buyer and Seller so that Seller's share of such fees and expenses shall be in the same proportion that the aggregate amount of such remaining disputed amounts so submitted by Buyer to such auditor that is unsuccessfully disputed by Buyer (as finally determined by such auditor) bears to the total amount of such remaining disputed amounts so submitted by Buyer to such auditor. Any determination by such independent auditor shall be binding and conclusive upon the parties without further appeal therefrom. Within ten (10) days after the independent auditor shall have resolved such dispute, the party owing the determined amount shall pay such determined amount to the other party, plus interest at 8.25% per annum on such determined amount from the Closing Date to (but not including) the date of payment. 13 Section 3.4 Prorations and Adjustments as of the Closing Date. (a) Buyer and Seller agree that the following items relating to the Assets and the Business shall be adjusted and allocated as of the Closing Date, with Seller to be responsible for and to receive the benefit of the same for the period through and including the Closing Date and Buyer to be responsible for and to receive the benefit of the same after the Closing Date; (i) real and personal property taxes, assessments and annual registration fees; (ii) water, sewer and other similar types of taxes, and installments on special benefit assessments and regulatory assessments; (iii) electric, gas, telephone and other utility charges; (iv) payroll expenses, payroll taxes, reimbursable employee business expenses and the financial cost of the accrued vacation time of the Transferred Employees, in each case as recorded on Seller's books for the Business as of the Closing Date; (v) rents under leases transferred to or assumed by Buyer; (vi) charges under maintenance, service and other Contracts and fees under licenses transferred to or assumed by Buyer and not included in the items described in Section 3.1(a); (vii) deposits of Seller to the extent transferable to Buyer; (viii) prepaid and accrued expenses; (ix) Taxes such as sales, franchise, gross receipts and other similar taxes based upon revenues; and (x) petty cash. (b) The items listed in Section 3.4(a) above shall be estimated item by item by Seller and reflected on the certificate and supporting documentation to be delivered to Buyer pursuant to Section 3.3(a) and finally determined in accordance with Section 3.3(b). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Section 4.1 Organization, Existence and Qualification. Buyer is a cooperative association duly incorporated, validly existing, and in good standing under the laws of the State of Hawaii, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which Buyer is a party. 14 Section 4.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Buyer have been duly authorized by Buyer's Board of Directors, which constitutes all necessary corporate action required on the part of Buyer for such authorizations. Except as set forth in Schedule 4.2, the execution, delivery and performance of this Agreement and the Related Documents by Buyer will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Buyer, or (b) a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Contract to which Buyer is a party or by which its assets are bound, or (c) a violation of any Order of any Governmental Body, except for such exceptions to the foregoing clauses (b) and (c) that, individually or in the aggregate, would not be reasonably likely to have a material adverse effect on Buyer. This Agreement constitutes, and the Related Documents to be executed by Buyer when executed and delivered will constitute, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. Section 4.3 Governmental Approvals. Except for those Consents described in Schedule 4.3 and except as set forth in Schedule 5.3 to the extent (but only to the extent) applicable to Buyer, no Consent of any Governmental Body is required to be obtained by Buyer in connection with the execution and delivery by Buyer of this Agreement or the Related Documents or the consummation of the transactions contemplated by this Agreement or the Related Documents. Buyer has no knowledge of any facts or circumstances relating to Buyer or its Affiliates that reasonably would be likely to preclude or prolong the receipt of such required Consents. Section 4.4 Availability of Funds. Buyer has available, and will have available on the Closing Date, sufficient funds to enable it to consummate the transactions contemplated by this Agreement. Buyer has received, and has provided to Seller a true and complete copy of, that certain commitment letter dated as of February 11, 2000, duly executed by Buyer and the National Rural Utilities Cooperative Finance Corporation ( the "CFC"), which commitment includes the irrevocable commitment of the CFC to issue on behalf of Buyer a credit support and liquidity facility with respect to all of the Assumed IDRB Indebtedness which qualifies for a rating category from a nationally recognized credit rating service in the highest short-term rating category and in a long-term investment grade credit rating category of at least "A+" or its equivalent (the "CFC Debt Support Facility"). Section 4.5 Filings. No statement furnished by Buyer for inclusion in any filing with any Governmental Body in connection with obtaining such Governmental Body's Consent for the consummation of the transactions contemplated by this Agreement will contain, as of the date such information is so provided, any untrue statement of a material fact or will omit to state, as of the date such information is so provided, any material fact which is necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. Section 4.6 Brokers. No broker or finder has acted for or on behalf of Buyer or any Affiliate of Buyer in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Buyer or any Affiliate of Buyer for which Seller or any Affiliate of Seller has or will have any liability or obligations (contingent or otherwise). 15 Section 4.7 Independent Investigation. Buyer, through its agents or otherwise, is knowledgeable about the businesses engaged in by Seller through its Kauai Electric division and of the usual and customary practices of companies engaged in businesses similar to such businesses and has had access to the Assets, the officers and employees of Seller, and the books, records and files of Seller relating to the Business and the Assets. In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely on the basis of its own independent due diligence investigation of the Business and upon the representations and warranties made in Article V. Accordingly, Buyer acknowledges that Seller has not made, and Seller is expressly disclaiming and negating any representation or warranty (other than those express representations and warranties made in Article V), express, implied, at common law, by statute or otherwise, relating to the Business. Section 4.8 Public Utility Holding Company Status; Regulation as a Public Utility. Neither Buyer nor any of its Affiliates is a "holding company", a "subsidiary" of a "public utility company" or of a "holding company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. Section 4.9 Buyer's Financial Statements. As Buyer is not presently doing business, and has done no business prior to the execution date of this Agreement, it has no historical financial statements. Buyer agrees to deliver to Seller pro forma financial statements of Buyer, based on the Financial Statements and reflecting Buyer's financing for the acquisition contemplated by this Agreement, within 30 days after the execution of this Agreement. Section 4.10 Buyer's Insurance. At least ten (10) days prior to the Closing Date, Buyer will deliver to Seller a Schedule that lists the Buyer's policies and contracts in effect as of the date hereof for casualty and property insurance covering its assets and properties and the operation of its business, together with the risks insured against, coverage limits, deductible amounts and carriers. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER Section 5.1 Organization, Existence and Qualification. Seller is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct the Business as it is now being conducted, to own or use the Assets, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement and the Related Documents to which Seller is a party. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of the State of Hawaii and each other state in which the failure to be so qualified or in good standing would have a Material Adverse Effect. Section 5.2 Authority Relative to this Agreement and Binding Effect. The execution, delivery and performance of this Agreement and the Related Documents by Seller have been duly authorized by all requisite corporate action. Except as set forth in Schedule 5.2, the execution, delivery and performance of this Agreement and the Related Documents by Seller will not result in (a) any conflict with or breach or violation of or default under the Organizational Documents of Seller, (b) to Seller's Knowledge, a violation or breach of any term or provision of, or constitute a default or accelerate the performance required under, any indenture, mortgage, deed of trust, security agreement, loan agreement, or Material Contract to which Seller is a party or by which any of 16 the Assets are bound, or (c) a violation of any Order of any Governmental Body, except for such exceptions to the foregoing clauses (b) and (c) that, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect or that will be cured, waived or otherwise remedied on or prior to the Closing Date. This Agreement constitutes and the Related Documents to be executed by Seller when executed and delivered will constitute valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. Section 5.3 Governmental and Other Required Consents. Except as set forth in Schedule 5.3, no Consent of any Governmental Body or third Person is required to be obtained by Seller in connection with the execution and delivery by Seller of this Agreement or the Related Documents or the consummation by Seller of the transactions contemplated by this Agreement or the Related Documents, other than (i) any Consent the failure of which to obtain would not be reasonably likely to have a Material Adverse Effect and (ii) any Consent that is obtained or made on or prior to the Closing Date. Section 5.4 Public Utility Holding Company Status; Regulation as a Public Utility. Seller is a "public utility company" (as such term is defined in PUHCA). Seller is not a "holding company", a "subsidiary" of a "public utility company," or an "affiliate" of a "public utility company" or of a "holding company," within the meaning of such terms in PUHCA. Section 5.5 Title to Assets; Liens. Seller has good and indefeasible title to the Assets reflected in the Financial Statements except those that in the aggregate are not material to the Business and those disposed of since the date of the Financial Statements in the ordinary course of business or otherwise disposed of in accordance with this Agreement. None of the Assets are subject to any Encumbrance except (i) Encumbrances described in Schedule 5.5 and (ii) Permitted Encumbrances. Schedule 5.5 lists each material parcel of Real Property owned in fee simple that is a part of the Assets. To Seller's Knowledge, Seller owns or possesses all Easements necessary to conduct the Business as now being conducted without any known conflict with the rights of others, in each case except to the extent that the failure to own or possess such Easements would not have a Material Adverse Effect. Seller enjoys peaceful and undisturbed possession under all material real property leases included in the Assets, and to the Knowledge of Seller, all such leases are valid and subsisting and in full force and effect. Section 5.6 Financial Statements. (a) Schedule 5.6(a) sets forth the unaudited balance sheet for the Business as at September 30, 1999 (the "Balance Sheet") and unaudited statement of income of the Business for the nine-month period ended September 30, 1999 (collectively, the "Financial Statements"). Except as set forth in Schedule 5.6(a), the Financial Statements have been prepared on a pre-tax basis in accordance, in all material respects, with GAAP applied on a basis consistent with prior periods. To the Knowledge of Seller and except as set forth in Schedule 5.6(a), the Balance Sheet presents fairly in all material respects the financial condition of the Business as of its date and the income statement included in the Financial Statements presents fairly in all material respects the results of operations of the Business for the periods covered thereby. The books and records of Seller from which the Financial Statements were prepared were complete and accurate in all material respects at the time of such preparation. 17 (b) To the Knowledge of Seller, as of the date of execution of this Agreement, there are no Liabilities except for Liabilities (i) reflected in the Balance Sheet, (ii) arising under the Existing Loan Documents, (iii) listed in Schedule 5.6(b), or (iv) which individually or in the aggregate are not reasonably likely to result in a Material Adverse Effect. As used in this Section 5.6(b), the term "Liabilities" shall only mean claims of creditors and Governmental Bodies against Seller arising out of activities, operations or transactions of Seller relating to the Business occurring before the execution date of this Agreement which have been Threatened or resulted in a Proceeding against Seller and that have become due or accrued or could reasonably be expected to become due or accrued within the twelve-month period following the execution date of this Agreement, but excluding any Liabilities under Legal Requirements, Orders and Contracts where Seller is not currently in material violation of or default under any provision thereof. Section 5.7 Compliance with Legal Requirements; Governmental Permits. Except as set forth in Schedule 5.7, to the Knowledge of Seller: (a) Seller is not in violation of any Legal Requirement or Order that is applicable to it, to the conduct or operation of the Business, or to the ownership or use of any of the Assets, other than such violations, if any, which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect; and (b) Seller possesses all permits, licenses, and authorizations from Governmental Bodies required by any applicable Legal Requirement or Order necessary to permit the operation of the Business in the manner in which it is currently being conducted by Seller, except where the failure to possess any such permit, license or authorization is not reasonably likely to result in a Material Adverse Effect. Section 5.8 Legal Proceedings; Outstanding Orders. Except as set forth in Schedule 5.8, there is no pending or Threatened Proceeding (a) that has been commenced against Seller that is reasonably likely to have a Material Adverse Effect or (b) as of the date of this Agreement, that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, the transactions contemplated hereby. Except as disclosed in Schedule 5.8, there are currently no outstanding Orders against Seller which relate to or arise out of the conduct of the Business or the ownership, condition or operation of the Business or the Assets (other than any Order relating to rates, tariffs and similar matters arising in the ordinary course of business) which individually or in the aggregate would have a Material Adverse Effect. Section 5.9 Taxes. Seller has filed all United States federal, state and local income Tax Returns required to be filed by Seller or requests for extensions to file such Tax Returns have been timely filed, and Seller has paid and discharged or made adequate provision for all Taxes except where failure to so file, pay, discharge or make adequate provision for are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. There are no pending audits or other examinations relating to any Tax matters except as set forth in Schedule 5.9. There are no Tax liens on the Assets. As of the date of this Agreement, Seller has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax except as set forth in Schedule 5.9. 18 Section 5.10 Intellectual Property. Schedule 5.10 lists all patents, trademarks, service marks and copyrights used or held for use by Seller primarily in the operation of the Business. Seller has no Knowledge of (i) any infringement or claimed infringement by Seller of any patent, trademark, service mark or copyright of others or (ii) any infringement of any patent, trademark, service mark or copyright owned by or under license to Seller except for any such infringements of the type described in clause (i) or (ii) that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. Section 5.11 Personal Property. Except for normal wear and tear, and with such exceptions as are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect, the tangible Assets are in normal operating condition and in a state of reasonable maintenance and repair. Section 5.12 Material Contracts; Existing Loan Documents. Schedule 5.12 contains, to Seller's Knowledge, a complete and correct list as of the date hereof of all Material Contracts (other than line extension Contracts and similar construction arrangements), including all Existing Loan Documents. To Seller's Knowledge, there are no defaults under any such Contracts that, individually or in the aggregate, will have a Material Adverse Effect. Except as set forth in Schedule 5.12, Seller is not obligated under any Contract relating to the Business or the Assets with respect to industrial development bonds or other obligations with respect to which the interest thereon is excluded from gross income of the holder for federal or state income tax purposes. Section 5.13 Employee Benefit Matters. (a) Schedule 5.13 lists (i) each "Employee Benefit Plan," as such term is defined in Section 3(3) of ERISA, which is covered by any provision of ERISA and which is maintained by Seller for the benefit of the Active Employees; (ii) each other material fringe benefit plan, policy or arrangement currently maintained by Seller for the benefit of Active Employees which provides for pension, deferred compensation, bonuses, severance, employee insurance coverage or similar employee benefits (collectively, "Employee Plans"); and (iii) each collective bargaining, union or other employee association agreement, employment, managerial advisory, and consulting agreement, employee confidentiality agreement, and all other material agreements, policies, or arrangements maintained by Seller for the Active Employees. Seller has made available to Buyer copies, which were accurate and complete as of the date so made available, of all such documents and (if applicable) summary plan descriptions with respect to such plans, agreements and arrangements, or summary description(s) of any such plans, agreements or arrangements not otherwise in writing. (b) Seller's Pension Plan and Seller's 401(k) Plan are the only Employee Benefit Plans which are intended to be qualified under Section 401(a) of the IRC. (c) To the Knowledge of Seller, each Employee Benefit Plan has been established and administered in all material respects in accordance with the material terms of ERISA and the applicable provisions of the IRC. 19 Section 5.14 Environmental Matters. (a) Except as listed in Schedule 5.14, since December 31, 1996, Seller has not received a written notice from a Governmental Body that Seller is in violation of any Environmental Law arising out of Seller's ownership, use or operation of the Assets or the operation of the Business, except for any violation not reasonably likely to result in a Material Adverse Effect. (b) Except as listed in Schedule 5.14, there are no Proceedings pending or Threatened with respect to Seller's compliance with Environmental Laws and relating to the Business or the Assets. (c) Except as listed in Schedule 5.14, since December 31, 1996, Seller has not received any written notice from any Governmental Body that Seller does not have all certificates, permits and authorizations required by any Environmental Law for Seller's ownership, use or operation of the Assets or the operation of the Business (other than any such environmental permit the absence of which is not reasonably likely to result in a Material Adverse Effect). (d) Except as set forth in Schedule 5.14, to Seller's Knowledge, no environmental remediation of any Release is occurring on any Real Property included in the Assets nor has Seller issued a request for proposal or otherwise asked an environmental remediation contractor to begin plans for any such environmental remediation. (e) Except as set forth in Schedule 5.14, none of the Real Property is (i) situated in a federal "Superfund" site or, to Seller's Knowledge, in any federal "Superfund" study area designated under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), or (ii) to Seller's Knowledge, situated in any site or study area designated under any state statute comparable to CERCLA. Section 5.15 No Material Adverse Change. Except as set forth in Schedule 5.15, between the date of the Balance Sheet and the date of execution of this Agreement, no Material Adverse Effect has occurred. Except for actions taken in connection with the contemplated sale of the Business and this Agreement and except for conversion to the SAP financial reporting system, between the date of the Balance Sheet and the date of execution of this Agreement, the Business has been conducted in substantially the same manner in which it has been previously conducted. Section 5.16 State Regulatory Matters. (a) To Seller's Knowledge, Schedule 5.16 reflects all of the currently pending rate filings relating to the Business heretofore made by Seller before state regulatory commissions and each other currently pending Proceeding of such state regulatory commission that is reasonably likely to have a Material Adverse Effect. (b) To Seller's Knowledge, all currently effective material filings relating to the Business heretofore made by Seller with state regulatory commissions were made in compliance with Legal Requirements then applicable thereto and the information contained therein was true and correct in all material respects as of the respective dates of such filings. 20 Section 5.17 Brokers. Except for Morgan Stanley & Co. Incorporated, no broker or finder has acted for or on behalf of Seller or any Affiliate of Seller in connection with this Agreement or the transactions contemplated by this Agreement. No broker or finder is entitled to any brokerage or finder's fee, or to any commission, based in any way on agreements, arrangements or understandings made by or on behalf of Seller or any Affiliate of Seller for which Buyer has or will have any liabilities or obligations (contingent or otherwise). Section 5.18 Disclaimer. Except as otherwise expressly set forth in this Article V, Seller expressly disclaims any representations or warranties of any kind or nature, express or implied, as to the condition, value or quality of the assets or properties currently or formerly used, operated, owned, leased, controlled, possessed, occupied or maintained by Seller, and Seller SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED, "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL FAULTS AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION THEREOF. ARTICLE VI COVENANTS Section 6.1 Covenants of Seller. Seller agrees to observe and perform the following covenants and agreements: (a) Conduct of the Business Prior to the Closing Date. With respect to the Business, except (i) as contemplated in this Agreement or in Schedule 6.1, (ii) as required by any Legal Requirement or Order or (iii) as otherwise expressly consented to in writing by Buyer which consent will not be unreasonably withheld or delayed, prior to the Closing, Seller will, with respect to the Business. (1) Not make or permit any material change in the general nature of the Business; (2) Maintain the Business in the ordinary course of business in accordance with prudent business judgment and consistent with past practice and policy, and maintain the Assets in their present condition, reasonable wear and tear excepted, subject to retirements in the ordinary course of business; (3) Not enter into any material transaction or Material Contract other than in the ordinary course of business; (4) Not purchase, sell, lease, dispose of or otherwise transfer or make any Contract for the purchase, sale, lease, disposition or transfer of, or subject to Encumbrance, any material Assets other than in the ordinary course of business; 21 (5) Not hire any new employee unless such employee is a bona fide replacement for either a presently-filled position or a vacancy in an authorized position with the Business; (6) Not make any capital expenditure or capital expenditure commitment in excess of $1,000,000 in the aggregate that is not included in the Capital Budget except in the event of service interruption, emergency or casualty loss; (7) Comply in all material respects with all applicable material Legal Requirements and Orders, including without limitation those relating to the filing of reports and the payment of Taxes due to be paid prior to the Closing, other than those contested in good faith; (8) Except in the ordinary course of business or in accordance with the terms of any existing Contract, Employee Plan or collective bargaining agreement, not grant any material increase or change in total compensation or benefits (taken as a whole) to any of the Transferred Employees or enter into any employment, severance or similar Contract with any Person or amend any such existing Contracts to increase any amounts payable thereunder or benefits provided thereunder, provided that Seller agrees to consult with Buyer prior to granting any increase in the aggregate recurring cash compensation of the non-union Transferred Employees by an amount in excess of three percent (3%) in any year; (9) Not terminate any Material Contract except in the case of a breach of such Contract by the other party thereto; or (10) Not create, incur, assume, guarantee or otherwise become liable with respect to any indebtedness for money borrowed other than in the ordinary course of business (it being understood and agreed that customer advances, customer deposits and construction advances do not create indebtedness for money borrowed), except in connection with additional borrowings under the Existing Loan Documents and any renewal, extension, rearrangement or refunding of any indebtedness created under or evidenced by the Existing Loan Documents, and except pursuant to advances made by Seller to the Business. (b) Access to the Business, Assets and Records; Updating Information. (1) From and after the date hereof and until the Closing Date, Seller shall permit Buyer and its Representatives to have, on reasonable notice and at reasonable times, reasonable access to all books, papers and records to the extent that they reasonably relate to the ownership, operation, obligations and liabilities of the Business and the Assets; provided, however, that such access shall not unreasonably interfere with the operation of the Business; and provided, further, that Buyer hereby agrees to defend, indemnify and hold harmless Seller from and against all Losses arising out of or relating to Buyer's access provided pursuant to this Section 6.1(b)(1). Without limiting the application of the Confidentiality Agreement, all documents or information furnished by Seller hereunder shall be subject to the Confidentiality Agreement. (2) Seller will notify Buyer as promptly as practicable of any significant change in the ordinary course of business for the Business and of any material Proceedings (Threatened or pending) involving or affecting the Business or the transactions contemplated by this Agreement, and shall use reasonable efforts to keep Buyer fully informed of such events. 22 (c) Consents. Seller will use its commercially reasonable efforts to obtain all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business. Section 6.2 Covenants of Buyer. Buyer agrees to observe and perform the following covenants and agreements: (a) Consents. Buyer will use its commercially reasonable efforts to assist Seller in obtaining all necessary Consents from any Person required to consummate the transactions contemplated hereby, including the Consent of any Person required under any Legal Requirement or Contract applicable to the Business, and will use its commercially reasonable efforts to obtain all Consents listed in Schedule 4.2 or Schedule 4.3. (b) Access to Information. After Closing, Buyer will, and will cause its Representatives to, afford to Seller, including its Representatives, reasonable access to all books, records, files and documents related to the Business in order to permit Seller to prepare and file its tax returns and to prepare for and participate in any investigation with respect thereto, to prepare for and participate in any other investigation and defend any Proceedings relating to or involving Seller or the Business for which Seller may be responsible, to discharge its obligations under this Agreement and the other Related Documents to which its is a party and for other reasonable purposes and will afford Seller reasonable assistance in connection therewith. Buyer will cause such records to be maintained for not less than seven years from the Closing Date and will not dispose of such records without first offering in writing to deliver them to Seller; provided, however, that in the event that Buyer transfers all or a portion of the Business to any third party during such period, Buyer may transfer to such third party all or a portion of the books, records, files and documents related thereof, provided such third party transferee expressly assumes in writing the obligations of Buyer under this Section 6.2(b). In addition, after the Closing Date, at Seller's request, Buyer shall make available to Seller and its Affiliates, employees, representatives and agents, those employees of Buyer requested by Seller in connection with any Proceeding, including to provide testimony, to be deposed, to act as witnesses and to assist counsel; provided, however, that (x) such access to such employees shall not unreasonably interfere with the normal conduct of the operations of Buyer and (y) Seller shall reimburse Buyer for the allocated time charges of such employees and the out-of-pocket costs reasonably incurred by Buyer in making such employees available to Seller. (c) Citizens Guarantees and Surety Instruments. Buyer shall use its reasonable efforts to assist Seller in obtaining full and complete releases on the guarantees, letters of credit, bonds and other surety instruments listed in Schedule 6.2(c). For purposes of this Section 6.2(c), reasonable efforts shall include: (i) Buyer's assumption of the Contracts on the terms set forth in this Agreement; and (ii) an obligation on the part of Buyer to provide a guaranty, letter of credit, bond or other surety instrument at Closing to the extent required by any Contract assumed by Buyer at Closing and, in general, an equivalent surety instrument to be substituted for any surety instrument provided by Citizens to any beneficiary in connection with the Business. (d) Other Covenants of Buyer. Buyer agrees to submit to regulation by the Hawaii Public Utilities Commission to the same extent as such state regulatory commission currently regulates Seller in connection with the Business, it being agreed that this covenant shall terminate and have no further effect upon Closing. Buyer also agrees to make no filings with such state regulatory commission or take any other action in connection with any Proceeding or Legal Requirement relating to any other businesses conducted by Seller that also are subject to regulation by such state regulatory commission. 23 Section 6.3 Governmental Filings. (a) HSR Act Filing. Buyer and Seller shall comply promptly with the notice and reporting requirements of the HSR Act. Buyer and Seller shall comply substantially with any additional requests for information, including requests for production of documents and production of witnesses for interviews or depositions, made by the Antitrust Division of the United States Department of Justice, the United States Federal Trade Commission or the antitrust or competition law authorities of any other jurisdiction (the "Antitrust Authorities"). Buyer shall exercise its best efforts, and Seller shall cooperate fully with Buyer, to prevent the entry in any Proceeding brought by an Antitrust Authority or any Governmental Body which would prohibit, make unlawful or delay the consummation of the transactions contemplated by this Agreement. Seller shall not oppose any efforts of Buyer, including Buyer's proffer of consent to any Order, to complete lawfully the transactions contemplated by this Agreement, and shall cooperate in good faith with Buyer and the Antitrust Authorities to the same effect. (b) Other Regulatory Filings. Buyer and Seller will, as soon as reasonably practicable following the execution of this Agreement, prepare and file with each Governmental Body, including a joint application with the Hawaii Public Utilities Commission, requests for such Consents as may be necessary for the transfer of the Assets (including the transfer of Seller's franchise relating to the Business) in accordance with the terms of this Agreement. Buyer and Seller will diligently pursue such Consents and will cooperate with each other in seeking such Consents. To this end, the parties agree to make available the personnel and other resources of their respective organizations in order to accomplish actions reasonably required by them to obtain all such Consents. Buyer agrees that Seller's Hawaii regulatory counsel, at Seller's expense, will act as counsel for the joint applicants in all Proceedings before the Hawaii Public Utilities Commission regarding the parties' joint application. Section 6.4 Citizens Marks. Buyer acknowledges and agrees with Seller that Seller has the absolute and exclusive proprietary right to all names, marks, trade names, trademarks and corporate symbols and logos incorporating "Citizens" and "CZN" (collectively and together with all other names, marks, trade names, trademarks and corporate symbols and logos owned by Seller or any of its Affiliates, the "Citizens Marks"), all rights to which and the goodwill represented thereby and pertaining thereto are being retained by Seller. Within one hundred eighty (180) days after the Closing Date, Buyer shall cease using any Citizens Mark and shall remove from the Assets any and all Citizens Marks. Thereafter, Buyer shall not use any Citizens Mark in connection with the sale of any products or services or otherwise in the conduct of its businesses. In the event that Buyer breaches this Section 6.4, Seller shall be entitled to specific performance of this Section 6.4 and to injunctive relief against further violations, as well as any other remedies at law or in equity available to Seller. 24 Section 6.5 Acknowledgment by Buyer. In order to induce Seller to enter into and perform this Agreement and the Related Documents, Buyer acknowledges and agrees with Seller as follows: (a) To the knowledge of Buyer, Seller's representations and warranties made in Article V are true and correct as of the date of execution of this Agreement. To the extent any representation or warranty of Seller made herein is, to the knowledge of Buyer acquired prior to the date of execution of this Agreement, untrue or incorrect, (i) Buyer shall have no rights under this Agreement or any Related Documents by reason of such untruth or inaccuracy, and (ii) any such representation or warranty by Seller shall be deemed to be amended to the extent necessary to render it consistent with such knowledge of Buyer. (b) Buyer has concluded whatever inspections, studies, tests and investigations Buyer desired to conduct relating to the Business and the Assets, including economic reviews and analyses, soil tests, engineering analyses, environmental analyses and analyses of any applicable records of any Governmental Body. Buyer is relying solely on its own investigation as to the Business and the Assets and is assuming the risk that adverse physical, economic or other conditions or circumstances (including soil and groundwater conditions) may not have been revealed by such investigation. (c) NONE OF SELLER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES MAKES ANY REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY INFORMATION, WRITTEN OR ORAL, FURNISHED TO OR PREPARED AT THE REQUEST OF BUYER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES WITH RESPECT TO THE BUSINESS OR THE ASSETS. (d) THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE V OF THIS AGREEMENT CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF SELLER TO BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND BY THE RELATED DOCUMENTS THERE ARE NO REPRESENTATIONS, WARRANTIES, COVENANTS, UNDERSTANDINGS OR AGREEMENTS, ORAL OR WRITTEN, IN RELATION THERETO BETWEEN THE PARTIES OTHER THAN THOSE INCORPORATED HEREIN AND THEREIN. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE V OF THIS AGREEMENT, BUYER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, BY OR ON BEHALF OF SELLER OR ITS AFFILIATES OR REPRESENTATIVES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED IN SECTIONS 5.7, 5.11 AND 5.14, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF SELLER WITH RESPECT TO THE CONDITION OF THE ASSETS, COMPLIANCE WITH ENVIRONMENTAL LAWS AND ENVIRONMENTAL PERMITS OR THE PRESENCE OR RELEASES OF HAZARDOUS MATERIAL IN THE FIXTURES, SOILS, GROUNDWATER, SURFACE WATER OR AIR ON, UNDER OR ABOUT OR EMANATING FROM ANY OF THE PROPERTIES OR ASSETS OF SELLER. 25 Section 6.6 Transition Plan. Within 30 days after the execution date of this Agreement, Buyer shall deliver to Seller a list of its proposed representatives to a joint transition team, which shall include expertise from various functional specialties associated or involved in providing billing, payroll and other support services provided to the Business by any automated or manual process using facilities or employees that are not included among the Assets or Transferred Employees. Seller will add its representatives to such team within 15 days after receipt of Buyer's list. Such team will be responsible for preparing as soon as reasonably practicable after the execution date of this Agreement and at least 60 days prior to the Closing Date, and timely implementing, a transition plan which will identify and describe substantially all of the various transition activities that the parties will cause to occur before and after the Closing and any other transfer of control matters that any party reasonably believes should be addressed in such transition plan, including the migration or conversion of the data relating to the Business that is included among the Assets to Buyers information systems (it being understood and agreed that such activity will be at Buyer's sole cost and expense and to be performed by consultants reasonable satisfactory to Seller). If requested by either party, the terms and conditions governing such transition activities will be more fully set forth in a Transition Agreement reasonably satisfactory to the parties. Buyer and Seller shall use their commercially reasonable efforts to cause their Representatives on such transition team to cooperate in good faith and take all reasonable steps necessary to develop a mutually acceptable transition plan by no later than 120 days after the date of this Agreement. Section 6.7 IDRB Obligations. (a) Buyer's Obligations Regarding Retained IDRB Indebtedness. Each party acknowledges that (x) Seller is and after the Closing Date shall continue to be and shall remain the primary obligor with respect to all Retained IDRB Indebtedness and related Bonds outstanding immediately after the Closing Date to the same extent as though no sale of the Assets had been made and that Buyer shall have no payment obligations with respect to such Retained IDRB Indebtedness and related Bonds and (y) the IDRB Documents require Seller not to take or permit to be taken any action which would have the effect, directly or indirectly, of subjecting the interest on any of the Bonds to federal or state income taxation. Accordingly, Buyer covenants and agrees at Closing to execute and deliver to Seller an agreement substantially in the form attached hereto as Exhibit 6.7, with respect to the Bonds that will be outstanding after the Closing Date. Buyer represents, warrants, covenants and agrees, that so long as any Bonds are outstanding, (a) as the "successor in interest" to Seller (as such term is used in Section 142(f)(3)(B) of the IRC), Buyer will cause the Assets that were acquired, constructed, improved or equipped with the proceeds of such Bonds to be used as facilities for the local furnishing of electric energy within the meaning of Sections 142(a)(8) and 142(f) of the IRC or, if applicable, Section 103(b)(4)(E) of the Internal Revenue Code of 1954, as amended (that is, the local furnishing of electric energy from such Assets shall only include furnishing solely within the area consisting of (i) a city and one contiguous county, or (ii) two contiguous counties; provided that such use shall be to provide service within the same service area as served by Seller on January 1, 1997 (or within a county or a city any potion of which is within such area)), (b) Buyer has not made and shall not make an election pursuant to Section 142(f)(4)(B) of the IRC to terminate tax-exempt bond financing by Buyer and (c) Buyer shall not otherwise take or permit to be taken any action with respect to the Assets and its use and operation thereof which would have the effect, directly or indirectly, of subjecting interest on any of such Bonds to federal or state income taxation. Buyer acknowledges and agrees that Seller's bond counsel may rely on Buyer's representations, warranties and covenants as hereinabove provided for the purpose of rendering legal opinions, as required by the IDRB Documents as a precondition to the sale by Seller of such Assets, to the effect that the sale of such Assets will not result in the inclusion of the interest on the Bonds in the gross income of the recipient for purposes of federal income taxation. Nothing in this Agreement is intended to nor shall it be interpreted as (i) an assignment to, and assumption by, Buyer of any of the IDRB Documents relating to the Retained IDRB Indebtedness, or (ii) as an undertaking or agreement by Buyer to assume, guarantee or pay any of Seller's loan or other payment obligations pursuant to the IDRB Documents relating to the Retained IDRB Indebtedness. 26 (b) Consents and Legal Opinions. The parties shall use their respective commercially reasonable efforts to obtain all Consents and legal opinions as may be required under the IDRB Documents relating to the Retained IDRB Indebtedness to enable Seller to retain all Retained IDRB Indebtedness and to sell the Assets to Buyer without the result that the interest on the Bonds relating to the Retained IDRB Indebtedness will be included in the gross income of the recipient for purposes of federal income taxation. (c) Buyer's Obligations Relating to Assumed IDRB Indebtedness. (1) Buyer shall use its reasonable efforts to assist Seller in obtaining all consents and opinions and taking such other actions as may be required to enable Buyer to assume at the Closing all of the Assumed IDRB Indebtedness. For purposes of this Section 6.7(c), reasonable efforts shall include the obligation of Buyer to provide a debt obligation (including obtaining a minimum credit rating necessary to prevent any change to the tax-exempt status of any of the Bonds to which the Assumed IDRB Indebtedness relates (the "Related Bonds") and providing credit enhancements (such as bond insurance, the CFC Debt Support Facility or another credit support facility from a reputable financial institution which qualifies for a rating category from a nationally recognized credit rating service in the highest short-term rating category and a long-term investment grade credit rating category of at least "A+" or its equivalent (a "Credit Enhancement")) to the issuer of the Related Bonds satisfactory to such issuer in replacement of and in substitution for Seller's liabilities and obligations to such issuer with respect to the Assumed IDRB Indebtedness. If, after using such reasonable efforts, the parties reasonably conclude that all such required consents and opinions will not be obtained by the date that the conditions to Closing set forth in the first sentence of each of Sections 7.1(d) and 7.2(d) are expected to be satisfied, then Seller and Buyer will use their reasonable efforts and take such other actions as may be required to enable Seller to assign to Buyer at Closing all of Seller's liabilities and obligations under the Assumed IDRB Indebtedness; in such event Buyer agrees to comply with the provisions of Section 6.7(a) to the extent applicable to such assignment of the Assumed IDRB Indebtedness and to provide a Credit Enhancement to Seller satisfactory to Seller in its sole discretion securing Buyer's payment obligations with respect to such assigned liabilities and obligations. (2) Representations of Seller. (A) Seller represents that each of the Related Bonds is a bond issue which was used to finance facilities for the local furnishing of electric energy within the meaning of Section 103(b)(4)(E) of the Internal Revenue Code of 1954 as amended ("1954 Code") or Section 142(a)(8) of the IRC, as the case may be, and that the interest of such Bonds was as of their date of issue, excludable from the gross income of the holders of such Bonds for federal or State of Hawaii income tax purposes pursuant to such sections of the IRC or the 1954 Code. (B) Seller represents that it has complied with all of its duties and obligations under the IDRB Documents relating to the Related Bonds, including its obligations relating to the use of the proceeds of the Related Bonds and the ownership, operation, use and maintenance of the Assets financed with the proceeds of the Related Bonds. Seller represents that the representations and warranties of "Company" in such IDRB Documents remain true and correct, and that it has not taken nor permitted to be taken any action which would have the effect of subjecting the interest on any of such Bonds to federal or State of Hawaii income taxation. 27 (C) Seller represents that as of Closing all the proceeds of the Related Bonds have been spent in accordance with the IDRB Documents relating to such Related Bonds, the construction of the projects to be financed with such Bonds have been completed, that there are no reserve funds associated with the Trust Indentures for such Bonds, and that all of the proceeds of such Bonds were invested in tax-exempt obligations of state and local governments (except to the extent used to acquire or construct the facilities financed by such Bonds) and, that therefore, Seller does not have any arbitrage profits subject to the rebate requirements of Section 148 of the IRC. (D) Seller represents that it has not made an election pursuant to Section 142(f)(4)(B) of the IRC to terminate tax-exempt bond financing by Seller. (E) Seller further represents the following with respect to the Related Bonds: (i) The Assets financed by the Related Bonds are facilities for the local furnishing of electric energy; (ii) It has not caused or permitted to be caused any reissuance if the Related Bonds under Section 1001 of the IRC, without first obtaining a "no adverse effect" opinion of bond counsel; (iii) has not caused an extension of the maturity of such Related Bonds without first obtaining a "no adverse effect" opinion of bond counsel; (iv) It has not taken or caused to be taken any action that would cause the Related Bonds to be arbitrage bonds under Section 148 of the IRC, including, but not limited to, the failure to rebate arbitrage profits, if any, as required by Section 148(d) of the IRC; (v) It has not taken any action that would cause the Related Bonds not to be registered in accordance with Section 149(a) of the IRC; and (vi) It has not permitted the Related Bonds to become directly or indirectly "federally guaranteed" under Section 149 of the IRC. (3) Covenants of Buyer. Buyer covenants and agrees, so long as any Assumed IDRB Indebtedness is outstanding, to cause the Assets that were acquired, constructed, improved or equipped with the proceeds of the Related Bonds to be used as facilities for the local furnishing of electric energy within the meaning of Section 103(b)(4)(E) of the 1954 Code or Section 142(a)(8) of the IRC, as the case may be. Buyer further covenants that it has not made an election pursuant to Section 142(f)(4)(B) of the IRC to terminate tax-exempt bond financing by Buyer. Buyer further covenants and agrees, so long as any Assumed IDRB Indebtedness is outstanding, the following: (A) It will not cause or permit to be caused any reissuance under Section 1001 of the IRC without first obtaining a "no adverse effect" opinion of bond counsel; (B) It will not cause an extension of the maturity of the Related Bonds without first obtaining a "no adverse effect" opinion of bond counsel; 28 (C) It will not take or cause to be taken any action that would cause the Related Bonds to be arbitrage bonds under Section 148 of the IRC, including, but not limited to, the failure to rebate arbitrage profits, if any, as required by Section 148(f) of the IRC; (D) It will not take any action that would cause the Related Bonds not to be registered in accordance with Section 149(a) of the IRC; (E) It will not permit the Related Bonds to become directly or indirectly "federally guaranteed" under Section 149 of the IRC; and (F) It will comply with each representation, warranty, covenant or other agreement or obligation set out by the IDRB Documents relating to the Assumed IDRB Indebtedness as in effect on the date of execution of this Agreement. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Seller's Conditions Precedent to Closing. The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Buyer's representations and warranties in this Agreement shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement, except that representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Buyer shall have been performed and complied with in all material respects prior to or at the Closing Date. (c) Certificate. Buyer shall execute and deliver to Seller a certificate of an authorized officer of Buyer, dated the Closing Date, stating that the conditions specified in Sections 7.1(a) and 7.1(b) of this Agreement have been satisfied. (d) Governmental Approvals and Other Consents. The Hawaii Public Utilities Commission shall have issued an Order approving the transactions contemplated hereby, the terms and conditions of such Order shall be acceptable in all material respects to Seller in its reasonable discretion and shall have no significant adverse effect on Seller's acquisition and divestiture activities in the State of Hawaii (including the divestiture of the Assets), and such Order shall have become a Final Order. Seller also shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby and to transfer the Assets to Buyer without incurring material liability under any Legal Requirement, Order or Contract. (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. 29 (f) Injunctions. On the Closing Date, there shall be no Orders which operate to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Seller shall have received from counsel to Buyer an opinion in the form of Exhibit 7.1(g). (h) Documents. Buyer shall have delivered all the certificates, instruments, contracts and other documents specified to be delivered by it hereunder on or before the Closing Date, including pursuant to Section 8.1, and shall have taken such actions as Seller may have requested pursuant to Section 11.2 hereof. (i) IDRB Indebtedness. Seller shall have obtained all Consents and legal opinions required under the IDRB Documents to enable (x) Seller to retain the Retained IDRB Indebtedness until maturity and (y) Seller to obtain a release of its liability under, and Buyer to assume the Assumed IDRB Indebtedness, (or for Seller to assign the Assumed IDRB Indebtedness to Buyer) and in each case to sell the Assets to Buyer without the result that the interest on any of the Bonds will be included in the gross income of the recipient for purposes of federal income taxation and without any event of taxability (as such term is customarily used in municipal securities transactions) arising from the sale of the Assets pursuant to this Agreement and/or the assignment or assumption of the Assumed IDRB Indebtedness, and Buyer shall have duly executed and delivered all of the instruments contemplated by Section 6.7(a) and Section 6.7(c). If Buyer actually is assuming the Assumed IDRB Indebtedness, then Buyer also shall have provided to the issuer of the Bonds relating to the Assumed IDRB Indebtedness a Credit Enhancement with respect to the Assumed IDRB Indebtedness as required by Section 6.7(c)(1). If the Assumed IDRB Indebtedness instead is being assigned to Buyer, then Buyer also shall have provided to Seller a Credit Enhancement satisfactory to Seller with respect to the payment obligations arising under the Assumed IDRB Indebtedness as required by Section 6.7(c)(1). Section 7.2 Buyer's Conditions Precedent to Closing. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) Representations and Warranties True as of the Closing Date. Seller's representations and warranties in this Agreement shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date, subject to changes expressly contemplated and permitted by this Agreement; except (i) that representations and warranties made as of, or in respect of, only a specified date or period shall be true and correct in all material respects as of, or in respect of, such date or period, and (ii) to the extent that any failure of such representations and warranties to be true and correct as aforesaid when taken in the aggregate would not have a Material Adverse Effect. (b) Compliance with Agreements. The covenants, agreements and conditions required by this Agreement to be performed and complied with by Seller shall have been performed and complied with in all material respects prior to or at the Closing Date, except where the failure to so perform or comply when taken in the aggregate would not have a Material Adverse Effect. (c) Certificate. Seller shall execute and deliver to Buyer a certificate of an authorized officer of Seller, dated the Closing Date, stating that the conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement have been satisfied. 30 (d) Governmental Approvals. The Hawaii Public Utilities Commission shall have issued an Order approving the transactions contemplated hereby, such Order shall not contain any restrictions or conditions (other than those in effect on the date of this Agreement or requiring that the regulatory treatment with respect to the Business in existence as of the date of this Agreement applicable to Seller be continued following the Closing) which would have a Material Adverse Effect, and such Order shall have become a Final Order. In addition, Seller shall have obtained all other Consents of Governmental Bodies and other Persons which are required in order to consummate the transactions contemplated hereby other than those the failure of which to obtain would not have a Material Adverse Effect. (e) HSR Act. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. (f) Injunctions. On the Closing Date, there shall be no Orders which operate to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. (g) Opinion of Counsel. On the Closing Date, Buyer shall have received from L. Russell Mitten II, Vice President and General Counsel of Seller, an opinion in the form of Exhibit 7.2(g) hereto. (h) Documents. Seller shall have delivered all of the certificates, instruments, contracts and other documents specified to be delivered by it hereunder, including pursuant to Section 8.1, and shall have made arrangements reasonably satisfactory to Buyer to deliver to Buyer as promptly as practicable after the Closing such records (including customer and employee records) necessary to own and operate the Business. (i) No Material Adverse Change. Since the date of execution of this Agreement, no Material Adverse Effect shall have occurred that has continuing effect as of the Closing Date. 31 ARTICLE VIII CLOSING Section 8.1 Closing. The closing of the purchase and sale of the Assets (the "Closing") will take place at the offices of Fleischman and Walsh, L.L.P., 1400 Sixteenth Street, N.W., Suite 600, Washington, D.C. 20036, on the last calendar day of the month in which the conditions specified in Sections 7.1(d) and 7.2(d) have been satisfied, unless another time, date and place is agreed to in writing by the parties. The date of the Closing is referred to in this Agreement as the "Closing Date." The transactions to be consummated on the Closing Date shall be deemed to have been consummated as of 11:59 p.m. on the Closing Date. At the Closing the following events shall occur, each event being deemed to have occurred simultaneously with the other events. (a) Bill of Sale. Seller and Buyer shall execute and deliver the Bill of Sale and Assignment and Assumption Agreement in the form of Exhibit 8.1(a) hereto (the "Bill of Sale"). (b) Payment of Purchase Price. Buyer will pay to Seller an amount equal to the Estimated Purchase Price by wire transferring such amount, in lawful money of the United States of America in immediately available funds, to such account as Seller shall have designed by notice to Buyer. If the Closing Date is not a business day on which financial institutions are open and operating, then on or before the last business day on which financial institutions are open and operating before the Closing Date, Buyer shall deliver the Estimated Purchase Price to Buyer's lead bank (the "Escrow Agent") in immediately available funds in U.S. dollars. Upon receipt, the Escrow Agent shall invest the Estimated Purchase Price in an interest-bearing account mutually agreed upon by Seller and Buyer. At Closing, Buyer shall sign and deliver to Seller a statement which confirms that the Closing has occurred and which instructs the Escrow Agent to transfer to Seller the funds representing the Estimated Purchase Price, plus an amount representing the interest earned after the Closing Date until the date the funds are transferred, to an account that Seller shall designate at least two (2) business days prior to the date the funds are required to be transferred hereunder. The Escrow Agent shall refund the balance to Buyer. The fees and expenses of Escrow Agent shall be paid equally by Seller and Buyer. (c) Other Related Documents. To the extent consistent with the other provisions of this Agreement, Seller (or the appropriate Affiliate of Seller) and Buyer shall execute and deliver such other Related Documents (including special warranty deeds, conveyances, certificates of title, bills of sale and assignment and assumption instruments) reasonably requested by a party that are necessary in order to satisfy any applicable Legal Requirements relating to the transfer of the Assets to Buyer or the assumption of the Assumed Liabilities by Buyer or which are customarily given in the State of Hawaii to accomplish transfers of assets of the type involved; provided, however, that nothing in this clause (c) shall obligate Seller or any Affiliate of Seller to execute or deliver any document that affects, in a manner adverse to Seller, Seller's liability to Buyer as expressed herein and in the Bill of Sale. (d) IDRB Indebtedness. Buyer and Seller shall execute and deliver the Retained IDRB Obligations Agreement contemplated by Section 6.7(a) to the extent not previously executed and delivered by Buyer and Seller. Buyer also shall execute and deliver to Seller an assumption agreement, in form satisfactory to Seller's special bond counsel, pursuant to which Buyer shall assume the Assumed IDRB Indebtedness to the extent the condition precedent to Closing set forth in Section 7.1(i) with respect to such Assumed IDRB Indebtedness has been satisfied. 32 ARTICLE IX TERMINATION Section 9.1 Termination Rights. This Agreement may be terminated in its entirety at any time prior to the Closing: (a) By the mutual written agreement of Seller and Buyer; (b) By Buyer, on the one hand, or Seller, on the other hand, in writing if there shall be in effect a nonappealable Order prohibiting the transactions contemplated by this Agreement; (c) By Buyer, upon the breach in any material respect of any of the representations and warranties of Seller contained herein or in the failure by Seller to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Seller, provided that such breach or failure is reasonably likely to result in a Material Adverse Effect and is not cured or otherwise addressed by Seller in a manner reasonably acceptable to Buyer within 30 days of Seller's receipt of a written notice from Buyer that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); (d) By Seller, upon the breach in any material respect of any of the representations and warranties of Buyer contained herein or the failure by Buyer to perform and comply in any material respect with any of the agreements and obligations required by this Agreement to be performed or complied with by Buyer, provided that such breach or failure is not cured or otherwise addressed by Buyer in a manner reasonably acceptable to Seller within 30 days of Buyer's receipt of a written notice from Seller that such a breach or failure has occurred (or significant efforts have not been commenced to cure such misrepresentation or breach if it is susceptible to cure but not capable of being cured within such 30 days); (e) By either party in writing if the Closing has not occurred within twelve (12) months after the execution date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 9.1(e) will not be available to any party that is in material breach of its representations, warranties, covenants or agreements contained herein; and provided, further, that if Closing has not occurred within such period of time because the conditions precedent to Closing set forth in Sections 7.1(d) and 7.2(d) have not been fulfilled, then such period of time shall be automatically extended by an additional six (6) months; (f) By Seller or Buyer, as appropriate, if any Governmental Body whose Consent is required to fulfill a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to Buyer) has affirmatively indicated that such Consent will not be given or will contain terms or conditions (or, if such Consent has been obtained, contains terms or conditions) that, in the reasonable business judgment of Seller or Buyer, as appropriate, will result in a condition precedent to Closing set forth in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to Buyer) not being satisfied; or (g) By Seller because of the failure of the CFC to advance loan proceeds to Buyer with which to fund the payments required to be made by Buyer at Closing or because the CFC has affirmatively indicated, for no reason or for any reason other than the proper termination of this Agreement pursuant to any other provision of this Section 9.1, that such funding will not be provided by the CFC. 33 Section 9.2 Limitation on Right to Terminate: Effect of Termination. (a) A party shall not be allowed to exercise any right of termination pursuant to Section 9.1 if the event giving rise to the termination right shall be due to the willful failure of such party seeking to terminate this Agreement to perform or observe in any material respect any of the covenants or agreements hereof to be performed or observed by such party. (b) If this Agreement is terminated as permitted under Section 9.1, such termination shall be without liability of or to any party to this Agreement, or any shareholder or Representative of such party; provided, however, that if such termination shall result from the willful failure of any party to fulfill a condition to the performance of any other party or to perform a covenant of this Agreement or from a material and willful breach by any party to this Agreement (it being understood that the failure to cure a breach shall not, by itself, be a willful breach of this Agreement), then such party shall (subject to the limitation set forth in the last sentence of this Section 9.2(b)) be fully liable for any and all damages sustained or incurred by the other party. If prior to Closing either party to this Agreement resorts to legal proceedings to enforce this Agreement, the prevailing party in such proceedings shall be entitled to recover all costs incurred by such party including reasonable attorney's fees, in addition to any other relief to which such party may be entitled; provided, however, and notwithstanding anything to the contrary in this Agreement, in no event shall either party be entitled to receive any punitive, indirect or consequential damages. (c) If (i) Seller terminates this Agreement pursuant to Section 9.1(d) or (ii) this Agreement is terminated by either party pursuant to Section 9.1(e) or 9.1(f) because the requisite Consent from the Hawaii Public Utilities Commission has not been obtained, or because such Governmental Body has affirmatively indicated that its Consent will not be given, due in whole or in part to concerns about the Buyer's financial, operational or legal qualifications or capabilities, or (iii) this Agreement is terminated by Seller pursuant to Section 9.1(g) , then Seller may present a sight draft under the Letter of Credit, and thereby retain the Deposit as liquidated damages free of any claims by Buyer or any other Person with respect thereto (the parties hereby acknowledging that the extent of damages to Seller occasioned by such breach or default by Buyer would be impossible or extremely difficult to ascertain and that the amount of the Deposit is a fair and reasonable estimate of such damages under the circumstances). If this Agreement is terminated for any reason other than as set forth in the preceding sentence, then Seller shall deliver the Letter of Credit to Buyer, free of any claims by Seller or any other Person with respect thereto. 34 ARTICLE X EMPLOYEE MATTERS Section 10.1 Employment of Transferred Employees. (a) Schedule 10.1 lists each division, and the total number of salaried and hourly, nonunion and union, employees actively employed as of the date of this Agreement in each division by Seller or its Affiliates whose primary duties relate to the Business ("Active Employees"). As of the Closing Date, Buyer shall employ all Active Employees of Seller employed in the Business being acquired ("Transferred Employees") in the same or substantially equivalent positions, and at the same compensation level (including wages, salary and bonuses) as were in effect with Seller immediately prior to the Closing Date. For purposes of the preceding sentence, "Active Employees" shall include all full-time and part-time employees, employees on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, on short-term disability, on layoff with recall rights, and employees on other leaves of absences where there is a legal or contractual right to reinstatement. (b) Prior to the execution date of this Agreement, Seller has delivered to Buyer a list of the persons who would have been Transferred Employees had the Closing Date occurred on December 31, 1999, showing the following information for each such person: (i) the name of each such person; (ii) the name of his or her current employer; (iii) his or her current base pay, 1999 bonus and projected 2000 bonus; (iv) his or her hire date, any rehire date (if available) and years of service; (v) his or her then-current position and job title; (vi) whether such employee is subject to a collective bargaining agreement or represented by a labor organization and, if so, the name of the union and local, (vii) whether such employee is on military leave, maternity leave, leave under the Family and Medical Leave Act of 1993, short-term disability, on layoff with recall rights, or on other leave of absence with a legal or contractual right to reinstatement. Seller shall update such list as of the end of each calendar quarter occurring between the execution date hereof and the Closing Date, in each case assuming the Closing Date had occurred on such date, and shall deliver such updated lists to Buyer within ten (10) days after the end of each such calendar quarter. Section 10.2 Assumption of Collective Bargaining Agreement Obligations. On and after the Closing Date, Buyer, shall assume all of the Seller's obligations under, and be bound by the provisions of, each collective bargaining agreement to the extent of provisions covering Transferred Employees. Each collective bargaining agreement shall be identified on a Schedule 10.2 to be prepared by Seller and submitted to Buyer on or before the Closing Date. Seller shall cooperate with Buyer in Buyer's efforts to contact the unions representing Transferred Employees. Section 10.3 Cessation of Participation in Seller's Plans; Proration of Bonuses. From and after the Closing Date, Transferred Employees shall accrue no additional benefits under any employee benefit plan, policy, program or arrangement of Seller or its Affiliates. Seller shall pay to the Transferred Employees the appropriate pro rata portion of any bonuses declared by Seller after the Closing Date that would have been payable to the Transferred Employees had the Transferred Employees remained employed by Seller or its Affiliates throughout the calendar year in which the Closing Date occurs, in accordance with the provisions of any policy, plan, practice or arrangement of Seller under which such bonus would have been paid. The pro rata portion of each such bonus shall be determined by multiplying the amount of such bonus by a fraction, the numerator of which is the number of days from and after the beginning of the calendar year in which the Closing Date occurs through the Closing Date, and the denominator of which is 365. 35 Section 10.4 Similarity of Benefit Packages. As of the Closing Date, and except as otherwise expressly provided in this Article X, Buyer shall include each Transferred Employee in a benefit package providing benefits that are in the aggregate substantially similar to those provided by Seller to such Transferred Employees immediately prior to the Closing Date. Notwithstanding the foregoing, to the extent that one or more collective bargaining agreements being assumed by Buyer contains provisions pertaining to employee benefits, Buyer shall provide the Transferred Employees covered by such agreements with benefits that are identical to those required to be provided under the terms of such agreements. Except as otherwise expressly provided in this Article X, Buyer shall treat all service and compensation credited to each such Transferred Employee as if such service and compensation had been rendered to, and paid by, Buyer for all purposes under Buyer's benefit plans, arrangements, and policies. Section 10.5 Defined Benefit Pension Plan. (a) At least fifteen days prior to the Closing Date, Seller shall take any and all actions necessary to cease benefit accruals and fully vest all Transferred Employees in their accrued benefits under the Citizens Pension Plan ("Seller's Pension Plan"). Seller shall retain all liabilities and assets for pension benefits accrued through the Closing Date by Transferred Employees and retirees of the Business under Seller's Pension Plan. (b) As of the Closing Date, Buyer shall cause all union Transferred Employees to be included in a qualified defined benefit pension plan providing benefits identical to the benefits provided under the Seller's Pension Plan, and shall cause all nonunion Transferred Employees to be included in a defined benefit pension plan providing benefits either substantially equivalent or, if Seller transfers to Buyer the pension liabilities and assets relating to the nonunion Transferred Employees, identical to those provided in Seller's Pension Plan (collectively referred to herein as "Buyer's Pension Plan"). Buyer shall take all actions necessary to cause Buyer's Pension Plan to recognize the service that all Transferred Employees had under Seller's Pension Plan for purposes of such Employees' eligibility to participate, vesting, attainment of retirement dates, subsidized benefits, and entitlement to optional forms of payment. Section 10.6 401(k) Plan. (a) Buyer shall take all action necessary to ensure that, as of the Closing Date, it includes Transferred Employees in a qualified 401(k) plan providing for matching contributions at least equivalent to that provided to the Transferred Employee under Citizens 401(k) Savings Plan ("Seller's 401(k) Plan") immediately prior to the Closing Date. Buyer shall take all actions necessary to cause Buyer's 401(k) Plan to recognize the service that the Transferred Employees had in Seller's 401(k) Plan for purposes of determining such Employees' eligibility to participate, vesting, attainment of retirement dates, contribution levels and, if applicable, eligibility for optional forms of benefit payments. Buyer shall cause the trustee of Buyer's 401(k) Plan to accept transfers and direct rollovers from Seller's 401(k) Plan of the vested account balances of Transferred Employees, including transfers of outstanding loan balances and related promissory notes, subject to compliance with applicable law. (b) Seller shall vest Transferred Employees in their account balances under Seller's 401(k) Plan as of the Closing Date. Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan an amount of cash equal to the value of the account balances of the Transferred Employees under Seller's 401(k) Plan; except that to the extent that the account balances consist of outstanding loans, Seller shall direct the trustee of Seller's 401(k) Plan to transfer to the trustee of Buyer's 401(k) Plan the promissory notes and related documents evidencing such loans. 36 (c) After the transfer of assets and liabilities pursuant to this Section, Buyer shall assume all liabilities for the benefits payable with respect to Transferred Employees under Seller's 401(k) Plan, and Seller and Seller's 401(k) Plan shall have no liability for such benefits. (d) In connection with the transfer of assets and liabilities under this Section, Seller and Buyer shall cooperate in making all appropriate filings, and providing all applicable notices, required by IRC or ERISA. Buyer shall deliver to Seller a copy of Buyer's 401(k) Plan, and a copy of the most recent determination letter from the IRS with respect to such Plan, together with a certification to the effect that no events have occurred since the date of the determination letter that would adversely affect the Plan's qualified status. Section 10.7 Welfare Benefits. (a) Buyer shall take all action necessary and appropriate to ensure that, as of the Closing Date, Buyer maintains medical, health, dental, flexible spending account, accident, life, short-term disability, long-term disability and other employee welfare benefit plans (including retiree medical benefits) to Transferred Employees that, in the case of nonunion Transferred Employees are substantially similar to those benefits provided by Seller under its corresponding welfare benefit plans (the "Buyer's Nonunion Welfare Plans"), and in the case of union Transferred Employees are identical to those benefits provided to union Transferred Employees under Seller's corresponding welfare benefit plans (the "Buyer's Bargained Welfare Plans"), as in effect immediately prior to the Closing Date. The Buyer's Nonunion Welfare Plans and the Buyer's Bargained Welfare Plans are hereinafter referred to collectively as the "Buyer Welfare Plans." For purposes of determining eligibility to participate, and entitlement to benefits, in each Buyer Welfare Plan, each Transferred Employee shall be credited with service, determined under the terms of the corresponding welfare plans maintained by Seller on the Closing Date (hereinafter referred to collectively as the "Seller Welfare Plans"). Any restrictions on coverage for pre-existing conditions, actively at work requirements, waiting periods, and requirements for evidence of insurability under the Buyer Welfare Plans shall be waived in the Buyer Welfare Plans for Transferred Employees, and Transferred Employees shall receive credit under the Buyer Welfare Plans for co-payments, payments under a deductible limit made by them, and for out-of-pocket maximums applicable to them during the plan year of the Seller Welfare Plan in which the Closing Date occurs. As soon as practicable after the Closing Date, Seller shall deliver to Buyer a list of the Transferred Employees who had credited service under a Seller Welfare Plan, together with each such Transferred Employee's service, co-payment, deductible and out-of-pocket payment amounts under such plan. (b) Buyer shall provide or cause to be provided retiree medical, dental, and life benefits to each retiree of the Business identified in Schedule 10.7 as updated as of the Closing Date (the "Retirees"), to each Transferred Employee who is considered to be a "grandfathered employee" (as hereinafter defined), and to each union Transferred Employee who otherwise is eligible for such retiree benefits, under the same terms and conditions as applied to such Retiree or Transferred Employee immediately prior to the Closing Date, and Seller shall have no obligation or liability, contingent or otherwise, to provide retiree medical, dental or life benefits to any such Retiree or Transferred Employee on or after the Closing Date. For purposes of this Section 10.7, a "grandfathered employee" is a union or nonunion Transferred Employee, who was at least age 55 with at least 10 years of service as defined in the Seller's Pension Plan by December 31, 1997, and who retires after December 31, 1997. Schedule 10.7 identifies each Active Employee who is a "grandfathered 37 employee" and each union Active Employee who otherwise is eligible for such retiree benefits. Buyer agrees not to terminate or materially modify those post-retirement benefit provisions covering "grandfathered" Transferred Employees, eligible union Transferred Employees, Retirees, their spouses and dependents that are in effect immediately prior to the Closing Date. (c) Within sixty (60) days after the Closing, Seller agrees to transfer to an exempt trust established by Buyer under Section 501(c)(9) of the IRC ("Buyer's VEBA") the amount held under any trust established by Seller under Section 501(c)(9) of the IRC ("Seller's VEBA") to fund post-retirement health care and life insurance benefits for the Business. Such amount shall be determined based upon Seller's internal recordkeeping. Buyer agrees that Buyer's VEBA will apply an amount at least equal to the sum of the assets transferred from Seller's VEBA (and earnings thereon calculated at the rate of return generated by Buyer's VEBA) to provide post-retirement health care and life insurance benefits after the Closing Date to the Retirees and, as applicable, the Transferred Employees who become eligible for such benefits after Closing. Upon Closing, Buyer shall be responsible for all obligations of Seller to provide post-retirement health care and life insurance benefits to such Transferred Employees and Retirees, and Seller and Seller's VEBA shall cease to have any liability, contingent or otherwise, for such benefits. Section 10.8 Flexible Spending Accounts. Seller shall transfer to Buyer's flexible benefits plan any balances standing to the credit of Transferred Employees under Seller's flexible benefits plan as of the Closing Date. Seller shall provide to Buyer prior to the Closing Date a list of those Transferred Employees that have participated in the health or dependent care reimbursement accounts of Seller, together with their elections made prior to the Closing Date with respect to such account, and balances standing to their credit as of the Closing Date. Section 10.9 Employment Agreements. Buyer shall assume all obligations of each employment agreement to which Seller or its Affiliates is a party and which covers any Transferred Employee immediately prior to the Closing Date. Section 10.10 Vacation. Seller shall pay to Transferred Employees any "banked" vacation credited to them on or prior to the Closing Date. On or after the Closing Date, Buyer shall provide to each Transferred Employee vacation in an amount equal to the Transferred Employee's vacation entitlement for the year of the Closing reduced by the number of vacation days that such Transferred Employee has taken on or before the Closing. Section 10.11 Severance. In the event that Buyer terminates the services of any Transferred Employee within twenty-four (24) months following the Closing Date without cause, Buyer shall provide to any such Transferred Employee severance or separation pay benefits that are at least equal to the severance and separation pay benefits that would have been paid by Seller had Seller continued to employ such Transferred Employee through such twenty-four month period ending on the employee's date of termination from Buyer; provided, however, that if a collective bargaining agreement that is applicable to a union Transferred Employee would provide for a greater benefit to be paid by Buyer, the terms and conditions of such agreement shall instead be applicable. 38 Section 10.12 Plant Closing Notice. Upon not less than 60 days' written notice from Buyer of Buyer's then present intention to terminate any Transferred Employees after the Closing, Seller shall give any notice required to be given by Seller under Chapter 394B, Hawaii Revised Statutes, as amended. Buyer shall have the right to review and approve such notice prior to Seller's release of the same. Seller shall not be obligated to provide any notice if in Seller's reasonable opinion, after consultation with counsel and with Buyer, such action (including the content of such notice) reasonably could result in Seller's violation of any Legal Requirement or Order. ARTICLE XI TAX MATTERS Section 11.1 Purchase Price Allocation. Prior to the Closing Date, Buyer and Seller shall use their good faith efforts to agree upon the allocation (the "Allocation") of the Purchase Price, the Assumed Liabilities and other relevant items (including, for example, adjustments to the Purchase Price) to the individual assets or classes of assets within the meaning of Section 1060 of the IRC. If Buyer and Seller agree to such Allocation prior to Closing, Buyer and Seller covenant and agree that (i) the values assigned to the assets by the parties' mutual agreement shall be conclusive and final for all purposes, and (ii) neither Buyer nor Seller will take any position before any Governmental Body or in any Proceeding that is in any way inconsistent with such Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree to an Allocation, Buyer and Seller covenant and agree to file, and to cause their respective Affiliates to file, all Tax Returns and schedules thereto (including, for example, amended returns, claims for refund, and those returns and forms required under Section 1060 of the IRC and any Treasury regulations promulgated thereunder) consistent with each of such party's good faith Allocations, unless otherwise required because of a change in any Legal Requirement. Section 11.2 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that Seller may, at Seller's election prior to the Closing Date, direct that all or a portion of the Purchase Price be delivered to a "qualified intermediary" (as defined in Treasury Regulation ss.1.1031(k) - (g)(4)) as to enable Seller's relinquishment of the Assets to qualify as part of a like-kind exchange of property covered by Section 1031 of the IRC. If Seller so elects, Buyer shall cooperate with Seller (but without being required to incur any out-of-pocket costs in the course thereof) in connection with Seller's efforts to effect such like-kind exchange, which cooperation shall include, without limitation, taking such actions as Seller requests in order to enable Seller to qualify such transfer as part of a like-kind exchange of property covered by Section 1031 of the IRC (including any actions required to facilitate the use of a "qualified intermediary"), and Buyer agrees that Seller may assign all or part of its rights and delegate all or part of its obligations under this Agreement to a person or entity acting as a qualified intermediary to qualify the transfer of the Assets as part of a like-kind exchange of property covered by Section 1031 of the IRC. Buyer and Seller agree in good faith to use reasonable efforts to coordinate the transactions contemplated by this Agreement with any other transactions engaged in by either Buyer or Seller; provided that such efforts are not required to include an unreasonable delay in the consummation of the transactions contemplated by this Agreement. 39 Section 11.3 Transaction Taxes. Buyer shall bear and be responsible for paying any Hawaii sales, use, transfer, documentary, registration, business and occupation and other similar Taxes, other than Hawaii General Excise Taxes, if any, (including related penalties (civil or criminal), additions to tax and interest) imposed with respect to the transfer of Assets (including the Real Property) to Buyer ("Transaction Taxes"), regardless of whether the tax authority seeks to collect such Taxes from Seller or Buyer. Seller shall prepare all tax filings related to any Transaction Taxes (other than with respect to Real Property and motor vehicle title transfer and registration, which shall be prepared by Buyer). Seller shall bear and be responsible for any costs similar to Transaction Taxes imposed by any Governmental Body other than the State of Hawaii or one of its political subdivisions. Fifteen (15) days prior to making any such filings, the filing party shall provide to the nonfiling party the filing party's work papers for the nonfiling party's review and approval. Ten (10) days prior to the filing date, the non-filing party shall provide to the filing party approval of such work papers. Buyer shall also be responsible for (i) administering the payment of such Transaction Taxes, (ii) defending or pursuing any Proceedings related thereto, and (iii) paying any expenses related thereto. Seller shall give prompt written notice to Buyer of any proposed adjustment or assessment of any Transaction Taxes with respect to the transaction, or of any examination of said transaction in a sales, use, transfer or similar tax audit. In any proceedings, whether formal or informal, Seller shall permit Buyer to participate and control the defense of such proceeding and shall take all actions and execute all documents required to allow such participation. Seller shall not negotiate a settlement or compromise of any Transaction Taxes without the prior written consent of Buyer, which consent shall not be unreasonably withheld. ARTICLE XII ENVIRONMENTAL MATTERS Section 12.1 Environmental Due Diligence. (a) Right to Conduct Environmental Due Diligence. Regarding environmental matters, Buyer has completed its reasonable and prudent environmental due diligence prior to execution of this Agreement, including a review of the Environmental Data. Buyer also has required Seller to make the representations concerning environmental matters set forth in Section 5.14, upon which Buyer is relying. In light of these actions, Buyer agrees not to conduct additional environmental due diligence (including employee interviews and sampling of any media or wastewater) except in accordance with this Section 12.1. All activities of Buyer regarding environmental due diligence shall be conducted to minimize any inconvenience or interruption of the normal use and enjoyment of the Business and the Assets. (b) Delivery of Environmental Reports. Seller has made available to Buyer before the date of execution of this Agreement copies of all written environmental audits, reports or studies in Seller's possession of which Seller has Knowledge and which were prepared after December 31, 1996, concerning the existence or possible existence of Hazardous Materials on, or under or adjacent to any of the Real Property or relating to potential Environmental Liability of Seller in connection with the Business or the Assets. Buyer shall provide to Seller copies of all reports, assessments and other information composed or compiled by Buyer or Buyer's environmental consultant(s) promptly following Buyer's receipt thereof. Buyer shall treat all such information delivered to, or composed or compiled by, Buyer or Buyer's environmental consultant(s) as Environmental Data in accordance with the procedures of Section 12.1(c). 40 (c) Confidentiality of Environmental Data. All audits, reports and studies delivered to or prepared by Buyer and all other information collected and generated as a result of Buyer's environmental due diligence ("Environmental Data") will be subject to the terms and conditions of the Confidentiality Agreement, except as otherwise expressly provided in this Section 12.1. Neither Buyer nor its environmental consultant(s) shall disclose or release any Environmental Data without the prior written consent of Seller and all such information shall be kept strictly confidential. The Environmental Data shall be prepared at the request of counsel to Buyer and, to the fullest extent permitted by law, shall be the work product of such counsel and constitute confidential attorney/client communications. The Environmental Data shall be transferred among Buyer and its consultant(s) in a manner that will preserve, to the greatest extent possible, such privileges. Buyer expressly agrees that until the Closing, it will not distribute the Environmental Data to any third party without Seller's prior written consent. After the Closing, Buyer agrees that it will not distribute the Environmental Data to any third party without Seller's prior written consent, except as required by law or by express provisions of Buyer's corporate compliance program if Seller is provided written notice at least ten (10) days prior to such distribution, provided, however, that for a period of two (2) years after the Closing Date, Buyer may distribute the Environmental Data to any potential purchaser of the Assets only after first notifying the Seller. (d) Environmental Consultants. Buyer may retain one or more outside environmental consultants to assist in its environmental due diligence concerning the Assets and shall notify Seller of the environmental consultant or consultants Buyer intends to retain. Thereafter, Seller shall have five (5) days after receipt of such notification to notify Buyer in writing of Seller's objection (which must be for good cause) and substantiate the basis for that objection. If Seller does not object for good cause and substantiate that objection within said five (5) day period, Seller shall be deemed to have consented to Buyer's selection. (e) Phase I Reviews. Buyer has conducted various environmental assessment activities with respect to the Assets, including reviewing existing environmental reports, correspondence, permits and related materials regarding the Assets, but excluding inspecting individual sites. Buyer may not conduct any further Phase I environmental assessment activities with respect to the Assets without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. Any permitted Phase I environmental assessment activities shall not include any sampling or intrusive testing. (f) Phase II Reviews. Buyer may not conduct any Phase II environmental assessment activities with respect to the Assets (including, but not limited to, the taking and analysis of soil, surface water and groundwater samples, testing of buildings, drilling wells, taking soil borings and excavating) without the prior written consent of Seller, which consent may be withheld, conditioned or delayed by Seller in its sole discretion. (g) Additional Due Diligence. Notwithstanding the foregoing, if prior to Closing Seller receives notice of any Proceeding or Threatened Proceeding arising under Environmental Laws or if Seller otherwise acquires Knowledge that is reasonably likely to require a change to Schedule 5.14, Seller promptly shall notify Buyer of the same and Buyer may request that Seller authorize Buyer to conduct specific additional environmental due diligence measures if and to the extent that such measures are required to determine the extent of any potential Environmental Liability relating thereto. Such authorization shall not be unreasonably withheld, conditioned or delayed by Seller. Any such additional environmental due diligence shall be conducted at Buyer's sole expense. Within ten (10) days following the completion of any additional environmental due diligence conducted by Buyer pursuant to this Section 12.1(g), Buyer shall notify Seller of each incident of potential 41 Environmental Liability of Seller that Buyer in good faith has determined is reasonably likely to result in Losses in excess of $1,000,000 (each, a "New Material Environmental Liability"). Prior to Closing, Seller may respond to and remedy any New Material Environmental Liability. Any New Material Environmental Liability not responded to and remedied by Seller to Buyer's reasonable satisfaction shall be considered a Retained Environmental Liability for purposes of this Agreement. (h) Indemnity for Due Diligence Activities. Buyer hereby agrees to indemnify and hold harmless Seller, Seller's Affiliates and their respective officers, directors, employees, agents, successors and assigns from and against any and all Losses with respect to persons or property arising out of or in connection with any site visit by Buyer or its environmental consultant(s) and resulting from an act or omission of Buyer or its environmental consultant(s). ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Seller. From and after Closing and subject to the other provisions of this Article XIII, Seller shall indemnify and hold harmless Buyer, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Buyer Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Seller in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing; and (c) the Retained Liabilities, including the Retained Environmental Liabilities. Section 13.2 Indemnification by Buyer. From and after Closing and subject to the other provisions of this Article XIII, Buyer shall indemnify and hold harmless Seller, its Representatives, Affiliates, successors and permitted assigns (collectively, the "Seller Indemnitees") from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Buyer in this Agreement not being true and correct when made or when required by this Agreement to be true and correct, or any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed prior to Closing; (b) any breach or default by Buyer in the performance of its covenants, agreements, or obligations under this Agreement required to be performed after Closing, including the Buyer's IDRB Obligations; (c) Assumed Liabilities, including the Assumed Environmental Liabilities; and (d) any event as a result of which the interest on the Bonds may be included in the gross income of the recipient for purposes of federal income taxation, to the extent such event arises out of or results from any act, negligence, fault or failure of Buyer or any assignee, lessee or successor of Buyer, including any violation of the representations, warranties, covenants and agreements set forth in Section 6.7(a) or Section 6.7(c) or in the Retained IDRB Obligations Agreement executed and delivered by Buyer in accordance with Sections 6.7(a) and 8.1(d). 42 Section 13.3 Limitations on Seller's Liability. Notwithstanding anything to the contrary in this Agreement, the liability of Seller under this Agreement and any documents delivered in connection herewith or contemplated hereby shall be limited as follows: (a) IN NO EVENT SHALL SELLER BE LIABLE TO THE BUYER INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however, that if Buyer is held liable to a third party for any of such damages and Seller is obligated to indemnify Buyer for the matter that gave rise to such damages, then Seller shall be liable for, and obligated to reimburse Buyer for, such damages. (b) The representations, warranties, covenants and agreements of Seller set forth in this Agreement shall survive the Closing for a period of one year, and all representations, warranties, covenants and agreements of Seller under this Agreement and the indemnities granted by Seller in Section 13.1 shall terminate at 5:00 p.m., local time in Stamford, Connecticut, on the first anniversary of the Closing Date; provided, however, that such indemnities shall survive with respect only to the specific matters that is the subject of a proper Claim Notice delivered in good faith in compliance with the requirements of this Section 13.3 until the earlier to occur of (A) the date on which a final nonappealable resolution of the matter described in such Claim Notice has been reached or (B) the date on which the matter described in such Claim Notice has otherwise reached final resolution. In no event shall any amounts be recovered from Seller under Section 13.1 or otherwise for any matter for which a Claim Notice is not delivered to Seller prior to the close of business on the applicable date set forth above. (c) Notwithstanding anything to the contrary in this Agreement, in no event shall Seller indemnify the Buyer Indemnitees, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses until the Buyer Indemnitees have suffered Losses (determined after giving effect to the provisions of Section 13.3(f)) that are in excess of a deductible in an amount equal to $5,400,000, after which point Seller will be obligated only to indemnify the Buyer Indemnitees from and against further Losses in excess of such deductible. (d) Notwithstanding anything to the contrary in this Agreement, in no event shall Seller indemnify the Buyer Indemnitees, or be otherwise liable in any way whatsoever to the Buyer Indemnitees, for any Losses that are in excess of an amount equal to $5,400,000. (e) No amount shall be recovered from Seller for the breach or untruth of any of Seller's representations, warranties, covenants or agreements, or for any other matter, to the extent that Buyer had knowledge of such breach, untruth or other matter at or prior to the Closing, nor shall Buyer be entitled to rescission with respect to any such matter. (f) Seller shall have no liability for any claim or Loss (A) that is covered by insurance maintained by or for the benefit of Buyer or any Affiliate of Buyer (including any such insurance coverage applicable to the Business the benefit of which the Buyer will realize) or for which Buyer otherwise recovers payments in respect of such Loss from any other sources (whether in a lump sum or stream of payments) or (B) that is the type normally recoverable by the Business through rates. No cost or expense relating to any such claim or Loss shall be included in determining the extent of Losses suffered by the Buyer Indemnitees for purposes of Section 13.3(c) or Section 13.3(d). Buyer agrees to use its commercially reasonable efforts to give timely 43 and effective written notice to the appropriate insurance carrier(s) of any occurrence or circumstances which, in the judgment of Buyer consistent with its customary risk management practices, appear likely to give rise to a claim against Buyer that is likely to involve one or more insurance policies of Buyer. Any such notice shall be given in good faith by Buyer without regard to the possibility of indemnification payments by Seller under Section 13.1, and shall be processed by Buyer in good faith and in a manner consistent with its risk management practices involving claims for which no third party contractual indemnification is available. Buyer agrees that (i) if it is entitled to receive payment from Seller for a Loss, and (ii) if Buyer has obtained insurance which may cover the claim or matter giving rise to such Loss, then (iii) such insurance shall be primary coverage and Buyer will make a claim under such insurance (if such claim can be made in good faith) before enforcing its right to receive payment from Seller. If at any time subsequent to the receipt by a Buyer Indemnitee of an indemnity payment from Seller hereunder, such Buyer Indemnitee (or any Affiliate thereof) receives any recovery, settlement or other similar payment with respect to the Loss for which it receives such indemnity payment, such Buyer Indemnitee shall promptly pay to Seller an amount equal to the amount of such recovery, less (for insurance proceeds only) any out-of-pocket costs incurred by such Buyer Indemnitee (or its Affiliates) in connection with claim preparation and settlement, but in no event shall any such payment exceed the amount of such indemnity payment; provided, that if such net recover reduces the amount of Losses actually incurred by the Buyer Indemnitees below the deductible amount set forth in Section 13.3(c) and if Seller has made other payments to the Buyer Indemnitees for other Losses in excess of such deductible amount, then Buyer also shall promptly pay to Seller an amount equal to the portion of such payments made by Seller that Seller would not have been obligated to make pursuant to Section 13.3(c) had the Losses of the Buyer Indemnitees not included the Losses covered by such net recovery. No other costs or expense relating to any such recovery shall reduce the amount of such payment to Seller. (g) Notwithstanding any language contained in any Related Document (including deeds and other conveyance documents relating to the Real Property), the representations and warranties of Seller set forth in this Agreement will not be merged into any such Related Document and the indemnification obligations of Seller, and the limitations on such obligations, set forth in this Agreement shall control. No provision set forth in any such Related Document shall be deemed to enlarge, alter or amend the terms or provisions of this Agreement. Section 13.4 Claims Procedure. (a) All claims for indemnification under Section 13.1 or 13.2, or any other provision of this Agreement except as otherwise expressly provided in this Agreement, shall be asserted and resolved pursuant to this Article XIII. Any Person claiming indemnification hereunder referred to as the "Indemnified Party" and any Person against whom such claims are asserted hereunder is hereinafter referred to as the "Indemnifying Party." In the event that any Losses are asserted against or sought to be collected from an Indemnified Party by a third party, said Indemnified Party shall with reasonable promptness provide to the Indemnifying Party a Claim Notice. The Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to any such Losses if the Indemnified Party fails to notify the Indemnifying Party thereof in accordance with the provisions of this Agreement in reasonably sufficient time so that the Indemnifying Party's ability to defend against the Losses is not prejudiced. The Indemnifying Party shall have 30 days from the personal delivery or receipt of the Claim Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not it disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such Losses and/or (ii) whether or not it desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Losses; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party (and of which it shall have given notice and opportunity to 44 comment to the Indemnifying Party) and not prejudicial to the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such Losses, the Indemnifying Party shall have the right to defend all appropriate proceedings, and with counsel of its own choosing, which proceedings shall be promptly settled or prosecuted by them to a final conclusion. If the Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Losses that the Indemnifying Party elects to contest or, if appropriate and related to the claim in question, in making any counterclaim against the Person asserting the third party Losses, or any cross-complaint against any Person. No claim may be settled or otherwise compromised without the prior written consent of the Indemnifying Party. (b) The Indemnified Party shall provide reasonable assistance to the Indemnifying Party and provide access to its books, records and personnel as the Indemnifying Party reasonably requests in connection with the investigation or defense of the Losses. The Indemnifying Party shall promptly upon receipt of reasonable supporting documentation reimburse the Indemnified Party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (c) With regard to third party claims for which Buyer or Seller is entitled to indemnification under Section 13.1 or 13.2, such indemnification shall be paid by the Indemnifying Party upon: (i) the entry of an Order against the Indemnified Party and the expiration of any applicable appeal period; or (ii) a settlement with the consent of the Indemnifying Party, provided that no such consent need be obtained if the Indemnifying Party fails to respond to the Claim Notice as provided in Section 13.4(a). Notwithstanding the foregoing but subject to Section 13.4(a), and provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party as if such expenses are a liability of the Indemnifying Party. Section 13.5 Exclusive Remedy. Except as otherwise provided in Section 6.4, the rights, remedies and obligations of the Buyer Indemnitees and the Seller Indemnitees set forth in this Article XIII will be the exclusive rights, remedies and obligations of such Persons after the Closing with respect to this Agreement, the events giving rise to this Agreement and the transactions provided for herein or contemplated hereby or thereby. No Proceeding for termination or rescission, or claiming repudiation, of this Agreement or the Bill of Sale may be brought or maintained by either party against the other following the Closing Date no matter how severe, grave or fundamental any breach, default or nonperformance may be by one party. Accordingly, the parties hereby expressly waive and forego any and all rights they may possess to bring any such Proceeding. 45 Section 13.6 Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND. Section 13.7 Waiver and Release. Buyer, on behalf of itself and each other Buyer Indemnitee, hereby forever waives, relieves, releases and discharges the Seller Indemnitees and their successors and assigns from any and all rights, liabilities, Proceedings (including future Proceedings) and Losses of any Buyer Indemnitee, whether known or unknown at the Closing Date, which any Buyer Indemnitee has or incurs, or may in the future have or incur, arising out of or related to any Assumed Environmental Liability. ARTICLE XIV GENERAL PROVISIONS Section 14.1 Expenses. Except as otherwise specifically provided herein, each Party will pay all costs and expenses of its performance of and compliance with this Agreement, except Buyer will pay all real estate transfer taxes and real estate recording fees, if any, including expenses of counsel associated with real estate title, transfer and recording issues. Section 14.2 Notices. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been given upon receipt if either (a) personally delivered, (b) sent by prepaid first class mail, and registered or certified and a return receipt requested (c) sent by overnight delivery via a nationally recognized carrier or (d) by facsimile with completed transmission acknowledged: If to Seller, to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: Robert J. DeSantis Telecopier: (203) 614-4625 with a copy to: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: L. Russell Mitten, II Telecopier: (203) 614-4651 46 and: Citizens Utilities Company High Ridge Park Stamford, CT 06905 Attention: J. Michael Love Telecopier: (203) 614-5201 and: Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W. Washington, D.C. 20036 Attention: Jeffry L. Hardin Telecopier: (202) 387-3467 If to Buyer, to: Kauai Island Utility Co-Op 2970 Haleko Road, Suite #205 Lihue, Kauai, Hawaii 96766 Attention: Gregg Gardiner, Chairman Telecopier:(808) 245-7428 with a copy to: David W. Proudfoot, Esq. Belles Graham Proudfoot & Wilson 4334 Rice Street, Suite 202 Lihue, Kauai, Hawaii 96766 Telecopier: (808) 245-3277 or at such other address or number as shall be given in writing by a party to the other party. Section 14.3 Assignment. This Agreement may not be assigned, by operation of law or otherwise, by any party hereto without the prior written consent of the other party hereto, such consent not to be unreasonably withheld; provided, however, in the event of any such assignment by a party by operation of law without the consent of the other party as required above, such other party may consent to such assignment after it has occurred and, in such event, this Agreement and all the provisions hereof shall be binding upon the Person receiving such assignment by operation of law. Notwithstanding the foregoing, (a) Buyer may assign this Agreement, without the prior written consent of Seller, to any direct or indirect wholly-owned subsidiary of Buyer provided such subsidiary assumes in writing all of the duties and obligations of Buyer hereunder (provided that no such assignment by Buyer shall in any way operate to enlarge, alter or change any obligation due to Seller or relieve Buyer of its obligations hereunder if such subsidiary fails to perform such obligations, with the understanding that Buyer shall be jointly and severally liable with such subsidiary for any nonperformance of Buyer's obligations hereunder); and (b) Seller may assign all or part of its rights or delegate all or part of its duties under this Agreement, without the prior written consent of Buyer, to a qualified intermediary chosen by Seller to structure all or part of the transactions contemplated hereby as a like-kind exchange of property covered by Section 1031 of the IRC. 47 Section 14.4 Successor Bound. Subject to the provisions of Section 14.3, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 14.5 Governing Law. The validity, performance, and enforcement of this Agreement and all Related Documents, unless expressly provided to the contrary, shall be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of law of such state. Section 14.6 Dispute Resolution. Except as otherwise provided in Sections 3.3(c) and 6.4, and this Section 14.6, any dispute, controversy or claim between the parties relating to, arising out of or in connection with this Agreement (or any subsequent agreements or amendments thereto), including as to its existence, enforceability, validity, interpretation, performance or breach or as to indemnification or damages, including claims in tort, whether arising before or after the termination of this Agreement (any such dispute, controversy or claim being herein referred to as a "Dispute") shall be settled without litigation and only by use of the following alternative dispute resolution procedure: (a) At the written request of a party, each party shall appoint a knowledgeable, responsible representative to meet and negotiate in good faith to resolve any Dispute. The discussions shall be left to the discretion of the representatives. Upon agreement, the representatives may utilize other alternative dispute resolution procedures such as mediation to assist in the negotiations. Discussions and correspondence among the parties' representatives for purposes of these negotiations shall be treated as confidential information developed for the purposes of settlement, exempt from discovery and production, and without the concurrence of both parties shall not be admissible in the arbitration described below, or in any lawsuit. Documents identified in or provided with such communications, which are not prepared for purposes of the negotiations, are not so exempted and may, if otherwise admissible, be admitted in the arbitration. (b) If negotiations between the representatives of the parties do not resolve the Dispute within 60 days of the initial written request, the Dispute shall be submitted to binding arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules, as then amended and in effect, of the American Arbitration Association (the "Rules"). Either party may demand such arbitration in accordance with the procedures set out in the Rules. The arbitration shall take place in San Francisco, California. The arbitration hearing shall be commenced within 60 days of such party's demand for arbitration. The arbitrator shall have the power to and will instruct each party to produce evidence through discovery (i) that is reasonably requested by the other party to the arbitration in order to prepare and substantiate its case and (ii) the production of which will not materially delay the expeditious resolution of the dispute being arbitrated; each party hereto agrees to be bound by any such discovery order. The arbitrator shall control the scheduling (so as to process the matter expeditiously) and any discovery. The parties may submit written briefs. At the arbitration hearing, each party may make written and oral presentations to the arbitrator, present testimony and written evidence and examine witnesses. No party shall be eligible to receive, and the arbitrator shall not have the authority to award, exemplary or punitive damages. The arbitrator shall rule on the Dispute by issuing a written opinion within 30 days after the close of hearings. The arbitrator's decision shall be binding and final. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. (c) Each party will bear its own costs and expenses in submitting and presenting its position with respect to any Dispute to the arbitrator; provided, however, that if the arbitrator determines that the position taken in the Dispute by the nonprevailing party taken as a whole is unreasonable, the arbitrator may order the nonprevailing party to bear such fees and expenses, and reimburse the prevailing party for all or such portion of its 48 reasonable costs and expenses in submitting and presenting its position, as the arbitrator shall reasonably determine to be fair under the circumstances. Each party to the arbitration shall pay one-half of the fees and expenses of the arbitrator and the American Arbitration Association. (d) Notwithstanding any other provision of this Agreement, (i) either party may commence an action to compel compliance with this Section 14.6 and (ii) if any party, as part of a Dispute, seeks injunctive relief or any other equitable remedy, including specific enforcement, then such party shall be permitted to seek such injunctive or equitable relief in any federal or state court or competent jurisdiction before, during or after the pendency of a mediation or arbitration proceed under this Section 14.6. Section 14.7 Cooperation. Each of the parties hereto agrees to use its reasonable best efforts to take or cause to be taken all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws, regulations or otherwise, to consummate and to make effective the transactions contemplated by this Agreement, including, without limitation, the timely performance of all actions and things contemplated by this Agreement to be taken or done by each of the parties hereto. Section 14.8 Construction of Agreement. The terms and provisions of this Agreement represent the results of negotiations between Buyer and Seller, each of which has been represented by counsel of its own choosing, and neither of which has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms and provisions of this Agreement shall be interpreted and construed in accordance with their usual and customary meanings, and Buyer and Seller hereby waive the application in connection with the interpretation and construction of this Agreement of any rule of law to the effect that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the party whose attorney prepared the executed draft or any earlier draft of this Agreement. It is understood and agreed that neither the specification of any dollar amount in the representations and warranties contained in this Agreement nor the inclusion of any specific item in the Schedules or Exhibits is intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material, and none of the parties shall use the fact of the setting of such amounts or the fact of any inclusion of any such item in the Schedules or Exhibits in any dispute or controversy between the parties as to whether any obligation, item or matter is or is not material for purposes hereof. 49 Section 14.9 Publicity. No party hereto shall issue, make or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby, or otherwise make any disclosures relating thereto, without the consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that such consent shall not be required where such release or announcement is required by applicable law or the rules or regulations of a securities exchange, in which event the party so required to issue such release or announcement shall endeavor, wherever possible, to furnish an advance copy of the proposed release to the other party. Section 14.10 Waiver. Except as otherwise expressly provided in this Agreement, neither the failure nor any delay on the part of any party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to each party at law or in equity. Section 14.11 Parties in Interest. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies hereunder; provided, however, that the indemnification provisions in Article XIII shall inure to the benefit of the Buyer Indemnitees and the Seller Indemnitees as provided therein. Section 14.12 Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14.13 Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. Section 14.14 Entire Agreement. This Agreement, the Exhibits and Schedules hereto and the documents specifically referred to herein and the Confidentiality Agreement constitute the entire agreement, understanding, representations and warranties of the parties hereto, and supersede all prior agreements, both written and oral, between Buyer and Seller. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Disclosure of any fact or item in any Schedule referenced by a particular paragraph or Section in this Agreement shall, should the existence of the fact or item or its contents be relevant to any other paragraph or Section, be deemed to be disclosed with respect to that other paragraph or Section whether or not any explicit cross-reference appears therein. Section 14.15 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Section 14.16 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the greatest extent possible. [SIGNATURES APPEAR ON FOLLOWING PAGE] 50 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. CITIZENS UTILITIES COMPANY By: __________________________________ Robert J. DeSantis, Chief Financial Officer and Vice President ATTEST: KAUAI ISLAND UTILITY CO-OP __________________________________ By: __________________________________ Secretary Gregg Gardiner, Chairman and President [Signature page to Purchase and Sale Agreement (Kauai Electric) between Citizens Utilities Company and Kauai Island Utility Co-Op, dated as of February 11, 2000.] 51 -----END PRIVACY-ENHANCED MESSAGE-----