EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 31, 1997,
BETWEEN
VALERO ENERGY CORPORATION,
PG&E CORPORATION
AND
PG&E ACQUISITION CORPORATION
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TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
PAGE
----
ARTICLE I
DEFINITIONS.................................................... A-1
1.1. Definitions.................................................... A-1
ARTICLE II
THE MERGER..................................................... A-6
2.1. The Merger..................................................... A-6
2.2. Effective Time................................................. A-6
2.3. Closing........................................................ A-6
2.4. Certificate of Incorporation of the Surviving Corporation...... A-7
2.5. By-laws of the Surviving Corporation........................... A-7
2.6. Directors...................................................... A-7
2.7. Officers....................................................... A-7
ARTICLE III
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN
THE MERGER..................................................... A-7
3.1. Merger Consideration; Conversion or Cancellation of Shares..... A-7
3.2. Exchange of Certificates....................................... A-9
ARTICLE IV
CERTAIN PRE-MERGER TRANSACTIONS................................ A-11
4.1. Reorganization Agreements and Interim Services Agreement....... A-11
4.2. Intercorporate Reorganization of Company....................... A-11
4.3. Distribution................................................... A-11
4.4. Senior Notes................................................... A-11
4.5. VESOP Notes.................................................... A-11
ARTICLE V
REPRESENTATIONS AND WARRANTIES................................. A-11
5.1. Representations and Warranties of the Company.................. A-11
5.2. Representations and Warranties of Acquiror and Sub............. A-21
ARTICLE VI
COVENANTS...................................................... A-25
6.1. Covenants of the Company....................................... A-25
6.2. Covenants of Acquiror.......................................... A-28
ARTICLE VII
ADDITIONAL AGREEMENTS.......................................... A-28
7.1. Access......................................................... A-28
7.2. Other Actions.................................................. A-29
7.3. Acquisition Proposals; Board Recommendation.................... A-29
7.4. Tax Representation Letters..................................... A-30
7.5. Filings; Other Actions......................................... A-30
7.6. Accountants' Letters........................................... A-31
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TABLE OF CONTENTS, CONTINUED
AGREEMENT AND PLAN OF MERGER, CONTINUED
PAGE
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7.7. Distribution Agreement........................................ A-32
7.8. Publicity..................................................... A-32
7.9. Employees and Employee Plans.................................. A-32
7.10. Expenses...................................................... A-33
7.11. Takeover Statutes............................................. A-33
7.12. Securities Act Compliance..................................... A-33
7.13. Stock Exchange Listing........................................ A-33
7.14. 1935 Act...................................................... A-33
7.15. Further Assurances............................................ A-33
ARTICLE VIII
CONDITIONS.................................................... A-34
8.1. Conditions to Each Party's Obligation to Effect the Merger.... A-34
8.2. Conditions to Obligation of the Company....................... A-34
8.3. Conditions to Obligations of Acquiror and Sub................. A-35
ARTICLE IX
TERMINATION................................................... A-36
9.1. Termination................................................... A-36
9.2. Effect of Termination and Abandonment......................... A-36
ARTICLE X
MISCELLANEOUS AND GENERAL..................................... A-37
10.1. Survival...................................................... A-37
10.2. Modification or Amendment..................................... A-37
10.3. Waiver; Remedies.............................................. A-37
10.4. Counterparts.................................................. A-37
10.5. Governing Law................................................. A-37
10.6. Notices....................................................... A-37
10.7. Entire Agreement.............................................. A-38
10.8. Certain Obligations........................................... A-38
10.9. Assignment.................................................... A-38
10.10. Captions...................................................... A-38
10.11. Severability.................................................. A-38
10.12. No Third Party Beneficiaries.................................. A-38
10.13. Annexes and Schedules......................................... A-38
10.14. No Representations or Warranties.............................. A-39
10.15. Tax Sharing Agreement......................................... A-39
10.16. Consent to Jurisdiction....................................... A-39
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AGREEMENT AND PLAN OF MERGER dated as of January 31, 1997 (this
"Agreement"), between VALERO ENERGY CORPORATION, a Delaware corporation (the
"Company"), PG&E Corporation, a California corporation ("Acquiror") and PG&E
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary
of Acquiror ("Sub") formed for the purpose of participating in the Merger
described herein.
W I T N E S S E T H:
WHEREAS, Acquiror desires to acquire the Retained Business (as herein
defined) but does not wish to acquire the other businesses conducted, or to be
conducted, by the Company;
WHEREAS, the Board of Directors of the Company has approved an agreement and
plan of distribution substantially in the form of Annex A attached hereto (the
"Distribution Agreement"), which will be entered into prior to the Effective
Time (as defined herein), pursuant to which and subject to the terms of which
among other things (a) the Company and Valero Refining and Marketing Company,
a Delaware corporation and wholly owned Subsidiary of the Company ("VRM"),
will consummate the transactions contemplated in Article II of the
Distribution Agreement and (b) all of the issued and outstanding shares of
common stock, par value $0.01 per share (the "VRM Common Stock") along with
the associated rights (the "VRM Rights") issued pursuant to the Rights
Agreement substantially in the form attached to the VRM Registration Statement
(as defined herein) between VRM and the rights agent named therein (the "VRM
Rights Agreement") of VRM will be distributed (the "Distribution") to the
holders of shares of common stock, par value $1.00 per share, of the Company.
Such common stock together with the rights issued pursuant to the Rights
Agreement dated as of October 26, 1995 between the Company and ▇▇▇▇▇▇ Trust
and Savings Bank, as agent (the "Company Rights Agreement") being referred to
herein as "Company Common Stock";
WHEREAS, the respective Boards of Directors of the Company, Acquiror and Sub
have determined that, following the Distribution, a merger of Sub with and
into the Company (the "Merger"), with the Company as the surviving
corporation, would be in the best interests of their respective corporations
and stockholders; and
WHEREAS, it is the intention of the parties to this Agreement that for
Federal income tax purposes (a) the Distribution shall qualify as a
transaction described in Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code") and a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code, and (b) the Merger shall qualify as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) As used in this Agreement the following terms shall
have the following respective meanings:
"Acquiror Common Stock" shall have the meaning set forth in Section
3.1(a)(ii).
"Acquiror Form S-4" shall have the meaning set forth in Section 5.1(g)(iii).
"Acquiror Pension Plan" shall mean the Retirement Plan for Employees of
Pacific Gas Transmission Company, as in effect as of the date hereof.
"Acquiror Thrift Plan" shall mean a defined contribution plan with a cash or
deferred arrangement sponsored by the Acquiror or an Affiliate and intended to
qualify under Sections 401(a) and (k) of the Code.
"Acquisition Proposal" shall mean any inquiry, proposal or offer for, or any
indication of interest in, from any person, either (A) a merger, acquisition,
business combination, consolidation or similar transaction involving,
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or any purchase of, more than 50% of the voting securities of the Company or
any Subsidiary, or all or substantially all of the assets of the Company or
any Subsidiary (excluding any such transaction relating solely to the assets
or voting securities of VRM or any of its Subsidiaries) or (B) an acquisition,
or similar transaction involving the purchase, of a substantial portion of the
assets of or a substantial equity interest in the Retained Business, other
than, in each case, the transactions contemplated by this Agreement.
"Affiliate" shall mean, with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person;
provided, however, that from and after the Time of Distribution, no member of
either Group shall be deemed to be an Affiliate of any member of the other
Group.
"Assignment and Assumption Agreements" shall mean any and all conveyance and
assumption instruments which may be entered into pursuant to any of the
Reorganization Agreements.
"Cash Dividend" shall have the meaning set forth in the Distribution
Agreement.
"Certificate of Merger" shall have the meaning set forth in Section 2.2.
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Certificate" shall have the meaning set forth in Section 3.1(b).
"Company By-laws" shall mean the by-laws of the Company, as amended.
"Company Charter" shall mean the certificate of incorporation of the
Company, as amended.
"Company Common Stock" shall have the meaning set forth in the third
paragraph of this Agreement.
"Company Convertible Preferred Stock" shall have the meaning set forth in
Section 5.1(e).
"Company Disclosure Schedule" shall have the meaning set forth in Section
5.1.
"Company Meeting" shall have the meaning set forth in Section 5.1(g)(iii).
"Company Options" shall have the meaning set forth in Section 3.1(a)(iii).
"Company Preferred Stock" shall have the meaning set forth in Section
5.1(e).
"Company Restricted Stock Plans" shall mean the Company's Restricted Stock
Bonus and Incentive Stock Plan, effective as of April 30, 1981 and amended and
restated effective as of November 21, 1996, the Restricted Stock Plan for Non-
employee Directors, effective as of November 14, 1990 and amended and restated
effective as of August 22, 1996 and/or the Executive Stock Incentive Plan,
effective as of July 21, 1994 and amended and restated effective as of
November 21, 1996.
"Company Rights Agreement" shall have the meaning set forth in the third
paragraph of this Agreement.
"Company Series A Preferred Stock" shall have the meaning set forth in
Section 5.1(e).
"Company SAR" shall have the meaning assigned to such term by the Employee
Benefits Agreement.
"Company Stock Plans" shall mean the Company's Stock Option Plan ▇▇. ▇,
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇. ▇, ▇▇▇▇▇ Option Plan No. 5, Company Restricted Stock
Plans, Non-Employee Director Stock Option Plan, Executive Incentive Bonus
Plan, Employee Thrift Plan, Benefits Trust, ESOP and VESOP, each as amended
and/or restated.
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"Continuing Employee" shall have the meaning set forth in Section 7.9(b).
"Contract" shall have the meaning set forth in Section 5.1(d)(i).
"Credit Facilities" shall mean the $835 million Revolving Credit Agreement,
dated as of May 1, 1997, as amended, among the Company, VRM, ▇▇▇▇▇▇ Guaranty
Trust Company of New York, as Administrative Agent, Bank of Montreal, as
Syndication Agent, and the banks listed therein (the "New Credit Facility"), and
the Company's uncommitted short- term bank credit lines and uncommitted bank
letter of credit facilities (the "Uncommitted Facilities").
"Deferred Compensation Plans" shall mean the Company's Executive Deferred
Compensation Plan, effective as of November 26, 1984 and amended and restated
effective as of October 21, 1986 and the Company Key Employee Deferred
Compensation Plan, effective as of August 20, 1985, and amended and restated
effective as of October 21, 1986.
"Distribution" shall have the meaning set forth in the third paragraph of
this Agreement.
"Distribution Agreement" shall have the meaning set forth in the third
paragraph of this Agreement.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Employee Benefits Agreement" shall mean an employee benefits agreement
substantially in the form of Annex B attached hereto.
"Employee Plan" shall mean each "employee benefit plan," within the meaning
of Section 3(3) of ERISA, each Company Stock Plan, and each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which is
maintained, administered or contributed to by the Company or any of its ERISA
Affiliates primarily for U.S. citizens or residents and which covers any
employee of the Company.
"Environmental Law" shall have the meaning set forth in the Distribution
Agreement.
"Environmental Permits" shall have the meaning set forth in Section 5.1(o).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity (excluding any VRM Company) which,
together with the Company, would be treated as a single employer under Section
414(b) or (c) of the Code.
"ESOP" shall mean the Company's Employee Stock Ownership Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 3.2(a).
"Expenses" shall mean documented out-of-pocket fees and expenses incurred by
the Company and its Subsidiaries in connection with efforts to consummate any
of the transactions contemplated by the Reorganization Agreements, including,
without limitation, financing fees (including, without limitation, financing
fees to refund or repay the IRBs), consent fees, printing costs and fees,
severance (including, without limitation severance payments to employees of
Valero Corporate Services Company or Valero Management Company incurred prior
to or after the Effective Time in connection with the transactions
contemplated by the Reorganization Agreements) and early retirement payments,
and payments pursuant to the Incentive Bonus
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Agreements, payments pursuant to the Shareholder Value Bonus Plan, expenses of
counsel, investment banking firms, accountants, experts and consultants and
the expenses incurred in connection with printing and mailing the Proxy
Statement-Prospectus, the Acquiror Form S-4 and the VRM Registration
Statement.
"Filed Acquiror SEC Documents" shall have the meaning set forth in Section
5.2(g).
"Filed Company SEC Documents" shall have the meaning set forth in Section
5.1(i).
"GAAP" shall mean United States generally accepted accounting principles.
"Group" shall have the meaning set forth in the Distribution Agreement.
"Governmental Entity" shall have the meaning set forth in Section
5.1(d)(ii).
"Hazardous Substance" shall have the meaning set forth in the Distribution
Agreement.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of
1976, as amended.
"Interim Services Agreement" shall mean the interim services agreement,
entered into by the Company and VRM.
"Intellectual Property" shall mean all intellectual property rights,
including domestic and foreign patents, patent applications, invention
disclosures to be filed or awaiting filing determinations, trademark and
service ▇▇▇▇ applications, registered trademarks, registered service marks,
registered copyrights, trademarks, servicemarks, tradenames, trade secrets and
other proprietary rights, inventions, know-how, formulae, processes,
procedures, research records, records of inventions, test information, market
surveys and marketing know-how and unregistered copyrights, together with
associated goodwill.
"Joint Ventures" shall mean the joint ventures set forth in Schedule
5.1(f)(ii).
"Lien" shall have the meaning set forth in Section 5.1(d)(i).
"Material Adverse Effect" shall mean with respect to any entity, or group of
entities taken as a whole, such state of facts, event, change, or effect that
has had, or would reasonably be expected to have, a material adverse effect on
the assets, business, properties, results of operations, or financial
condition of such entity, or group of entities taken as a whole, or the
ability of such entity, or group of entities, to consummate the transactions
contemplated by this Agreement, including without limitation the Distribution
and the Merger or to perform its obligations under the Reorganization
Agreements to which it is or will be a party.
"Merger" shall have the meaning set forth in the fourth paragraph of this
Agreement.
"New Certificates" shall have the meaning set forth in Section 3.2(a).
"Notice of Superior Proposal" means a written notice advising Acquiror that
the Board of Directors of the Company has received a Superior Proposal.
"NYSE" shall have the meaning set forth in Section 3.1(a)(ii).
"Per Share Merger Consideration" shall have the meaning set forth in Section
3.1(a)(ii).
"Permit" shall have the meaning set forth in Section 5.1(d)(i).
"Permitted Liens" shall mean, collectively, those Liens (A) set forth in
Schedule 1.1(a), (B) for Taxes not yet due or payable or being contested in
good faith, (C) that constitute mechanics', carriers', workers' or like liens
or (D) that individually or in the aggregate, would not have a Material
Adverse Effect on the Retained Companies, taken as a whole.
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"Person" shall mean an individual, partnership, a joint venture, a
corporation, a limited liability entity, a trust, an unincorporated
organization or other entity or a government or any department or agency
thereof.
"Post-Signing Return" shall have the meaning set forth in Section 6.1(k).
"Proxy Statement-Prospectus" shall have the meaning set forth in Section
5.1(g)(iii).
"Registration Statements" shall mean, collectively, the Acquiror Form S-4
and the VRM Registration Statement.
"Regulatory Filings" shall have the meaning set forth in Section 5.1(d)(ii).
"Release" shall have the meaning set forth in the Distribution Agreement.
"Reorganization Agreements" shall mean, collectively, this Agreement, the
Distribution Agreement, the Tax Sharing Agreement and the Employee Benefits
Agreement.
"Representatives" shall mean directors, officers, employees, agents,
consultants, advisors, accountants, attorneys and representatives.
"Retained Assets" shall have the meaning set forth in the Distribution
Agreement.
"Retained Business" shall have the meaning set forth in the Distribution
Agreement.
"Retained Company" or "Retained Companies" shall have the meaning set forth
in Section 1.1(b).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SERP" shall mean the Company's Supplemental Executive Retirement Plan,
effective as of January 1, 1983 and amended and restated effective as of
January 1, 1996.
"Software" shall include all proprietary software programs, and the related
source code, system documentation, statements of principles of operation, and
schematics for all software programs, as well as any pertinent commentary or
explanation that may be necessary to render such materials understandable and
usable by a trained computer programmer.
"Subsidiary" shall mean any corporation or other organization (including
without limitation partnerships but as used in Section 5.1, excluding Joint
Ventures), whether incorporated or unincorporated, of which, directly or
indirectly, at least a majority of the securities or interests having by the
terms thereof ordinary voting power to elect at least a majority of the board
of directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
"Superior Proposal" shall mean any bona fide Acquisition Proposal made by a
third party on terms which the Board of Directors of the Company determines in
its good faith judgment to be more favorable to the Company's stockholders
than the Merger and the other transactions contemplated hereby.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Takeover Statute" shall have the meaning set forth in Section 5.1(p).
"Tax Authority" shall have the meaning set forth in the Tax Sharing
Agreement.
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"Taxes" shall have the meaning set forth in the Tax Sharing Agreement.
"Tax Return" shall have the meaning set forth in the Tax Sharing Agreement.
"Tax Sharing Agreement" shall mean the tax sharing agreement substantially
in the form of Annex C attached hereto.
"Time of Distribution" shall have the meaning set forth in the Distribution
Agreement.
"VESOP" shall mean the Valero Employees' Stock Ownership Plan.
"VNG" shall mean Valero Natural Gas Company, a Delaware corporation and a
wholly-owned Subsidiary of the Company and, with respect to the period prior
to June 30, 1996, shall be construed to include VNGC Holding Company, a
Delaware corporation and wholly owned subsidiary of the Company.
"VRM Common Stock" shall have the meaning set forth in the third paragraph
of this Agreement.
"VRM Registration Statement" shall have the meaning set forth in Section
5.1(g)(iii).
"VRM Rights" shall have the meaning set forth in the third paragraph of this
Agreement.
"VRM Rights Agreement" shall have the meaning set forth in the third
paragraph of this Agreement.
(b) As used in this Agreement, (i) any reference to the Company and its
Subsidiaries means the Company and each of its Subsidiaries, (ii) any
reference to the "Retained Company" and its Subsidiaries or the "Retained
Companies" means the Company (solely with respect to the Retained Business)
and those of its direct and indirect Subsidiaries included in the Retained
Business, (iii) any reference to the "Retained Subsidiaries" or "Retained
Subsidiary" means the direct and indirect Subsidiaries or Subsidiary of the
Company included in the Retained Business, (iv) any reference to VRM and its
Subsidiaries or the "VRM Companies" means VRM immediately after the Time of
Distribution and those entities that immediately after the Time of
Distribution will be direct or indirect Subsidiaries of VRM and (v) any
reference to Subsidiaries of VRM means those entities that immediately after
the Time of Distribution will be direct or indirect Subsidiaries of VRM. All
capitalized terms not otherwise defined herein shall have the meaning set
forth in the Distribution Agreement.
ARTICLE II
THE MERGER
2.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time, Sub will be merged with and into the
Company, the separate corporate existence of Sub will thereupon cease and the
Company will be the surviving corporation (the "Surviving Corporation"). The
Merger will have the effects specified in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
of the properties, rights, privileges, powers, franchises, debts, liabilities,
obligations and duties of the Company will continue in the Surviving
Corporation as provided for in the DGCL.
2.2. Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VIII, the parties will file a
certificate of merger (the "Certificate of Merger") executed in accordance
with the relevant provisions of the DGCL and will make all other filings or
recordings required under the DGCL to consummate the Merger. The Merger will
become effective upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or at such other time as the
parties hereto may agree and as may be specified in the Certificate of Merger
in accordance with applicable law. The date and time when the Merger becomes
effective is herein referred to as the "Effective Time".
2.3. Closing. The closing of the Merger (the "Closing") will take place (i)
at the offices of Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 9:00 A.M. on the first business day
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on which all the conditions set forth in Article VIII (other than those that
are waived by the party or parties for whose benefit such conditions exist)
are fulfilled or (ii) at such other place, date and/or time as the parties
hereto may agree. The date upon which the Closing occurs is herein referred to
as the "Closing Date"; provided that the Closing shall not take place earlier
than 10 business days following the Company Meeting.
2.4. Certificate of Incorporation of the Surviving Corporation. At the
Effective Time, in accordance with the DGCL, the Certificate of Incorporation
of the Company in effect immediately prior to the Effective Time will be
amended as set forth in Annex G hereto and, as so amended, will be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law (the "Surviving
Corporation's Certificate of Incorporation").
2.5. By-laws of the Surviving Corporation. The Company By-laws will be the
by-laws of the Surviving Corporation until amended in accordance with the
terms thereof, the Surviving Corporation's Certificate of Incorporation and
applicable law.
2.6. Directors. The directors of Sub at the Effective Time will be the
directors of the Surviving Corporation until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be.
2.7. Officers. The officers of Sub at the Effective Time will be the
officers of the Surviving Corporation until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE III
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
3.1. Merger Consideration; Conversion or Cancellation of Shares. (a) At the
Effective Time, by virtue of the Merger and without any further action on the
part of the holders of any shares of capital stock of the Company or any
shares of capital stock of Sub:
(i) Each share of Company Common Stock (A) issued and outstanding
immediately prior to the Effective Time and (1) owned by Acquiror or any of
its wholly-owned Subsidiaries (but not by any employee benefit plan of, or
any nuclear decommissioning trust for the benefit of, Acquiror or any of
its Subsidiaries) or (2) owned by any Subsidiary of the Company (but not by
any Employee Plan of the Company or any of its Subsidiaries) or (B) held in
the treasury of the Company immediately prior to the Effective Time will
cease to be outstanding, will be canceled and retired without payment of
any consideration therefor and will cease to exist.
(ii) Subject to Section 3.2(c), each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares
to be canceled in accordance with Section 3.1(a)(i)) will be converted into
the right to receive that number (the "Per Share Merger Consideration") of
duly authorized, validly issued, fully paid and nonassessable shares of
common stock, no par value, of Acquiror ("Acquiror Common Stock"), equal to
the quotient, rounded to the nearest thousandth, or if there shall not be a
nearest thousandth, the next higher thousandth, of (x) the quotient of (A)
$722.5 million (increased by the total amount of cash paid to the Company
between the execution of this Agreement and the Closing in order to
exercise the Company Options plus an amount equal to the total exercise price
of any unexercised Company Options and any unexercised Company SARs, but
reduced (I) by the total cash amount paid by the Retained Companies between
December 31, 1996 and the Closing in settlement of any stock appreciation
rights (including limited rights), Company Options or performance shares,
except to the extent such amounts have been recorded as accrued liabilities on
the 1996 balance sheet included in the Retained Companies' Financial
Statements, and (II) if applicable, in accordance with the last sentence of
this Section 3.1(a)(ii)
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divided by (B) the sum of the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (including shares
issued pursuant to the conversion of Company Preferred Stock and other than
shares to be canceled in accordance with Section 3.1(a)(i)) plus the number of
performance shares (not otherwise reflected in the number of outstanding
shares of Company Common Stock), the number of shares subject to unexercised
Company Options and the number of any accompanying Company SARs at such time,
(each number to be determined immediately prior to the Effective Time with the
number of Company Options and Company SARs to be increased to take into
account the adjustment required by Sections 3.01(a), (b) and (c) of the
Employee Benefits Agreement) divided by (y) the Market Price (as defined
below) of Acquiror Common Stock on the Closing Date. The "Market Price" of
Acquiror Common Stock on any date means the average of the daily closing
prices per share of Acquiror Common Stock as reported on the New York Stock
Exchange ("NYSE") Composite Tape ("NYSE Tape") on each of the last 15
consecutive full NYSE trading days (the "Averaging Period") ending on and
including the second trading day prior to such date; provided that (A) if the
Board of Directors of Acquiror declares a dividend on the outstanding shares
of Acquiror Common Stock having a record date after the Effective Time but an
ex-dividend date (based on "regular way" trading on the NYSE of shares of
Acquiror Common Stock, the "Ex-Date") that occurs during the Averaging Period,
then for purposes of computing the Market Price, the closing price on the Ex-
Date and any trading day in the Averaging Period after the Ex-Date will be
adjusted by adding thereto the amount of such dividend and (B) if the Board of
Directors of Acquiror declares a dividend on the outstanding shares of
Acquiror Common Stock having a record date before the Effective Time and an
Ex-Date that occurs during the Averaging Period, then for purposes of
computing the Market Price, the closing price on any trading day before the
Ex-Date will be adjusted by subtracting therefrom the amount of such dividend.
Notwithstanding anything to the contrary contained herein, in the event that
the Market Price of Acquiror Common Stock on the Closing Date is less than
$19.125 (the "Minimum Price"), then solely for the purposes of calculating the
Per Share Merger Consideration, the Market Price of Acquiror Common Stock on
the Closing Date will be deemed to be the Minimum Price, and in the event that
the Market Price of Acquiror Common Stock on the Closing Date is greater than
$25.875 (the "Maximum Price"), then solely for the purposes of calculating the
Per Share Merger Consideration, the Market Price of Acquiror Common Stock on
the Closing Date will be deemed to be the Maximum Price. If prior to the
Effective Time Acquiror shall declare a stock dividend or make distributions
upon or subdivide, split up, reclassify or combine Acquiror Common Stock or
declare a dividend or make a distribution on Acquiror Common Stock in any
security convertible into Acquiror Common Stock, appropriate adjustment or
adjustments will be made to the Per Share Merger Consideration; provided,
however, that Acquiror not take any such action that would occur during the
Averaging Period. If the aggregate amount of any adverse impact referred to in
Section 9.1(d)(iii) (calculated as set forth therein) exceeds $50 million,
then the dollar amount set forth in subsection (A) of this Section 3.1(a)(ii)
shall be reduced by an amount equal to the amount by which the amount of such
adverse impact exceeds $50 million provided, however, that in no event shall
such reduction exceed $50 million in the aggregate.
(iii) Each option granted by the Company to purchase shares of Company
Common Stock (the "Company Options") which is outstanding and unexercised
immediately prior to the Effective Time and after the Time of Distribution
shall cease to represent a right to acquire shares of Company Common Stock
and shall be converted automatically into an option (not intended to
qualify under section 422 of the Code) to purchase shares of Acquiror
Common Stock in an amount and at an exercise price determined as provided
below:
(A) the number of shares of Acquiror Common Stock to be subject to
the new option shall be equal to the product of the number of shares of
Company Common Stock subject to the original option and the Per Share Merger
Consideration; provided that in the case of any Company Option which is
accompanied by Company SARs, such Company SARs shall automatically terminate
and cease to represent a right to receive a cash payment from the Company
and, in lieu thereof, the total number of shares of Acquiror Common Stock to
be subject to the new option shall be equal to the product of (I) the sum of
(x) the number of shares of Company Common Stock subject to the original
option (as adjusted pursuant to Sections 3.01(a), (b) and (c) of the
Employee Benefits Agreement) and (y) the number of Company SARs accompanying
the original option (as adjusted pursuant to Sections 3.01(a), (b) and (c)
of the Employee Benefits Agreement), and (II) the Per Share Merger
Consideration, and provided further that, in each case, any fractional
shares of Acquiror Common Stock resulting from such multiplication shall be
rounded up to the nearest share; and
(B) the exercise price per share of Acquiror Common Stock under the new
option shall be equal to the exercise price per share of Company Common
Stock or Company SAR, as the case may be, under the original option divided
by the Per Share Merger Consideration; provided that such exercise price
shall be rounded down to the nearest cent.
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(b) All shares of Company Common Stock referred to in Section 3.1(a)(ii)
will cease to be outstanding, will be canceled and retired and will cease to
exist, and each holder of a certificate (a "Certificate") formerly
representing such shares will thereafter cease to have any rights with respect
to such shares, except the right to receive, without interest, upon exchange
of such Certificate in accordance with Section 3.2, the shares of Acquiror
Common Stock and any payment to which such holder is entitled pursuant to this
Article III.
(c) At and after the Effective Time, by virtue of the Merger, each share of
capital stock of Sub issued and outstanding immediately prior to the Effective
Time will be converted into and become one fully paid and nonassessable share
of common stock, par value $0.01 per share, of the Surviving Corporation.
3.2. Exchange of Certificates. (a) Appointment of Exchange Agent. Prior to
the Effective Time, Acquiror shall appoint an exchange agent (the "Exchange
Agent") satisfactory to the Company for the purpose of exchanging all Company
Common Stock for Acquiror Common Stock in accordance with the terms of this
Agreement. As of the Effective Time, Acquiror will deposit with the Exchange
Agent, for the benefit of the holders of Certificates, for exchange in
accordance with this Article III, certificates ("New Certificates")
representing Acquiror Common Stock in amounts sufficient to allow the Exchange
Agent to make all deliveries of New Certificates that may be required in
exchange for Certificates pursuant to this Article III. Acquiror will provide
to the Exchange Agent on a timely basis funds necessary to pay any cash
payable in lieu of fractional shares of Acquiror Common Stock pursuant to
Section 3.2(c) and funds and other property necessary to pay or make any
dividends or distributions with respect to shares of Acquiror Common Stock
pursuant to Section 3.2(d).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Acquiror will cause the Exchange Agent to mail or deliver to
each Person, who was at the Effective Time a holder of record of a
Certificate, a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent and will be in such form
and contain such other provisions as Acquiror and VRM may reasonably specify)
containing instructions for use in effecting the surrender of Certificates in
exchange for New Certificates and payments pursuant to this Article III. Upon
surrender to the Exchange Agent of a Certificate for cancellation together
with such letter of transmittal, duly executed and completed in accordance
with the instructions thereto, the holder of such Certificate will be entitled
to receive in exchange therefor a New Certificate representing that number of
whole shares of Acquiror Common Stock which such holder has the right to
receive pursuant to the provisions of this Article III, a check in the amount
of any cash which such holder has the right to receive in lieu of fractional
shares of Acquiror Common Stock pursuant to Section 3.2(c) and any cash
dividends with respect to Acquiror Common Stock pursuant to Section 3.2(d) and
any other dividends or distributions with respect to Acquiror Common Stock
pursuant to Section 3.2(d), and the Certificate so surrendered will forthwith
be canceled. No interest will be paid or will accrue on the amount payable
upon surrender of Certificates. Until surrendered as contemplated by this
Section 3.2, each Certificate will be deemed at any time after the Effective
Time to represent only the right to receive, upon surrender of such
Certificate, the applicable New Certificate, cash in lieu of fractional shares
of Acquiror Common Stock and any dividends or distributions with respect to
shares of Acquiror Common Stock as contemplated by this Section 3.2. In the
event of a transfer of ownership of Company Common Stock that is not
registered on the transfer records of the Company, New Certificates
representing the proper number of shares of Acquiror Common Stock and any cash
in lieu of fractional shares of Acquiror Common Stock and any dividends or
distributions as aforesaid may be issued to a Person other than the Person in
whose name the Certificate so surrendered is registered, if such Certificate
is properly endorsed or otherwise in proper form for transfer and the Person
requesting such issuance pays any transfer or other taxes required by reason
of the issuance of shares of Acquiror Common Stock or establishes to the
satisfaction of Acquiror that such tax has been paid or is not applicable. Six
months after the Effective Time, Acquiror will be entitled to cause the
Exchange Agent to deliver to Acquiror any New Certificates, cash or other
property (including any interest thereon) deposited with the Exchange Agent
that is unclaimed by the former holders of Company Common Stock. Any such
former holders of Company Common Stock who have not theretofore exchanged
their Certificates for New Certificates and cash, if applicable, and other
property pursuant to this Article III will thereafter be entitled to look
exclusively to Acquiror and only as general creditors thereof for the Acquiror
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Common Stock and cash and other property to which they become entitled upon
exchange of their Certificates pursuant to this Article III (including cash in
lieu of fractional shares of Acquiror Common Stock pursuant to Section 3.2(c)
and any dividends or distributions with respect to Acquiror Common Stock
pursuant to Section 3.2(d)). Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto will be liable to any former holder of
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws. Acquiror
will pay all charges and expenses, including those of the Exchange Agent, in
connection with the exchange of New Certificates and cash for Certificates as
contemplated hereby.
(c) Fractional Shares. Notwithstanding Section 3.1 or any other provision of
this Section 3.2, no fractional shares of Acquiror Common Stock will be issued
hereunder and any holder of Company Common Stock entitled hereunder to receive
a fraction of a share of Acquiror Common Stock but for this Section 3.2(c)
will be entitled hereunder to receive a cash payment in lieu thereof, without
interest, in an amount, less the amount of any withholding taxes which may be
required thereon, equal to the product of (i) the fraction of a share to which
such holder would otherwise have been entitled multiplied by (ii) the Market
Price of Acquiror Common Stock on the Closing Date determined in accordance
with Section 3.1(a)(ii), but without regard for the Minimum Price or the
Maximum Price. For purposes of paying such cash in lieu of fractional shares,
all Certificates representing shares of Company Common Stock surrendered for
exchange by a Company stockholder on the same letter of transmittal shall be
aggregated, and no such Company stockholder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of one full
share of Acquiror Common Stock with respect to such Certificates surrendered.
(d) Distributions with Respect to Unexchanged Shares. Notwithstanding any
other provisions of this Agreement, after the Effective Time no dividends or
other distributions with respect to Acquiror Common Stock with a record date
after the Effective Time will be paid to any Person holding a Certificate
until such Certificate is surrendered for exchange as provided herein. Subject
to the effect of applicable laws, following surrender of any such Certificate
by any holder thereof, there will be paid to the holder of the New Certificate
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to the Acquiror
Common Stock represented thereby, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to the time of such surrender and a payment date
subsequent to the time of such surrender payable with respect to the Acquiror
Common Stock represented thereby, less the amount of any withholding taxes
which may be required thereon.
(e) No Further Ownership Rights in Company Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Article III, any cash in lieu of
fractional shares of Acquiror Common Stock paid pursuant to Section 3.2(c) or
any dividend or distribution paid or made with respect to Acquiror Common
Stock pursuant to Section 3.2(d) will be deemed to have been issued, paid and
made in full satisfaction of all rights pertaining to the shares of Company
Common Stock theretofore represented by such Certificates, and there will be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or the Exchange
Agent for any reason, they will be canceled and exchanged as provided in this
Article III.
(f) No Liability. In the event that any Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Surviving
Corporation will, in exchange for such lost, stolen or destroyed Certificate,
issue or cause to be issued the number of shares of Acquiror Common Stock and
pay or cause to be paid the amounts deliverable in respect thereof pursuant to
this Article III.
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(g) Withholding Rights. The Surviving Corporation will be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Stock such amounts as may be
required to be deducted and withheld with respect to the making of such
payment under the Code, or under any provision of state, local or foreign tax
law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority, such withheld amounts will be treated for all
purposes of this Agreement as having been paid to the holder of Company Common
Stock in respect of which such deduction and withholding was made.
ARTICLE IV
CERTAIN PRE-MERGER TRANSACTIONS
The following transactions shall occur prior to the Effective Time:
4.1. Reorganization Agreements and Interim Services Agreement. Prior to the
Distribution, the Company will (a) execute and deliver the other
Reorganization Agreements and the Interim Services Agreement and (b) cause VRM
to execute and deliver the other Reorganization Agreements and the Interim
Services Agreement, in each case to which it is a party. Prior to the
Distribution, Acquiror will execute the Tax Sharing Agreement and the Interim
Services Agreement. All the Reorganization Agreements and the Interim Services
Agreement shall be executed in substantially the form attached hereto, which
agreements shall not be altered without the consent of Acquiror.
4.2. Intercorporate Reorganization of Company. Prior to the Time of
Distribution and pursuant to the terms of the Distribution Agreement, the
Company and VRM will consummate the intercorporate transactions contemplated
by Article II of the Distribution Agreement.
4.3. Distribution. Prior to the Effective Time, subject to and pursuant to
the terms and conditions of the Distribution Agreement, the Company will
effect the Distribution and the other transactions contemplated by the
Distribution Agreement.
4.4. Senior Notes. Prior to the Time of Distribution, the Retained Company
will either (a) obtain the consents of the note purchasers under the Note
Purchase Agreement dated December 19, 1990 between the Company and the note
purchasers, in order to permit the Distribution and the Merger or (b) prepay
the notes in accordance with their terms.
4.5. VESOP Notes. Prior to the Effective Time, the Company will cause the
VESOP to prepay the VESOP Notes issued under the Note Purchase Agreement dated
as of March 17, 1989 and the VESOP Notes issued under the Note Purchase
Agreement dated as of August 15, 1991 in accordance with their terms and will
terminate the related guarantee of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. Except as set forth in
the disclosure schedule (the "Company Disclosure Schedule") delivered by the
Company to Acquiror simultaneously with the execution and delivery of this
Agreement, the Company hereby represents and warrants to Acquiror as follows:
(a) Corporate Organization. Each of the Company and VRM is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Each Retained Subsidiary is, or will be, a corporation or
limited partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, as
applicable, as set forth in the Company Disclosure Schedule. Each of the
Retained Companies and VRM is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the properties owned, leased or
operated, or the business conducted, by it require such
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qualification, except for any such failure so to qualify or be in good
standing which, individually or in the aggregate, would not have a Material
Adverse Effect on the Retained Companies, taken as a whole, or a material
adverse effect on the ability of the VRM Companies to consummate the
transactions contemplated by, or to satisfy their obligations under, the
Reorganization Agreements. Each of the Retained Companies and VRM has the
requisite corporate or other power and authority to carry on its businesses as
it is now being or will be (immediately after the Time of Distribution)
conducted. The Company has heretofore made available to Acquiror complete and
correct copies of the Company Charter and the Company By-laws and the
certificate of incorporation and by-laws, or the comparable organizational
documents, of each Retained Subsidiary, each as amended to date and currently
in full force and effect.
(b) Corporate Authority. Each of the Company and VRM has the requisite
corporate power and authority to execute, deliver and perform each
Reorganization Agreement and the Interim Services Agreement, in each case, to
which it is a party and to consummate the transactions contemplated thereby
(assuming, (i) with respect to the Merger and the Distribution, the approval
and adoption of this Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
thereon and (ii) formal declaration of the Distribution by the Company's Board
of Directors). The execution, delivery and performance by the Company of each
Reorganization Agreement and the Interim Services Agreement, in each case, to
which it is a party and the consummation by the Company of the Distribution
and the Merger and of the other transactions contemplated thereby have been
duly authorized by the Company's Board of Directors, and no other corporate
proceedings on the part of the Company are or will be necessary to authorize
any Reorganization Agreement or the Interim Services Agreement, in each case,
to which it is a party or for the Company to consummate the transactions so
contemplated (other than, (i) with respect to the Merger and the Distribution,
the approval and adoption of this Agreement by the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock
entitled to vote thereon and (ii) formal declaration of the Distribution by
the Company's Board of Directors). The execution, delivery and performance by
VRM of each Reorganization Agreement and the Interim Services Agreement to
which it is a party and the consummation by it of the transactions
contemplated thereby have been duly authorized by VRM's Board of Directors and
its stockholder, if required, and no other corporate proceedings on the part
of such entity will be necessary to authorize any Reorganization Agreement or
the Interim Services Agreement to which it is a party or for it to consummate
the transactions so contemplated. Each Reorganization Agreement or the Interim
Services Agreement, in each case, to which the Company or VRM is a party is,
or when executed and delivered will be, a valid and binding agreement of such
party, enforceable against such party in accordance with the terms thereof.
(c) The Company Charter Takeover Provisions. The Company's Board of
Directors has approved the execution, delivery and performance by the Company
of this Agreement and the other Reorganization Agreements and the consummation
of the transactions contemplated thereby, and, subject to the representation
of Acquiror contained in Section 5.2(o) being true and correct, such approval
is sufficient to render inapplicable to the Merger and the other transactions
contemplated by the Reorganization Agreements the provisions of Sections 1 and
2 of Article VI of the Company Charter.
(d) No Violations; Consents and Approvals.
(i) None of the execution, delivery or performance by each of the Company
and VRM of any Reorganization Agreement and the Interim Services Agreement,
in each case, to which it is a party or the consummation by each of the
Company and VRM of the transactions contemplated thereby (assuming, (i)
with respect to the Merger and the Distribution, the approval and adoption
of this Agreement by the affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon and
(ii) formal declaration of the Distribution by the Company's Board of
Directors) (A) will conflict with, or result in a violation or breach of,
the Company Charter or the Company By-laws or the certificate of
incorporation or by-laws, or comparable organizational documents of VRM and
the Subsidiaries of the Company or (B) will conflict with, or result in a
violation or breach of, or constitute a default (with or without due notice
or lapse of time or both) under, or give rise to any right of termination,
amendment, cancellation or acceleration of any material obligation under,
or result in the creation of any
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adverse claim, restriction on voting or transfer or pledge, lien, charge,
encumbrance or security interest of any kind (a "Lien") upon any of the
properties or assets of the Company or VRM or any Subsidiary of either
under (1) any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract, agreement, obligation, understanding,
commitment or other arrangement (a "Contract") to which the Company or any
of its Subsidiaries is a party or by which any of their properties or
assets may be bound or of any license, franchise, permit, concession,
certificate of authority, order, approval, application or registration
form, of or with a Governmental Entity (a "Permit") or (2) to the knowledge
of the Company and subject to the Regulatory Filings, any judgment, order,
decree, statute, law, regulation or rule applicable to the Company or any
of its Subsidiaries, except, in the case of clause (B), as set forth in the
Company Disclosure Schedule and for conflicts, violations, breaches,
defaults, rights, losses or Liens that, individually or in the aggregate,
would not have a Material Adverse Effect on the Retained Companies, taken
as a whole, or a material adverse effect on the ability of the VRM
Companies to consummate the transactions contemplated by, or to satisfy
their obligations under, the Reorganization Agreements. Schedule 5.1(d)(i)
of the Company Disclosure Schedule attached hereto lists all material
Contracts and material Permits of the Company and its Subsidiaries which
require consent of, or prior notice to, a third party in order to
consummate the transactions contemplated by this Agreement or the
Distribution Agreement.
(ii) Except for consents, approvals, orders, authorizations,
registrations, declarations or filings as may be required under, and other
applicable requirements of, the Exchange Act, the Securities Act, the HSR
Act, applications or filings with the Federal Energy Regulatory Commission
under Section 203 of the Federal Power Act, filings and/or notifications
under the Investment Canada Act, Competition Act and other applicable
Canadian laws, filings under state securities or "blue sky" laws and the
filing of the Certificate of Merger (collectively, the "Regulatory
Filings"), other consents, approvals, orders, authorizations,
registrations, declarations, filings and agreements expressly provided for
in the Reorganization Agreements, and any notice or other filings to be
made following the Effective Time, no consent, approval, order or
authorization of, or registration, declaration or filing with, any
government or any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency,
Federal, state, local or foreign (a "Governmental Entity") is required with
respect to the Company, VRM or any Subsidiary of either, in connection with
the execution, delivery or performance by the Company and VRM of any
Reorganization Agreement, the Interim Services Agreement or the Assignment
and Assumption Agreements, in each case, to which it is a party or the
consummation by the Company and VRM, as the case may be, of the
transactions contemplated thereby (except where the failure to obtain such
consents, approvals, orders or authorizations, or to make such
registrations, declarations, filings or agreements, individually or in the
aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole, or a material adverse effect on the ability of
the VRM Companies to consummate the transactions contemplated by, or to
satisfy their obligations under, the Reorganization Agreements).
(e) Capital Stock. The authorized capital stock of the Company consists of
(i) 75,000,000 shares of Company Common Stock, of which 44,185,513 shares of
Company Common Stock were issued and outstanding as of the close of business
on December 31, 1996, (ii) 20,000,000 shares of preferred stock, par value
$1.00 per share ("Company Preferred Stock"), of which 11,500 of shares of
redeemable preferred stock, series A ("Company Series A Preferred Stock") and
3,450,000 shares of $3.125 convertible preferred stock ("Company Convertible
Preferred Stock") were issued and outstanding as of the close of business on
December 31, 1996 and (iii) 10,000,000 shares of serial preference stock, par
value $1.00 per share, none of which is issued and outstanding. As of the
close of business on December 31, 1996 there were outstanding under the
Company Stock Plans options to acquire an aggregate of 4,228,855 shares of
Company Common Stock (subject to adjustment on the terms set forth in the
Company Stock Plans). All of the outstanding shares of Company Common Stock
have been, and all shares of Company Common Stock which may be issued pursuant
to the terms of any options, securities or plans referred to above will be,
when issued, duly authorized and validly issued, and are or will be, when
issued, fully paid and nonassessable. The Company has outstanding no bonds,
debentures, notes or other obligations or securities (other than the Company
Common Stock and Company Preferred Stock) the holders of
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which have the right to vote (or are convertible or exchangeable into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. Except as set forth above, as of the date of this
Agreement, there are no securities convertible into or exchangeable for, or
options, warrants, calls, subscriptions, rights or Contracts of any kind to
which the Company or any of its Subsidiaries is a party or by which any of
them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of capital stock or other voting securities of the Company or of any of the
Retained Subsidiaries. There are no outstanding Contracts of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of Company Common Stock.
(f) Subsidiaries; Investments; Joint Ventures; Partnerships.
(i) The Company Disclosure Schedule lists each Retained Subsidiary.
Except as set forth in the Company Disclosure Schedule each of the
outstanding shares of capital stock or other ownership interests of each of
the Retained Subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and, is owned, either directly or indirectly,
by the Company free and clear of all Liens. Except as set forth in the
Company Disclosure Schedule there are no Contracts obligating the Company,
or restricting the Company's rights, to transfer, sell or vote, the capital
stock of the Retained Subsidiaries owned by it, directly or indirectly.
(ii) Except as set forth in the Company Disclosure Schedule, the Company
does not, directly or indirectly, own any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity
included in the Retained Business or have any Contract relating to the
issuance, sale or purchase of any ownership interest in any such entity.
(g) SEC Filings.
(i) The Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
under the Securities Act and the Exchange Act since January 1, 1994 (the
"Company SEC Documents"). As of its filing date, each Company SEC Document
filed, as amended or supplemented, if applicable, (A) complied in all
material respects with the applicable requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations thereunder
and (B) did not, at the time it was filed (and at the effective date
thereof, in the case of a registration statement), contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(ii) The financial statements of the Company included in the Company SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto and have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto). Each of the consolidated balance
sheets of the Company and its Subsidiaries included in or incorporated by
reference into the Company SEC Documents (including any related notes and
schedules) fairly presents in all material respects the consolidated
financial position of the Company and its Subsidiaries as of its date and
each of the consolidated statements of income, cash flows and stockholders'
equity of the Company and its Subsidiaries included in or incorporated by
reference into the Company SEC Documents (including any related notes and
schedules) fairly presents in all material respects the consolidated
results of operations, cash flows and retained earnings, as the case may
be, of the Company and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end
adjustments), in each case in accordance with GAAP.
(iii) None of the information supplied, or to be supplied, by the Company
or its representatives for inclusion or incorporation by reference in (A)
the registration statement on Form S-4 to be filed with the SEC by Acquiror
in connection with the issuance of shares of Acquiror Common Stock in the
Merger (the
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"Acquiror Form S-4") or the registration statement to be filed with the SEC
by VRM in connection with the distribution of shares of VRM Common Stock,
with the associated VRM Rights, in the Distribution (the "VRM Registration
Statement") will, at the time such Registration Statements are filed with
the SEC, at any time they are amended or supplemented or at the time they
become effective under the Securities Act and at the Effective Time, in the
case of the Acquiror Form S-4, and at the time of the annual meeting of
holders of Company Common Stock to be held in connection with the Merger
and the Distribution (the "Company Meeting"), and at the Time of
Distribution, in the case of the VRM Registration Statement, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
and (B) the proxy statement-prospectus relating to the Company Meeting (the
"Proxy Statement-Prospectus") will, at the date mailed to the Company's
stockholders or at the time of the Company Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
VRM Registration Statement will comply as to form in all material respects
with the provisions of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, and the Proxy
Statement-Prospectus will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by the Company with
respect to statements made therein based on information supplied by
Acquiror or any of its Subsidiaries for inclusion in the VRM Registration
Statement or the Proxy Statement-Prospectus, respectively, or with respect
to information concerning Acquiror or any of its Subsidiaries incorporated
by reference therein.
(h) The Company and VNG Financial Statements.
(i) Included in the Company Disclosure Schedule are (A) audited
consolidated statements of assets and liabilities as of December 31, 1995
and 1994 (the "Year End Balance Sheets") and statements of consolidated
income and consolidated cash flows for the years ended December 31, 1995
and 1994, in each case, for the Company (such financial statements, the
"Company Financial Statements"), and (B) an unaudited consolidated
statement of assets and liabilities as of September 30, 1996 (the "Interim
Balance Sheet"), and unaudited statements of consolidated income and
consolidated cash flows for the nine months ended, September 30, 1996 for
the Company (such financial statements, the "Company Interim Financial
Statements"). Each of the Year End Balance Sheets and the Interim Balance
Sheet (including in the case of the Year End Balance Sheets any related
notes and schedules) fairly presents in all material respects the financial
position of the Company as of its date, and each of the statements of
consolidated income and consolidated cash flows included in the Company
Financial Statements and the Company Interim Financial Statements
(including in the case of the Company Financial Statements any related
notes and schedules) fairly presents in all material respects the
consolidated results of operations and consolidated cash flows, as the case
may be, of the Company for the periods set forth therein in each case in
accordance with GAAP (subject in the case of the Company Interim Financial
Statements to normal year-end adjustments).
(ii) Included in the Company Disclosure Schedule are unaudited
consolidated statements of assets and liabilities as of December 31, 1996,
1995 and 1994 (collectively, the "VNG Year End Balance Sheets" and such
statement as of December 31, 1996 being referred to herein as the "VNG
December 31, 1996 Balance Sheet") and statements of consolidated income and
consolidated cash flows for the years ended December 31, 1996, 1995 and
1994, in each case, for VNG and its Subsidiaries (such financial
statements, the "VNG Financial Statements"). Each of the VNG Year End
Balance Sheets fairly presents in all material respects the financial
position of VNG and its Subsidiaries as of its date, and each of the
statements of consolidated income and consolidated cash flows included in
the VNG Financial Statements fairly presents in all material respects the
consolidated results of operations and consolidated cash flows, as the case
may be, of VNG and its Subsidiaries for the periods set forth therein in
each case in accordance with GAAP. Each of the VNG Year End Balance Sheets
has been prepared on a basis substantially consistent with the preparation
of the corresponding Year End Balance Sheets of the Company (or for the
year ended
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December 31, 1996, the Interim Balance Sheet of the Company) and each of
the statements of consolidated income and consolidated cash flows included
in the VNG Financial Statements has been prepared on a basis substantially
consistent with the preparation of the corresponding Financial Statements
of the Company (or for the year ended December 31, 1996, the Company
Interim Financial Statements).
(iii) Schedule 5.1(h)(iii) set forth in the Company Disclosure Schedule
sets forth a consolidated balance sheet of the Retained Companies as at
December 31, 1996 on an historical basis and as adjusted to give effect to
the Distribution and the transactions contemplated by the Distribution
Agreement and Section 7.10(a) (but not as adjusted for the Merger); such
balance sheet fairly states in all material respects the consolidated
financial position of the Retained Companies in accordance with GAAP, and
has been prepared on a basis substantially consistent with the preparation
of the Interim Balance Sheet of the Company and other Company Interim
Financial Statements.
(i) Absence of Certain Events and Changes. Except as disclosed in the
Company SEC Documents filed with the SEC and publicly available prior to the
date hereof (the "Filed Company SEC Documents") or the Company Disclosure
Schedule or as otherwise contemplated by the Reorganization Agreements, since
December 31, 1996 the Company and its Subsidiaries have conducted the Retained
Business in the ordinary course, consistent with past practices, and there
have not been (i) any events, changes or developments which, individually or
in the aggregate, would have a Material Adverse Effect on the Retained
Companies or Retained Business, taken as a whole, or a material adverse effect
on the ability of the VRM Companies to consummate the transactions
contemplated by, or to satisfy their obligations under, the Reorganization
Agreements to which they are or will be a party, other than events, changes or
developments relating to the economy in general or resulting from industry-
wide developments affecting companies in similar businesses, (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to the Company's capital stock (other than the regular quarterly
cash dividends consistent with amounts currently paid and at a rate no higher
than the last quarterly dividend prior to December 31, 1996) or any
redemption, purchase or other acquisition of any of the Company's capital
stock (excluding shares acquired in connection with employee tax withholding
elections, or elections to pay the exercise price of stock options with shares
of stock, under Company Stock Plans) or debt (except scheduled redemptions and
repayments under Credit Facilities), or (iii) (x) any granting by the Company
or any of its Subsidiaries to any officer of any Retained Company of any
increase in compensation, except in the ordinary course of business
(including, but not limited to, in connection with promotions) consistent with
past practice or as was required under employment agreements in effect as of
December 31, 1996, (y) any granting by the Company or any of its Subsidiaries
to any such officer of any increase in severance or termination pay, except as
was required under employment, severance or termination agreements in effect
as of December 31, 1996, or (z) any entry by the Company or any of its
Subsidiaries into any employment, consulting, severance, termination or
indemnification agreement with any officers of any Retained Company.
(j) Compliance with Applicable Laws. Except as disclosed in the Filed
Company SEC Documents, the Company and its Subsidiaries are in compliance with
all statutes, laws, regulations, rules, judgments, orders and decrees of all
Governmental Entities applicable to them that relate to the Retained Business,
except where the failure to be in compliance, individually or in the
aggregate, would not have a Material Adverse Effect on the Retained Companies,
taken as a whole. Except as set forth on the Company Disclosure Schedule,
since December 31, 1995, neither the Company nor any Subsidiary has received
any written notice of any administrative, civil or criminal investigation or
audit (other than tax audits) by any Governmental Entity relating to the
Retained Business that, individually or in the aggregate, would have a
Material Adverse Effect on the Retained Companies, taken as a whole. Each of
the Retained Companies has all Permits that are required in order to permit it
to carry on its business as it is presently conducted, except as set forth in
the Company Disclosure Schedule or where the failure to have such Permits,
individually or in the aggregate, would not have a Material Adverse Effect on
the Retained Companies, taken as a whole. All such Permits are in full force
and effect, and the Retained Companies are in compliance with the terms of
such Permits, except where the failure to be in full force and effect or in
compliance, individually or in the aggregate, would not have a Material
Adverse Effect on the Retained Companies, taken as a whole. This Section
5.1(j) does not relate to employee benefits matters (for
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which Section 5.1(n) is applicable), environmental matters (for which Section
5.1(o) is applicable) or tax matters (for which Section 5.1(m) is applicable).
(k) Title to Assets.
(i) Each of the Retained Companies has good title to its personal
properties and assets reflected on the VNG December 31, 1996 Balance Sheet,
except for properties and assets disposed of in the ordinary course of
business and except for such defects in title which, individually or in the
aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole, in each case, free and clear of any Liens
except for Permitted Liens.
(ii) The Retained Companies have (A) good, sufficient and legal title to
the real properties reflected on the VNG December 31, 1996 Balance Sheet
and (B) valid and subsisting leasehold interests in the leased properties
reflected on the VNG December 31, 1996 Balance Sheet or otherwise used in
connection with the Retained Business, and except for such defects in title
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Retained Companies, taken as a whole, in each case, free and
clear of any Liens, except for (1) Permitted Liens, (2) easements,
covenants, rights-of-way, other matters of record and other matters subject
to which such leases are granted and (3) such state of facts as an accurate
survey would show.
(iii) Except as set forth in the Company Disclosure Schedule or
contemplated by the other Reorganization Agreements, the Retained Companies
will, at the Effective Time, include all the Company's right, title and
interest in and to (a) all assets of the Company or any of its
Subsidiaries, including the information systems, that are used primarily in
or that are being held primarily for use in or that are otherwise
sufficient for the operation, as currently conducted, of the Retained
Business, and (b) whether or not included within the assets set forth in
clause (a) above, all assets (including, without limitation, capital stock
and partnership interests) reflected on Schedule 5.1(h)(iii), as such
assets may have been added to, sold in the ordinary course of business or
otherwise changed since such date).
(l) Litigation. Except as disclosed in the Filed Company SEC Documents or as
set forth in the Company Disclosure Schedule, there are no civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending, or to the knowledge of the Company threatened, against any of the
Retained Companies that, individually or in the aggregate, would have a
Material Adverse Effect on the Retained Companies, taken as a whole or delay
the Distribution or Merger. Except as disclosed in the Filed Company SEC
Documents, there are no outstanding judgments, orders, decrees, stipulations
or awards against any of the Retained Companies or their respective properties
or businesses that, individually or in the aggregate, would have a Material
Adverse Effect on the Retained Companies, taken as a whole.
(m) Taxes.
(i) All Tax Returns required to be filed by or on behalf of the Company
and any of its Subsidiaries or any consolidated, combined, affiliated or
unitary group of which the Company or any of its Subsidiaries is or has
ever been a member before the date hereof have been timely filed or
appropriately extended, and all Taxes shown as due and payable on such Tax
Returns and all other Taxes for which the Company or any of its
Subsidiaries is or might otherwise be liable that are due and payable
(together, "Covered Taxes") have been timely paid in full or reflected on
the balance sheet set forth in Schedule 5.1(h)(iii), except to the extent
that (i) such Taxes are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and such reserve
or other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made therefor and (ii) the failure to so file
such Tax Returns or to pay such Taxes would not, individually or in the
aggregate, have a Material Adverse Effect on the Retained Companies, taken
as a whole; provided, however, that no representation is made under this
Agreement with respect to any Tax or Tax Return which is (i) a subject of
the litigation set forth and described at Section I, paragraphs 3 through
6, of Schedule 5.1(l) (the "Existing Tax Claims"), or (ii) heretofore or
hereafter made
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a subject of any claim, demand or litigation involving claims substantially
similar to those asserted in the Existing Tax Claims. The information
contained in such Tax Returns is true, complete and accurate in all
material respects.
(ii) The Tax Returns of the Company and its Subsidiaries have been
audited and settled by the Internal Revenue Service for all periods ended
through December 31, 1992 or the period for assessment of taxes in respect
of such periods has expired.
(iii) Except as set forth in the Company Disclosure Schedule, to the
Company's knowledge, there are no material claims or investigations pending
or threatened against the Company or its Subsidiaries for past Taxes.
(iv) Except as set forth in the Tax Sharing Agreement, there is no Tax
sharing or allocation agreement under which the Company or any of its
Retained Subsidiaries will have any obligations after the Effective Time.
(v) The charges, accruals and reserves for Taxes with respect to the
Company and its Subsidiaries reflected on the Retained Business Financial
Statements are adequate to cover such Taxes relating to periods, or portion
thereof, ending on or prior to the date of such financial statements.
(vi) All material Taxes due with respect to any completed and settled
audit, examination, or deficiency litigation with any taxing authority have
been paid in full.
(vii) No material income or gain would be recognized under Treasury
Regulation Sections 1.1502-13 or 1.1502-19 (or any corresponding provisions
of other applicable Tax laws) as a result of the transactions contemplated
by the Reorganization Agreements, if such transactions were to occur on the
date hereof.
(viii) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any material
amount of Covered Taxes.
(ix) The Federal consolidated minimum tax credit carryforward allocated
to the Retained Companies as of December 31, 1996 is not less than
$6,000,000.
(x) None of the Retained Companies shall be required to include in a
taxable period ending after the Closing Date, a material amount of taxable
income attributable to income that economically accrued in a prior taxable
period as a result of Section 481 of the Code or any comparable provision
of state or local Tax law.
(xi) No person has made with respect to any of the Retained Companies, or
with respect to any property held by any of the Retained Companies, any
consent under Section 341 of the Code.
(xii) None of the Retained Companies is a party to any lease made
pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect prior to the date of enactment of the Tax Equity and
Fiscal Responsibility Act of 1982.
(xiii) Neither the Company nor any of its Subsidiaries, nor any member of
any controlled group (within the meaning of Section 993(a)(3) of the Code)
that includes the Company or any of its Subsidiaries, nor, to the knowledge
of the Company, any of their respective officers, directors, employees or
independent contractors acting on their behalf, has participated in or
cooperated with an international boycott (within the meaning of Section
999(b)(3) of the Code).
(xiv) No material Liens for Taxes exist with respect to any of the assets
or properties of any of the Retained Companies, except for statutory liens
for Taxes not yet due or payable or that are being contested in good faith.
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(xv) Neither the Company nor any of its Subsidiaries has taken any action
that would disqualify the Distribution from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code and
from being treated as a tax-free distribution within the meaning of Section
355 or 361(c) of the Code, or the Merger from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code.
(n) Employee Benefit Plans.
(i) The Company Disclosure Schedule lists each Employee Plan which
relates to employees of the Retained Business. With respect to each such
Employee Plan, the Company has provided to Acquiror, or will prior to the
Effective Time provide, a true and complete copy of such plan document and
such other documents relating thereto as Acquiror may reasonably request.
(ii) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each such Employee Plan which is intended
to be qualified under Section 401(a) of the Code, and, to the knowledge of
the Company, no event has occurred since the date of such determination
letter to affect adversely the qualified status of such Employee Plan. Each
Employee Plan which relates to employees of the Retained Business has been
maintained in compliance in all material respects with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan, except where the failure to so comply
would not have a negative effect on the tax-qualified status of such Plan,
result in the imposition of any material (to the Plan) fine, penalty or
excise tax under ERISA or the Code, or require any increased employer
contributions or increased benefits in order to avoid any such negative
effect, fine, penalty or excise tax.
(iii) Neither the Company nor any of its ERISA Affiliates has incurred
any liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA that will become, after the
Effective Time, an obligation of the Company, the Acquiror or any of their
ERISA Affiliates.
(iv) No employee of the Retained Companies will become entitled to any
retirement, severance or similar benefit or enhanced benefit solely as a
result of the transactions contemplated hereby except that (i) all
restrictions on stock is- sued pursuant to the Company Restricted Stock
Plans shall, pursuant to the terms of the Company Restricted Stock Plans or
individual restricted stock agreements, terminate prior to or as a result
of the Merger, (ii) all awards heretofore granted pursuant to the Company
Stock Plans shall vest, (iii) benefits accrued pursuant to the SERP shall
vest, (iv) the deferral accounts of participants in the Deferred
Compensation Plan who terminate employment with the company within 18
months following the Effective Time, unless such termination is the result
of fraud, defalcation, misappropriation or other criminal conduct committed
by the participant against the Company, shall be credited as of the date of
termination with an additional three percentage points of imputed annual
interest, (v) payments will be payable under the Shareholder Value Bonus
Plan, the Incentive Bonus Agreements and (vi) accelerated vesting in
performance shares will occur.
(o) Environmental Matters. Except as disclosed in the Filed Company SEC
Documents or set forth in the Company Disclosure Schedule and except for such
matters that, individually or in the aggregate, would not have a Material
Adverse Effect on the Retained Companies, taken as a whole, (i) the Retained
Companies are in compliance with all applicable Environmental Laws, (ii) the
Retained Companies have all Permits required under Environmental Laws for the
operation of the Retained Business as presently conducted ("Environmental
Permits") and there are no violations, investigations or proceedings pending
with respect to such Environmental Permits, (iii) none of the Retained
Companies has received any written notices or demand letters from any
Governmental Entity or any other Person, or any requests for information from
any Governmental Entity which assert that any of the Retained Companies may be
in violation of, or liable under, any Environmental Law, (iv) no facts or
circumstances exist that impose or could reasonably be expected to impose
Environmental Liabilities
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on any of the Retained Companies, and (v) the Retained Companies will not be
required under existing Environmental Laws to install prior to December 31,
1997 additional environmental or pollution control equipment or make other
capital expenditures in order to comply with Environmental Laws, except to the
extent set forth in the 1997 strategic capital budget for the Company and the
Retained Business as adopted by the Board of Directors of the Company on
October 25, 1996 and heretofore furnished to Acquiror.
(p) Takeover Statutes. Section 203 of the DGCL is inapplicable to the Merger
and the other transactions contemplated by the Reorganization Agreements. To
the knowledge of the Company, no other "fair price", "moratorium", "control
share acquisition" or other similar antitakeover statute, law, regulation or
rule of any Governmental Entity (each a "Takeover Statute") is applicable to
the transactions contemplated by the Reorganization Agreements.
(q) Brokers and Finders. Neither the Company nor any of its directors,
officers or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby, except as set forth in the Company
Disclosure Schedule, the fees and expenses of which shall be paid in
accordance with Section 7.10(a).
(r) Employees. There is no labor strike or work stoppage pending or, to the
knowledge of the Company, threatened against any of the Retained Companies
which, in any case, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Retained Companies, taken as
a whole. None of the Retained Companies is as of the date hereof a party to
any collective bargaining agreement relating to its employees.
(s) Contracts. Except as set forth in the Company Disclosure Schedule, as of
the date hereof, neither the Company nor any Subsidiary is (with or without
the lapse of time or the giving of notice, or both) in breach or default in
any material respect under any Contract or Contracts that individually or in
the aggregate are material to the operation of the Retained Business. To the
Company's knowledge, as of the date of this Agreement, none of the other
parties to any Contract or Contracts that individually or in the aggregate are
material to the operation of the Retained Business is (with or without the
lapse of time or the giving of notice, or both) in breach or default in any
material respect thereunder.
(t) Opinions of Financial Advisors. The Company has received the opinion of
▇▇▇▇▇▇ Brothers, Inc. to the effect that, as of the date hereof, the
consideration to be received by the Company's stockholders in the Distribution
and the Merger is fair to such stockholders from a financial point of view.
(u) Rights Agreement. The Company has taken all necessary action so that
entering into this Agreement and the other Reorganization Agreements, the
Merger and the other transactions contemplated by the Reorganization
Agreements will not result in the grant of any rights to any Person under the
Company Rights Agreement or enable or require the rights to be exercised,
distributed or triggered.
(v) Regulation as a Utility. Neither the Company nor any of its Subsidiaries
is a "holding company", a "subsidiary company" of a "holding company", an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", or a "public utility", as each such term is defined in the Public
Utility Holding Company Act of 1935, as amended, and the rules and regulations
promulgated thereunder.
(w) Intellectual Property and Software. The Retained Company and its
Subsidiaries, after giving effect to the Merger and the Distribution, will own
or have the valid, legal right to use all Intellectual Property and Software
used in connection with the Retained Business as conducted on the date hereof
other than the Intellectual Property, Software, tradenames and related rights
to be distributed solely to VRM as provided in the Distribution Agreement. The
Company and its Subsidiaries have used commercially reasonable measures to
protect the secrecy, confidentiality and value of the Intellectual Property
used in connection with the Retained Business. To the Company's knowledge, no
material Intellectual Property (other than unregistered copyrights) or
material Software used in connection with the Retained Business has been
improperly used, divulged or
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appropriated for the benefit of any person other than the Company and its
Subsidiaries, except where such use, divulgence or appropriation would not,
individually or in the aggregate, have a Material Adverse Effect on the
Retained Companies, taken as a whole. As of the date hereof, neither the
Company nor any of its Subsidiaries has made any claim in writing of a
violation, infringement, misuse or misappropriation by others of rights of the
Company and its Subsidiaries to or in connection with any material
Intellectual Property used in connection with the Retained Business. There is
no pending or, to the knowledge of the Company, threatened claim by any third
person of a violation, infringement, misuse or misappropriation by any of the
Company or any of its Subsidiaries of any Intellectual Property or Software
owned by any third person, or of the invalidity of any patent used in
connection with the Retained Business, that would, individually or in the
aggregate, have a Material Adverse Effect on the Retained Companies, taken as
a whole.
5.2. Representations and Warranties of Acquiror and Sub. Acquiror and Sub
hereby represent and warrant to the Company as follows:
(a) Corporate Organization and Qualification. Each of Acquiror and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the properties
owned, leased or operated, or the business conducted, by it require such
qualification, except for any such failure so to qualify or be in good
standing which, individually or in the aggregate, would not have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole. Each of
Acquiror and Sub has the requisite corporate power and authority to carry on
its businesses as they are now being conducted. Acquiror has heretofore made
available to the Company complete and correct copies of the charter and bylaws
of Acquiror and Sub, each as amended to date and currently in full force and
effect.
(b) Corporate Authority. Each of Acquiror and Sub has the requisite
corporate power and authority to execute, deliver and perform each
Reorganization Agreement, and the Interim Services Agreement and the
Assignment and Assumption Agreements, in each case, to which it is a party and
to consummate the transactions contemplated thereby. The execution, delivery
and performance by each of Acquiror and Sub of each Reorganization Agreement,
the Interim Services Agreement and the Assignment and Assumption Agreements,
in each case, to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby have been or will be duly
authorized by its Board of Directors, and no other corporate proceedings on
its part are or will be necessary to authorize any Reorganization Agreement or
the Assignment and Assumption Agreements to which it is a party or for it to
consummate the transactions so contemplated. Each of the Reorganization
Agreement, the Interim Services Agreement and the Assignment and Assumption
Agreements to which Acquiror or Sub is a party is, or when executed and
delivered will be, a valid and binding agreement of Acquiror or Sub, as the
case may be, enforceable against Acquiror or Sub, as the case may be, in
accordance with the terms thereof.
(c) No Violations; Consents and Approvals.
(i) None of the execution, delivery or performance by Acquiror and Sub of
any Reorganization Agreement or the Assignment and Assumption Agreements,
in each case, to which it is a party or the consummation by each of
Acquiror and Sub of the transactions contemplated thereby (A) will conflict
with, or result in a violation or breach of, the charter or by-laws of
Acquiror or Sub or (B) will conflict with, or result in a violation or
breach of, or constitute a default (with or without due notice or lapse of
time or both) under, or give rise to any right of termination, amendment,
cancellation or acceleration of any material obligation under, or result in
the creation of any Lien upon any of the properties or assets of Acquiror
or Sub under (1) any of the terms, conditions or provisions of any Contract
to which Acquiror or Sub is a party or by which any of their properties or
assets may be bound or of any Permit, or (2) to the knowledge of the
Acquiror subject to the Regulatory Filings, any judgment, order, decree,
statute, law, regulation or rule applicable to Acquiror or Sub, except, in
the case of clause (B), for conflicts, violations, breaches, defaults,
rights, losses or Liens that, individually or in the aggregate, would not
have a Material Adverse Effect on Acquiror and its Subsidiaries, taken as a
whole.
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(ii) Except for the Regulatory Filings, and other consents, approvals,
orders, authorizations, registrations, declarations, filings and agreements
expressly provided for in the Reorganization Agreements or set forth in
Section 5.1(d), and any notice or other filings to be made following the
Effective Time, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required with respect to Acquiror or Sub, in connection with the execution,
delivery or performance by each of Acquiror and Sub of any Reorganization
Agreement or the Assignment and Assumption Agreements, in each case, to
which it is a party or the consummation by Acquiror of the transactions
contemplated thereby (except where the failure to obtain such consents,
approvals, orders or authorizations, or to make such registrations,
declarations, filings or agreements, individually or in the aggregate,
would not have a Material Adverse Effect on Acquiror and its Subsidiaries,
taken as a whole).
(d) Capital Stock. The authorized capital stock of Acquiror consists of (i)
800,000,000 shares of Acquiror Common Stock, of which an aggregate of
409,120,387 shares were issued and outstanding as of the close of business on
January 1, 1997; and (ii) 85,000,000 shares of preferred stock, no par value,
of Acquiror, of which no shares were issued and outstanding as of the close of
business on January 1, 1997. As of the close of business on January 1, 1997,
there were outstanding under Acquiror's option plans options to purchase an
aggregate of 3,461,733 shares of Acquiror Common Stock (subject to adjustment
on the terms set forth in the Acquiror option plans). All of the outstanding
shares of Acquiror Common Stock have been, and all shares of Acquiror Common
Stock which may be issued pursuant to the terms of any options or plans
referred to above will be, when issued, duly authorized and validly issued,
and are, or will be, when issued, fully paid and non-assessable. Acquiror has
outstanding no bonds, debentures, notes or other obligations or securities
(other than Acquiror Common Stock) the holders of which have the right to vote
(or are convertible or exchangeable into or exercisable for securities having
the right to vote) with the stockholders of Acquiror on any matter. Except as
set forth above, as of the date of this Agreement, there are no securities
convertible into or exchangeable for, or options, warrants, calls,
subscriptions, rights or Contracts of any kind to which Acquiror or any of its
Subsidiaries is a party or by which any of them is bound obliging Acquiror or
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities of
Acquiror or of any of its Subsidiaries.
(e) The shares of Acquiror Common Stock to be issued in the Merger are duly
authorized and, when issued in accordance with the terms of this Agreement,
will be duly and validly issued, fully paid, non-assessable and free of
preemptive rights.
(f) SEC Filings.
(i) Acquiror and its wholly-owned subsidiary, Pacific Gas and Electric
Company have timely filed all reports, schedules, forms, statements and
other documents required to be filed with the SEC under the Securities Act
and the Exchange Act since January 1, 1994 (the "Acquiror SEC Documents").
As of its filing date, each Acquiror SEC Document filed, as amended or
supplemented, if applicable, (A) complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder and (B) did not, at
the time it was filed (and at the effective date thereof, in the case of a
registration statement), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(ii) The financial statements of Acquiror included in the Acquiror SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto and have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto). Each of the consolidated balance
sheets included in or incorporated by reference into the Acquiror SEC
Documents (including any related notes and schedules) fairly presents in
all material respects the consolidated financial position of Acquiror and
its Subsidiaries as of its date and each of the consolidated statements of
income, cash flows and stockholders'
A-22
equity included in or incorporated by reference into the Acquiror SEC
Documents (including any related notes and schedules) fairly presents in
all material respects the consolidated results of operations, retained
earnings and cash flows, as the case may be, of Acquiror and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end adjustments), in each case in
accordance with GAAP.
(iii) None of the information supplied or to be supplied by Acquiror or
its representatives for inclusion or incorporation by reference in (A) the
Acquiror Form S-4 or the VRM Registration Statement will, at the time such
Registration Statements are filed with the SEC, at any time they are
amended or supplemented, at the time they become effective under the
Securities Act and at the Effective Time, in the case of the Acquiror Form
S-4, and at the time of the Company Meeting and at the Time of
Distribution, in the case of the VRM Registration Statement, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
and (B) the Proxy Statement-Prospectus will, at the date mailed to the
Company's stockholders or at the time of the Company Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Acquiror Form S-4 will comply as to form in all material
respects with the provisions of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, and the Proxy
Statement-Prospectus will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by Acquiror with respect
to statements made therein based on information supplied by the Company or
any of its Subsidiaries for inclusion in the Acquiror Form S-4 or the Proxy
Statement-Prospectus, respectively, or with respect to information
concerning the Company or any of its Subsidiaries incorporated by reference
therein.
(g) Absence of Certain Events and Changes. Except as disclosed in the
Acquiror SEC Documents filed with the SEC and publicly available prior to the
date hereof (the "Filed Acquiror SEC Documents") or as otherwise contemplated
by the Reorganization Agreements, since September 30, 1996 Acquiror and its
Subsidiaries have conducted their respective businesses in the ordinary
course, consistent with past practices, and there have not been any events,
changes or developments which, individually or in the aggregate, would have a
Material Adverse Effect on Acquiror and its Subsidiaries, taken as a whole,
other than events, changes or developments relating to the economy in general
or resulting from industry-wide developments affecting companies in similar
businesses.
(h) Compliance with Applicable Laws. Except as disclosed in the Filed
Acquiror SEC Documents, Acquiror and its Subsidiaries are in compliance with
all statutes, laws, regulations, rules, judgments, orders and decrees of all
Governmental Entities applicable to them, except where the failure to be in
compliance, individually or in the aggregate, would not have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole. Since
December 31, 1995 neither Acquiror nor any of its Subsidiaries has received
any written notice of any administrative, civil or criminal investigation or
audit (other than tax audits) by any Governmental Entity that, individually or
in the aggregate, would have a Material Adverse Effect on Acquiror and its
Subsidiaries, taken as a whole. Each of Acquiror and its Subsidiaries has all
Permits that are required in order to permit it to carry on its business as it
is presently conducted, except where the failure to have such Permits,
individually or in the aggregate, would not have a Material Adverse Effect on
Acquiror and its Subsidiaries, taken as a whole. All Permits are in full force
and effect and Acquiror and its Subsidiaries are in compliance with the terms
of the Permits, except where the failure to be in full force and effect or in
compliance, individually or in the aggregate, would not have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
(i) Litigation. Except as disclosed in the Filed Acquiror SEC Documents,
there are no civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings pending or, to the knowledge of
Acquiror, threatened, against Acquiror or any of its Subsidiaries that,
individually or in the aggregate, would have a Material Adverse Effect on
Acquiror and its Subsidiaries, taken as a whole or delay the Distribution or
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Merger. Except as disclosed in the Filed Acquiror SEC Documents, there are no
outstanding judgments, orders, decrees, stipulations or awards against
Acquiror or any of its Subsidiaries or their respective properties or
businesses that, individually or in the aggregate, would have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
(j) Takeover Statutes. No California Takeover Statute is applicable to the
transactions contemplated by the Reorganization Agreements, and to the
knowledge of Acquiror, no other Takeover Statute is applicable to such
transactions.
(k) Employee Benefit Plans.
(i) The disclosure schedule delivered to the Company by Acquiror prior to
the date hereof (the "Acquiror Disclosure Schedule") lists each Employee
Plan of Pacific Gas Transmission Company ("PGT") and, if applicable, each
Employee Plan of the Acquiror or a Subsidiary in which one or more
Continuing Employees will be eligible to participate following the Closing.
With respect to each such Employee Plan, Acquiror has provided to the
Company, or will prior to the Effective Time provide, a true and complete
copy of such plan document and such other documents relating thereto as the
Company may reasonably request.
(ii) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each such Employee Plan which is intended
to be qualified under Section 401(a) of the Code, and, to the knowledge of
PGT, no event has occurred since the date of such determination letter to
affect adversely the qualified status of such Employee Plan. Each Employee
Plan has been maintained in compliance in all material respects with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such Plan, except where the failure to so comply
would not have a negative effect on the tax-qualified status of such Plan,
result in the imposition of any material (to the Plan) fine, penalty or
excise tax under ERISA or the Code, or require any increased employer
contributions or increased benefits in order to avoid any such negative
effect, fine, penalty or excise tax.
(iii) Neither Acquiror nor any of its ERISA Affiliates has incurred any
liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA that will become, after the
Effective Time, an obligation of Acquiror or any of its ERISA Affiliates.
(l) Brokers and Finders. Neither Acquiror nor any of its directors, officers
or employees has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby, except that Acquiror has retained ▇▇▇▇▇▇▇
▇▇▇▇▇ & Co. as its financial advisor, the fees and expenses of which shall be
paid by Acquiror.
(m) Regulation as a Utility. Acquiror is a holding company within the
meaning of the Public Utility Holding Company Act of 1935 (the "1935 Act"),
but Acquiror and its Subsidiaries are exempt from the provisions thereof,
except Section 9(a)(2) thereof, by virtue of having filed with the Securities
and Exchange Commission an exemption statement on Form U-3A-2, and to the
Company's knowledge, no proceedings to revoke or modify such exemption have
been instituted or are pending.
(n) Required Vote of Acquiror Stockholders. No vote of the stockholders of
Acquiror is required in connection with this Agreement, the Merger or any
Reorganization Agreements.
(o) Acquiror Ownership of Company Common Stock. Acquiror does not own, and
has not owned, 5% or more of the outstanding shares any class or series of
voting stock of the Company.
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ARTICLE VI
COVENANTS
6.1. Covenants of the Company. During the period from December 31, 1996 and
continuing until the Effective Time, the Company agrees as to itself and its
Subsidiaries that, except as set forth in the Company Disclosure Schedule, and
except for the Distribution and as required or otherwise expressly
contemplated by the Reorganization Agreements, or to the extent that Acquiror
otherwise consents in writing, which consent shall not be unreasonably
withheld (it being agreed that the following forward looking statements are
deemed to apply to a period prior to the date hereof which commences on
December 31, 1996 and ending at the Effective Time):
(a) Ordinary Course. The Retained Business will be conducted in the usual,
regular and ordinary course, consistent with past practice, including, without
limitation, with respect to the payment and administration of accounts
receivable, inventory management and control policies and implementation of
capital programs for the Retained Business in a timely manner, and the Company
will use reasonable efforts to preserve intact the present business
organization, maintain insurance policies, keep available the services of
present officers and employees engaged primarily in the Retained Business and
to preserve the relationships with key customers, suppliers and others having
business dealings with the Retained Business.
(b) Dividends; Changes in Stock. The Company shall not (i) declare or pay
any dividends (including dividends in Company Common Stock) on or make other
distributions in respect of any of its capital stock (including such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction), except for regular quarterly cash dividends consistent with
amounts currently paid and at a rate not higher than the last quarterly
dividend paid prior to the date hereof and the Distribution, (ii) split
(including a reverse stock split), combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(iii) except as contemplated by the Reorganization Agreements, repurchase,
redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock (excluding shares acquired in
connection with employee tax withholding elections, or elections to pay the
exercise price of stock options with shares of stock, under Company Stock
Plans) or debt (except scheduled redemptions and repayments under Credit
Facilities) of the Company or any of its Subsidiaries.
(c) Issuance of Securities. The Company will not, nor will the Company
permit any of the Retained Subsidiaries to issue, transfer, sell or dispose
of, or authorize or agree to the issuance, transfer, sale or disposition by
any of the Retained Companies of (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), any shares of capital stock or any voting securities of the
Company or any of the Retained Subsidiaries, or any options or other
securities convertible into or exchangeable for any such shares of capital
stock or any voting securities of the Company or amend any of the terms of any
such securities or agreements relating to such capital stock outstanding on
the date hereof, other than (i) the issuance, transfer, sale or disposition by
a wholly-owned Subsidiary of its capital stock to its parent, and (ii) the
issuance or transfer of shares of Company Common Stock (w) upon the exercise
of stock options or the vesting of performance shares pursuant to any Employee
Plan, (x) to make any payment under any Employee Plan that is required as of
the date of this Agreement or permitted under Section 6.1(h) to be made in the
form of shares of Company Common Stock, and (y) upon any conversion of shares
of Company Convertible Preferred Stock. Any income tax deduction with respect
to the delivery or vesting of shares pursuant to any Employee Plan, contract
or arrangement shall be allocated to the VRM Group or Company Group
corresponding to the business for which the employee (or former employee)
performed services or if the individual performed services for both the
Retained Business and the VRM Business, to such Groups in the same proportion
as the services were performed for such businesses, which determination shall
be made in good faith using a consistent and reasonable method.
(d) Indebtedness. The Company shall not, nor shall it permit any of its
Retained Subsidiaries to, incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
A-25
warrants or rights to acquire any debt securities of the Company or any of its
Retained Subsidiaries or guarantee any obligations of others, other than
pursuant to the existing Credit Facilities provided, however, that the Company,
VRM and their respective Subsidiaries may enter into guarantees for money
borrowed or for obligations of Affiliates, if (i) such are entered into in the
ordinary course of business and in accordance and at levels consistent with past
practices and (ii) if such guarantees relate to VRM or any of its Subsidiaries,
then (x) any such guarantees entered into on or after 5 business days following
the date of this Agreement terminate on or prior to the Closing Date or become
the sole obligations of VRM or (y) the Retained Company and the Retained
Subsidiaries are expressly released therefrom on or prior to the Closing Date.
(e) Governing Documents. The Company will not amend in any material respect
the Company Charter or the Company By-laws, nor will the Company permit any
Retained Subsidiary to amend in any material respect the certificate of
incorporation or by-laws or comparable organizational documents of any
Retained Subsidiary.
(f) No Acquisitions, Etc. The Company will not, nor will it permit any of
the Retained Subsidiaries to, (i) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than immaterial assets
or assets acquired from another Retained Subsidiary) that would be part of the
Retained Business, (ii) make or agree to make any other investment in any
Person (whether by means of loan, capital contribution, purchase of capital
stock or other securities or otherwise) that would be part of the Retained
Business, except for acquisitions or investments by the Company pursuant to
existing contractual obligations or investments in any entity that was a
Retained Subsidiary before giving effect to such investment, or (iii) make or
agree to make any capital expenditure that would be part of the Retained
Business, except, in each case, for acquisitions, investments and capital
expenditures contemplated in the 1997 strategic capital budget for the Company
and the Retained Business as adopted by the Board of Directors of the Company
on October 25, 1996 and heretofore furnished to Acquiror.
(g) No Dispositions. The Company will not, nor will it permit any of the
Retained Subsidiaries to, sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose of (other
than to the Company or to another Retained Subsidiary), any of the assets of
the Retained Business other than in the ordinary course of business consistent
with past practice.
(h) Employee Plans and Compensation. Except as described in the Company
Disclosure Schedule, or except as required by law, or in the ordinary course
of business consistent with past practice, the Company will not, nor will it
permit any of the Retained Subsidiaries to, adopt any plan, arrangement or
policy (including individual arrangements or contracts) which would become an
Employee Plan or amend any Employee Plan to the extent such adoption or
amendment would create a liability or obligation or increase an existing
liability or obligation on the part of the Retained Companies that will not be
assumed by VRM or one of its Subsidiaries pursuant to the Employee Benefits
Agreement. Except for (i) grants of options or performance shares which, at
the Time of Distribution, shall be fully assumed by VRM, (ii) grants of stock
options, performance shares, restricted stock or other stock-based awards
under which, by their terms, all stock issuable pursuant thereto shall be
vested and outstanding prior to the Effective Time, or (iii) grants described
in the Company Disclosure Schedule, the Company shall not grant any stock
option, performance share, stock appreciation right, restricted stock,
unrestricted stock or any other award under any equity-based compensation plan
or individual arrangement. Except as set forth in the Company Disclosure
Schedule or as consistent with past practice, the Company shall not, increase
the compensation payable or to become payable to any officer or employee other
than for increases in the ordinary course of business in accordance with past
practices, or grant any severance or termination pay to, or enter into any
employment or severance agreement with, or amend the terms of any existing
employment or severance agreements with, any officer of employee of the
Company and its Subsidiaries.
(i) Accounting Policies and Procedures. The Company (with respect to the
conduct of the Retained Business) will not, and will not permit any of the
Retained Subsidiaries to, change any of its accounting
A-26
principles, policies, practices or procedures, except as may be required by
GAAP or Regulation S-X of the SEC.
(j) Liens. The Company will not, and will not permit any of its Subsidiaries
to, create, incur, suffer to exist or assume any Lien on any assets of the
Retained Companies, except for Liens described in subclauses (A) through (C)
of the defined term Permitted Liens.
(k) Taxes. Except where a failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect on the Retained Companies, taken as
a whole, the Company will, and will cause each Subsidiary to, (i) prepare and
timely file with the relevant Taxing Authority all Tax Returns and reports
("Post-Signing Returns") required to be filed which include any of the
Retained Companies on a basis consistent with past practice, (ii) timely pay
all Taxes due and payable, or establish reserves therefor in the books and
records of the Company in accordance with GAAP and consistent with past
practice, (iii) promptly notify Acquiror of any action, suit, proceeding,
claim or audit pending against or with respect to the Company or any Retained
Subsidiary in respect of any Taxes where there is a reasonable possibility of
a determination or decision which would materially increase the Tax
liabilities, or materially decrease the Tax attributes, of any of the Retained
Companies (other than Taxes for which VRM will assume liability under the Tax
Sharing Agreement), (iv) not, without the prior written consent of Acquiror,
change any of the Tax elections, Tax accounting methods, Tax conventions or
Tax principles which relate to the Retained Companies, (v) not, without the
prior written consent of Acquiror, take any action (other than an action in
the ordinary course of business or an action contemplated by the
Reorganization Agreements) that would reasonably be expected to materially
increase the Tax liabilities, or materially decrease the Tax attributes, of
any of the Retained Companies, (vi) except as set forth in the Company
Disclosure Schedule, contemplated by the Reorganization Agreements or with the
prior written consent of Acquiror, not take any action that would increase the
amount of deferred tax liabilities, or decrease the amount of deferred tax
assets, of the Company and its Subsidiaries (as determined for financial
accounting purposes), other than an action (A) in the ordinary course of
business consistent with past practice or (B) as required by applicable law,
in each case which is either (x) based on events or circumstances occurring
after the date hereof or (y) a continuation of a course of action initiated
prior to the date of this Agreement, and (vii) except as set forth in the
Company Disclosure Schedule, contemplated by the Reorganization Agreements or
with the prior written consent of Acquiror, not take any action that would
increase the amount of income or gain that will be recognized under Treasury
Regulation Sections 1.1502-13 or 1.1502-19 (or any corresponding provisions of
other applicable Tax laws) as a result of the transactions contemplated by the
Reorganization Agreements.
(l) Maintenance of Properties. The Company will, and will cause the Retained
Subsidiaries to, continue to maintain and repair all property material to the
operation of the Retained Business in a manner consistent in all material
respects with past practice.
(m) Tax-Free Distribution and Merger. The Company will not, and will not
permit any of its Subsidiaries, including VRM and any of its Subsidiaries to,
take or cause or permit to be taken any action prior to the Effective Time
that would disqualify the Distribution from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code and
from being treated as a tax-free distribution within the meaning of Section
355 or 361(c) of the Code, or the Merger from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code with
respect to which no gain or loss is recognized by the Company or Acquiror. The
Company shall use reasonable best efforts to do everything reasonably
necessary to have the Distribution and the Merger qualify as aforesaid.
(n) Redemption of Company Preferred Stock. Prior to the Effective Time the
Company will redeem or convert all of the issued and outstanding shares of
Company Preferred Stock pursuant to the terms of the related certificate of
designation. The redemption of the Company Preferred Stock, if any, will be
funded by the Company with the proceeds of borrowings under the New Credit
Facility.
(o) Termination of the Uncommitted Facilities. The Company shall use the
proceeds of the Cash Dividend to repay the outstanding borrowings under the
Uncommitted Facilities and, if such borrowings are paid in full, terminate the
Uncommitted Facilities.
A-27
(p) Operations of Business. The Company shall operate the Retained Business
and VRM Business separately. The Company shall account for all expenses and
liabilities for the Retained Business and VRM Business (including overhead
expenses), separately, and expenses and liabilities relating to overhead shall
be allocated to the VRM Business and Retained Business, based on services
provided, and in accordance with past practices.
6.2. Covenants of Acquiror. During the period from the date of this
Agreement and continuing until the Effective Time, Acquiror agrees as to
itself and its Subsidiaries that except as otherwise expressly contemplated by
the Reorganization Agreements or to the extent that the Company otherwise
consents in writing, which consent shall not be unreasonably withheld:
(a) Tax-Free Distribution and Merger. Acquiror will not, and will not permit
any of its Subsidiaries to, take or cause or permit to be taken any action
prior to the Effective Time that would disqualify the Distribution from being
treated as a "reorganization" within the meaning of Section 368(a)(1)(D) of
the Code and from being treated as a tax-free distribution within the meaning
of Section 355 of the Code, or the Merger from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code. Prior
to the Effective Time, the Acquiror shall use its reasonable best efforts to
do everything reasonably necessary to have the Distribution and the Merger
qualify as aforesaid.
(b) Company Names. Acquiror acknowledges that the trademarks, trade names
and service marks, the federal registrations and applications, the Internet
domain registration and exclusive use of the name "Valero", and any and all
other designs, logos and slogans, related to the names "Valero" and "Valero
Energy Corporation" and the "Walking Flame" service ▇▇▇▇, all as more
particularly set forth on Schedule 6.2(b), attached hereto, and all other
rights (whether tangible or intangible, statutory, at common law or otherwise)
in connection therewith, whether alone or in combination with one or more
other words or marks in connection therewith, are assets of the Company being
transferred to VRM or a VRM Subsidiary in connection with the Distribution;
provided that Acquiror shall be permitted to use the "Valero" name and related
marks for six (6) months after the Effective Time as provided below. At or
before the Closing, Company and Acquiror shall execute, acknowledge,
authenticate and deliver all such instruments of assignment or transfer as may
be requested by VRM to effect the complete assignment and transfer of such
trademarks, trade names, service marks, registrations, applications and other
associated rights to VRM or a VRM Subsidiary. As promptly as practicable after
the Effective Time, but in any event no later than six (6) months after the
Effective Time, Acquiror shall cease using the "Valero" name and ▇▇▇▇ or
service ▇▇▇▇ and the "Walking Flame" service ▇▇▇▇, including without
limitation, on any signs, badges, parking stickers, letterhead, business
cards, invoices and other business forms, telephone directory listings, and
advertising and promotional materials using the "Valero" name or service ▇▇▇▇;
provided, however, that nothing herein shall be construed to prohibit either
the Company Group or the VRM Group from using after the Effective Time, the
blue-green color (PMS 315) now utilized by both the Company Group and VRM
Group on their respective facilities.
(c) San Antonio Commitment. Recognizing that the Company's corporate
presence in San Antonio, Texas, is a key factor in maintaining the Company's
important customer relationship with San Antonio-City of Public Service and
other customers in the San Antonio, Texas, area, Acquiror agrees that, for a
period of not less than five years following the Effective Time, Acquiror will
cause one or more of its Subsidiaries (including the Retained Companies or
Retained Business) to have a substantial corporate presence in San Antonio,
Texas, or its metropolitan area by maintaining offices, and employing not less
than 340 employees on average over such five-year period, in such metropolitan
area.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Access. (a) Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company agrees to (and will cause each of its
Subsidiaries to) afford Acquiror's Representatives reasonable
A-28
access, during normal business hours throughout the period until the Closing
Date, to all its properties, books, contracts, commitments, Personnel and
records, to the extent related to the Retained Business, including access for
training and education of personnel and for environmental and other testing,
each as may reasonably be requested, and, during such period, will (and will
cause each of its Subsidiaries to) furnish promptly to Acquiror all information
concerning its business, properties and Personnel, to the extent related to the
Retained Business; provided, however, that such access will not unreasonably
interfere with the normal operations of the Company and the reasonable out-of-
pocket expenses of the Company incurred in connection therewith will be paid by
Acquiror. All such information as may be furnished by or on behalf of the
Company or any of its Subsidiaries to Acquiror or its Representatives, or which
is learned by any of Acquiror's Representatives in the course of any visit to
the Company or any of its locations or contacts with any of its employees,
pursuant to this Section 7.1 will be subject to the terms of the confidentiality
agreement dated November 26, 1996 between the Company and Acquiror (the
"Confidentiality Agreement") the terms of which are incorporated herein by
reference. The Confidentiality Agreement shall terminate as of the Time of
Distribution. Acquiror hereby agrees to defend, indemnify and hold the Company
and its Subsidiaries harmless for, from and against all loss, cost, liability
(including death or bodily injury) or expense due to personal injury or property
damage resulting solely from Acquiror's inspections in connection with this
Section 7.1(a).
(b) During the period prior to the Effective Time, the Company and Acquiror
will promptly furnish to the other a copy of each report, schedule,
registration statement and other documents filed by it with the SEC during
such period pursuant to the requirements of Section 13(a) or 15(d) of the
Exchange Act.
7.2. Other Actions. Subject to Section 7.3(a) and the respective rights of
the parties to terminate this Agreement under Article IX, the Company and
Acquiror will use reasonable best efforts not to, and will cause their
respective Subsidiaries to use reasonable best efforts not to, take any action
that would, or that could reasonably be expected to, result directly or
indirectly in any of the conditions to the Merger set forth in Article VIII
not being satisfied or that would, or that reasonably could be expected to,
materially impair the ability of the Company to consummate the Distribution in
accordance with the terms of the Reorganization Agreements or the ability of
the Company, Acquiror and Sub to consummate the Merger in accordance with the
terms hereof or that would, or that reasonably could be expected to,
materially delay such consummation.
7.3. Acquisition Proposals; Board Recommendation. (a) The Company will, and
will direct and use reasonable efforts to cause its directors, officers,
employees, representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an
Acquisition Proposal. The Company will not, nor will it permit any of its
Subsidiaries to, nor will it authorize or permit any of its directors,
officers, or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its Subsidiaries
to, directly or indirectly, (i) solicit, initiate or knowingly encourage
(including by way of furnishing confidential information), or take any other
action knowingly to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding any
Acquisition Proposal; provided, however, that if, the Board of Directors of
the Company determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Company's stockholders under applicable law, the Company may, in response
to an Acquisition Proposal that was not solicited subsequent to the date
hereof, and subject to compliance with Section 7.3(c), (x) furnish information
to any person pursuant to a customary confidentiality agreement (as determined
by the Company after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such Acquisition
Proposal.
(b) Except as set forth in this Section 7.3, neither the Board of Directors
of the Company nor any committee thereof will (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Acquiror, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Acquisition Proposal or (iii) cause the Company to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement (each, an "Acquisition Agreement") related to any
Acquisition Proposal.
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Notwithstanding the foregoing, in the event that the Board of Directors of the
Company determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Company stockholders under applicable law, the Board of Directors of the
Company may (x) withdraw or modify its approval or recommendation of the
Merger and this Agreement or (y) approve or recommend a Superior Proposal or
(z) terminate this Agreement (and concurrently with or after such termination,
if it so chooses, cause the Company to enter into any Acquisition Agreement
with respect to any Superior Proposal), but in each case only at a time that
is following Acquiror's receipt of written notice (a "Notice of Superior
Proposal") advising Acquiror that the Board of Directors of the Company has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior
Proposal.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 7.3, the Company will promptly advise Acquiror
orally and in writing of any request for confidential information in
connection with an Acquisition Proposal or of any Acquisition Proposal. The
Company will keep Acquiror reasonably informed of the status of and material
information concerning (including amendments or proposed amendments) any
Acquisition Proposal.
(d) Nothing contained in this Section 7.3 will prohibit the Company from
making any disclosure to the Company stockholders if, in the good faith
judgment of the Board of Directors of the Company, after consultation with
outside counsel, failure so to disclose would be inconsistent with applicable
law; provided, however, neither the Company nor its Board of Directors nor any
committee thereof shall, except as permit- ▇▇▇ by Section 7.3(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect
to this Agreement or the Merger or approve or recommend, or propose publicly
to approve or recommend, an Acquisition Proposal.
7.4. Tax Representation Letters. For purposes of the tax opinions to be
delivered pursuant to Sections 8.2(c) and 8.3(c), respectively, (a) Acquiror
will deliver a representation letter substantially in the form of Annex D
attached hereto dated as of the Closing Date and (b) the Company will cause
VRM to deliver a representation letter substantially in the form of Annex E
attached hereto, dated as of the Closing Date, in each case, to Wachtell,
Lipton, ▇▇▇▇▇ & ▇▇▇▇, special counsel to the Company, and ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ LLP, special counsel to Acquiror.
7.5. Filings; Other Actions. (a) The Company will use its reasonable best
efforts promptly to prepare and file with the SEC the Proxy Statement-
Prospectus.
(b) The Company will use its reasonable best efforts (i) promptly to prepare
and file with the SEC the VRM Registration Statement in connection with the
distribution of VRM Common Stock and associated VRM Rights in the
Distribution, and (ii) to cause the Proxy Statement-Prospectus to be mailed to
the Company's stockholders as promptly as practicable after the Proxy
Statement-Prospectus has been cleared by the SEC.
(c) Acquiror will use its reasonable best efforts promptly to prepare and
file with the SEC the Acquiror Form S-4.
(d) None of the Registration Statements or the Proxy Statement-Prospectus
shall be filed with the SEC, and, prior to termination of this Agreement, no
amendment or supplement thereto shall be filed with the SEC, by the Company or
Acquiror without giving the other and its counsel a reasonable opportunity to
review and comment on such filings prior to the filing thereof. Each of the
Company and Acquiror agrees to use its reasonable best efforts, after
consultation with the other party, to respond promptly to any comments made by
the SEC with respect to all of its filings referred to in clauses (a), (b) and
(c) above, including the preparation and filing of any amendments or
supplements thereto, and to have all such filings declared effective under the
Securities Act and the Exchange Act, as applicable, or cleared by the SEC, in
each case as promptly as practicable after the filing thereof. Each of the
Company and Acquiror will, and the Company will cause VRM to, use its
reasonable best efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals
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required to carry out the transactions contemplated by the Reorganization
Agreements and each of the Company and Acquiror agrees to furnish all
information as may be reasonably requested in connection with any such action;
provided, however, that Acquiror will not be required to qualify to do
business in any jurisdiction in which it is not now so qualified.
(e) Each of the Company and Acquiror will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their respective Subsidiaries in connection
with the Distribution or the Merger.
(f) Subject to Section 7.3(a) and its right to terminate this Agreement
pursuant to Section 9.1, the Company agrees to take, in accordance with the
DGCL, the Company Charter and the Company By-laws, all action necessary to
convene the Company Meeting within 45 days after the later of the date the
Acquiror S-4 is declared effective, the VRM Registration Statement is declared
effective, and the Proxy Statement-Prospectus is cleared, by the SEC, to
consider and vote upon the Distribution and the Merger and the Company shall,
through its Board of Directors, recommend to its stockholders approval of the
Distribution and the Merger.
(g) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company, Acquiror and Sub shall use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner possible, the transactions contemplated by the
Reorganization Agreements.
(h) Each of the Company and Acquiror will promptly, and in any event within
15 days after execution and delivery of this Agreement, make all filings or
submissions as are required under the HSR Act. Each of the Company and
Acquiror will promptly furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSR Act.
Without limiting the generality of the foregoing, each of the Company and
Acquiror will promptly notify the other of the receipt and content of any
inquiries or requests for additional information made by any Governmental
Entity in connection therewith and will promptly (i) comply with any such
inquiry or request and (ii) provide the other with a description of the
information provided to any Governmental Entity with respect to any such
inquiry or request. In addition, each of the Company and Acquiror will keep
the other apprised of the status of any such inquiry or request. Subject to
Section 7.5(j), each of the Company and Acquiror will take such actions as are
necessary to obtain any clearance required under the HSR Act for the
consummation of the transactions contemplated hereby.
(i) Each of the Company and Acquiror will promptly make all applications or
filings with the Federal Energy Regulatory Commission under Section 203 of the
Federal Power Act and any applications or filings with appropriate Canadian
authorities required in connection with the Merger. Each of the Company and
Acquiror will take such actions as are necessary to obtain any clearance
required under the Federal Power Act or applicable Canadian law.
(j) Notwithstanding any other provision of this Agreement (including
Sections 7.5(h) and 7.5(i) above), nothing in this Agreement shall require
Acquiror in order to obtain any approval or authorization under any Regulatory
Filing (i) to make any dispositions of any of its assets or any of the assets
of the Retained Business having an aggregate book value in excess of $100
million or (ii) to incur any other burdens which would impair the value of its
investment in the Company or the Retained Business. In addition, the Company
shall not, in order to obtain any approval or authorization under any
Regulatory Filing, make any such dispositions or incur such burdens, without
the consent of Acquiror.
7.6. Accountants' Letters. Each party hereto agrees to use its reasonable
efforts to cause to be delivered to the other parties hereto and their
respective directors a letter of its independent accountants, dated the date
on which each Registration Statement becomes effective, in form and substance
customary for "comfort" letters delivered by independent accountants in
connection with registration statements similar to the Registration
Statements.
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7.7. Distribution Agreement. The Company agrees that prior to the Effective
Time it will not waive or amend the terms of the Distribution Agreement
without the consent of Acquiror.
7.8. Publicity. The initial press release relating hereto shall be a joint
press release and thereafter the Company and Acquiror will consult with each
other prior to issuing any press releases or otherwise making public
statements with respect to the Reorganization Agreements and the transactions
contemplated thereby.
7.9. Employees and Employee Plans. (a) Acquiror and the Company agree to
cooperate in making all appropriate filings and taking all appropriate actions
required to implement the provisions of this Section 7.9.
(b) Acquiror shall for a period of two (2) years after the Merger: (i) take
all action necessary to extend coverage under the Acquiror Pension Plan to
those individuals employed by the Company immediately after the Distribution
and immediately before the Merger (all such individuals, "Continuing
Employees") who were participants in the Company Pension Plan immediately
before the Distribution; (ii) provide Continuing Employees with welfare
benefits (including retiree medical benefits) no less favorable than those
provided by Pacific Gas Transmission ("PGT") prior to the Effective Time to
its other similarly situated employees; (iii) provide Continuing Employees
with severance pay and other employee benefits that are no less favorable in
the aggregate than those provided by the Company prior to the Distribution
(other than any equity-based benefits including, without limitation, stock
options); and (iv) waive any limitations regarding pre-existing conditions
under any welfare or other employee benefit plan maintained by the Acquiror or
PGT.
(c) From and after the Effective Time, with respect to Continuing Employees
who do not elect in connection with the Distribution to receive a distribution
of the balance of their Company Thrift Plan accounts or to transfer their
accounts to the VRM Thrift Plan, Acquiror shall take all actions necessary to
permit such Continuing Employees to transfer their account balances in the
Company Thrift Plan to the Acquiror Thrift Plan. Such transfers shall be in
cash, except that the Acquiror Thrift also will accept promissory notes
evidencing any outstanding participant loans.
(d) For all purposes under all compensation and benefit plans and policies
applicable to employees of Acquiror, including those referred to in this
Section, Acquiror shall treat all service by Continuing Employees with the
Company prior to the Merger as service with Acquiror, except to the extent
such treatment would result in duplication of benefits. For example, but not
by way of limitation, benefits payable to Continuing Employees pursuant to the
Acquiror Pension Plan (and any other qualified or non-qualified plan,
arrangement or contract providing retirement benefits) shall be reduced (on an
actuarially equivalent basis) by benefits paid under the VRM Pension Plan (and
any other qualified or non-qualified plan, arrangement or contract providing
retirement benefits). VRM shall not amend or terminate any such plan,
arrangement or contract so as to reduce the accrued benefit of any Continuing
Employee. For the purpose of avoiding any such benefit duplication, each of
VRM and the Acquiror shall provide to the other all such information in its
possession as the other may reasonably request concerning each other's Pension
Plan (and any other qualified or nonqualified plan, arrangement or contract
providing retirement benefits) to enable VRM and Acquiror to fulfill their
obligations under their respective plans, arrangements and contracts.
(e) VRM and Acquiror shall use their best efforts to permit all employees of
the Company, including but not limited to the Continuing Employees, to
participate in VRM's Flex Plan through December 31, 1997, provided that the
Company shall reimburse VRM for the costs of such participation.
(f) Prior to the Effective Time, the Company and Acquiror will use their
best efforts to collaborate with respect to the design, implementation and
administration of an early retirement program.
7.10. Expenses. (a) All Expenses incurred in connection with the
Reorganization Agreements and the transactions contemplated thereby, shall be
paid by the Company or the Surviving Corporation; provided that the amount so
paid by the Company or the Surviving Corporation shall not exceed the sum of
the expenses set forth on Schedule 5.1(h)(iii) under the caption Transaction
Costs Payable, plus the amount of any redemption or
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prepayment penalty to be paid with respect to the 10.58% Senior Notes due
2000, under the Note Purchase Agreement, dated as of December 19, 1990, as
amended, from the Company to the Note Purchasers named therein, and any amount
in excess of such aggregate amount shall be paid by VRM.
(b) The Company will pay Acquiror $37.5 million (the "Termination Fee") if
(i) this Agreement is terminated pursuant to Section 9.1(c)(ii) or Section
9.1(d)(ii), (ii) prior to the termination of this Agreement, a bona fide
Acquisition Proposal was commenced, publicly proposed, publicly disclosed or,
in the case of clause (iii)(x) below, communicated to the Board of Directors
of the Company (or the willingness of any person to make such an Acquisition
Proposal was publicly disclosed or, in the case of clause (iii)(x) below,
communicated to the Board of Directors of the Company), and (iii)(x) the Board
of Directors of the Company, in accordance with Section 7.3, withdrew or
modified its approval or recommendation of this Agreement or the Merger in a
manner materially adverse to Acquiror, approved or recommended such
Acquisition Proposal, caused the Company to enter into an Acquisition
Agreement with respect to an Acquisition Proposal or terminated this Agreement
or (y) the requisite approval of the Company's stockholders for the
Distribution or the Merger was not obtained at the Company Meeting and, within
twelve months following the date of the Company Meeting (or following the date
of termination of this Agreement, if the Company Meeting was not held prior to
such termination), an Acquisition Proposal shall have been consummated or the
Company shall enter into a definitive agreement with respect to any
Acquisition Proposal; provided, however, the Termination Fee will not be
payable if, at the time of any action referred to in clause (iii)(x) above or
the Company Meeting (or on the date of the termination of this Agreement, if
the Company Meeting was not held prior to such termination), Acquiror shall be
in material breach of its covenants or agreements contained in this Agreement.
The Termination Fee will be paid (in same-day funds), in the case of clause
(iii)(x) above, on the second business day following the termination of this
Agreement, or in the case of clause (y) above, on the second business day
following the earlier of execution of such agreement or the consummation of
such Acquisition Proposal.
7.11. Takeover Statutes. If any Takeover Statute is or may become applicable
to the transactions contemplated by the Reorganization Agreements, each of the
Company and Acquiror and their respective Boards of Directors will grant such
approvals and take such actions as are necessary so that the transactions
contemplated by the Reorganization Agreements may be consummated as promptly
as practicable on the terms contemplated thereby and otherwise act to
eliminate or minimize the effects of any Takeover Statute on any of the
transactions contemplated by the Reorganization Agreements.
7.12. Securities Act Compliance. As soon as practicable after the date of
the Company Meeting, the Company will identify to Acquiror all individuals who
were reasonably believed by the Company to be, at the time of the Company
Meeting, an "affiliate" of the Company as that term is used in paragraphs (c)
and (d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates"). The
Company will use its reasonable best efforts to obtain a written agreement in
the form of Annex F hereto from each Person who is so identified as a Rule 145
Affiliate and will deliver such written agreements to Acquiror as soon as
practicable after the Company Meeting.
7.13. Stock Exchange Listing. Acquiror will use its reasonable best efforts
to list on the NYSE prior to the Closing Date, subject to official notice of
issuance, the Acquiror Common Stock to be issued pursuant to the Merger.
7.14. 1935 Act. (a) The Company shall not, nor shall the Company permit any
of its Subsidiaries to, engage in any activities which reasonably could cause
any of them to become a "holding company" under the 1935 Public Utility
Holding Company Act, as amended.
(b) Acquiror shall not, nor shall Acquiror permit any of its Subsidiaries
to, engage in any activities which reasonably could cause the Acquiror or any
of its Subsidiaries prior to the Effective Time to lose their exemption from
the 1935 Act (except Section 9(a)(2) thereof).
7.15. Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company, any deeds,
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bills of sale, assignments or assurance and to take and do, in the name and on
behalf of the Company, any other actions and things reasonably necessary to
vest, perfect or confirm of record or otherwise any and all right, title and
interest in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation or VRM, as the
case may be, as a result of or in connection with any of the transactions
contemplated by the Reorganization Agreements, including without limitation
the Merger and the Distribution.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party hereto to consummate the Merger are
subject to the satisfaction or waiver, on or prior to the Closing Date, of
each of the following conditions:
(a) Company Stockholder Approval. The Merger shall have been duly approved
by the affirmative vote of the holders of Company Common Stock representing at
least a majority of the outstanding shares thereof entitled to vote thereon.
(b) Acquiror Stockholder Approval. If required by applicable state laws or
the applicable rules of any securities exchange, the issuance of Acquiror
Common Stock in the Merger shall have been approved by the stockholders of the
Acquiror in accordance with such law or such rule.
(c) NYSE Listing. The shares of Acquiror Common Stock to be issued pursuant
to the Merger shall have been approved for listing on the NYSE prior to the
Closing Date, subject to official notice of issuance.
(d) HSR. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(e) Litigation. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition shall be in effect that prohibits
consummation of the transactions contemplated by the Reorganization
Agreements.
(f) Registration Statements. The Registration Statements shall have become
effective under the Securities Act or Exchange Act, as applicable, no stop
order suspending the effectiveness of the Registration Statements shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(g) Pre-Merger Transactions. The transactions contemplated by Article IV
shall have been consummated in accordance with the terms of this Agreement and
the Distribution Agreement (which includes additional conditions to such
consummation).
(h) FERC. The Federal Energy Regulatory Commission and any applicable
Canadian authority shall have approved the Merger.
8.2. Conditions to Obligation of the Company. The obligation of the Company
to consummate the Merger is also subject to the satisfaction or waiver by the
Company on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Sub set forth in the Reorganization Agreements (x) that are
qualified as to materiality shall be true and correct and (y) that are not so
qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except (i) that the accuracy of
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representations and warranties that by their terms speak as of the date of
this Agreement or some other date will be determined as of such date and (ii)
for the effect of any activities or transactions which are contemplated by the
Reorganization Agreements), and the Company will have received a certificate
signed on behalf of Acquiror by an executive officer of Acquiror to such
effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and Sub shall
have performed in all material respects all obligations required to be
performed by them under the Reorganization Agreements at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Acquiror by an executive officer of Acquiror to such effect.
(c) Tax Opinions. The Company shall have received the opinion of Wachtell,
Lipton, ▇▇▇▇▇ & ▇▇▇▇, special counsel to the Company, dated the Closing Date,
to the effect that the Distribution qualifies as a transaction described in
Sections 355(a), 355(c)(1) and 368(a)(1)(D) of the Code in which no gain or
loss shall be recognized to the Company and that the Merger qualifies as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code.
(d) Consents. All consents, approvals and authorizations required to be
obtained prior to the Closing Date from any Governmental Entity or third party
in connection with the execution, delivery and performance of the
Reorganization Agreements shall have been made or obtained, except where the
failure to make or obtain the same, individually or in the aggregate, would
not have a Material Averse Effect on the VRM Companies, taken as a whole.
8.3. Conditions to Obligations of Acquiror and Sub. The obligations of
Acquiror and Sub to consummate the Merger are also subject to the satisfaction
or waiver by Acquiror on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and VRM set forth in the Reorganization Agreements (x) that are
qualified as to materiality shall be true and correct and (y) that are not so
qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except (i) that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement or some
other date will be determined as of such date and (ii) for the effect of any
activities or transactions which are contemplated by the Reorganization
Agreements) and Acquiror will have received a certificate signed on behalf of
the Company by an executive officer of the Company to such effect.
(b) Performance of Obligations. Each of the Company and VRM shall have
performed in all material respects all obligations required to be performed by
it under the Reorganization Agreements at or prior to the Closing Date, and
Acquiror shall have received a certificate signed on behalf of the Company by
an executive officer of the Company to such effect.
(c) Tax Opinion. Acquiror shall have received an opinion of ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, special counsel to Acquiror, dated the Closing
Date, to the effect that the Merger qualifies as a "reorganization" within the
meaning of Section 368(a)(1)(B) of the Code and shall have received an opinion
of Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇, reasonably satisfactory to Acquiror in form
and substance, to the effect that the Distribution qualifies as a transaction
described in Sections 355(a), 355(c)(1) and 368(a)(1)(D) of the Code in which
no gain or loss shall be recognized to the Company.
(d) Consents. All consents, approvals and authorizations required to be
obtained prior to the Closing Date from any Governmental Entity or third party
in connection with the execution, delivery and performance of the
Reorganization Agreements shall have been made or obtained, except where the
failure to make or obtain the same, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Retained
Companies, taken as a whole, or on Acquiror and its Subsidiaries, taken as a
whole.
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(e) Redemption of Company Preferred Stock. The Company shall have redeemed
or converted all issued and outstanding shares of Company Preferred Stock
pursuant to the terms of the related certificate of designation.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the
approval by the stockholders of the Company:
(a) by the mutual written consent of the Company and Acquiror;
(b) by either the Company or Acquiror if (i) the Merger shall not have been
consummated by July 31, 1997 unless HSR or Federal Energy Regulatory
Commission approval has not been received in which case such date shall be
postponed until 10 business days after receipt of such approval, but in no
event later than December 31, 1997, or (ii) at the Company Meeting or at any
adjournment thereof, the approval of the Company's stockholders referred to in
Section 8.1(a) shall not have been obtained; provided that in the case of a
termination pursuant to clause (i) above, the terminating party and its
Subsidiaries shall not have breached in any material respect their respective
obligations under the Reorganization Agreements in any manner that shall have
caused or resulted in the failure referred to above;
(c) by the Company (i) if Acquiror or Sub shall have breached in any
material respect any of their respective covenants, representations,
warranties or agreements contained in any Reorganization Agreement, which
breach shall not have been cured within 30 days following written notice of
such breach, or (ii) pursuant to Section 7.3(b) of this Agreement; or
(d) by Acquiror:
(i) if the Company or VRM shall have breached in any material respect any
of the covenants, representations, warranties or agreements contained in
any Reorganization Agreement, which breach shall not have been cured within
30 days following written notice of such breach; or
(ii) if the Board of Directors of the Company shall have exercised any of
its rights set forth in the second sentence of Section 7.3(b) of this
Agreement;
(iii) if (A)(x) there has occurred since the date of this Agreement any
event, change, effect or state of facts (collectively "Events"), other than
Events which result from any action by Acquiror or any of its Subsidiaries,
Affiliates, officers, employees, agents or representatives or changes in
general economic, financial, market or business conditions, or (y)
Acquiror, in its ongoing due diligence investigation, shall uncover
information (collectively "Information") that, as of the date of this
Agreement, has not been previously disclosed in a Filed Company SEC
Document or has not been disclosed by the Company to Acquiror on or prior
to the date of this Agreement (including in the Company Disclosure
Schedules) and (B) such Events and Information in the aggregate would
reasonably be expected to result in an adverse impact on the Retained
Business of more than $100 million, which amount shall be net of income tax
effects and shall include the present value of any reasonably projected
costs, expenses or liabilities or losses of projected business revenue
caused by the occurrence of such Events or attributable to such
Information.
9.2. Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article IX,
no party to the Reorganization Agreements (or any of its directors or
officers) shall have any liability or further obligation to any other party,
except as set forth in Sections 5.1(q), 5.2(l), 7.10 and 9.2, all of which
shall survive such termination, and except that nothing herein shall relieve
any party from liability for any material and willful breach of any of the
Reorganization Agreements.
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ARTICLE X
MISCELLANEOUS AND GENERAL
10.1. Survival. Except as set forth below in this Section 10.1, all
representations, warranties and agreements in this Agreement of Acquiror, Sub
and the Company or in any instrument delivered by Acquiror, Sub or the Company
pursuant to or in connection with this Agreement shall expire at the Effective
Time or upon termination of this Agreement in accordance with its terms or, in
the case of any other such instrument, in accordance with the terms of such
instrument. In the event of consummation of the Merger, the agreements
contained in or referred to in Article III, the last sentence of Section
6.1(c) and Sections 6.2(b), 6.2(c), 7.9, 7.15 and 10.1 shall survive the
Effective Time.
10.2. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify
or amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties.
10.3. Waiver; Remedies. The conditions to each party's obligation to
consummate the Merger are for the sole benefit of such party and may be waived
(in writing) by such party in whole or in part to the extent permitted by
applicable law. No delay on the part of either Acquiror or the Company in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of either Acquiror or the Company of
any right, power or privilege hereunder operate as a waiver of any other
right, power or privilege hereunder, nor will any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. Unless otherwise provided, the rights and remedies herein provided
are cumulative and are not exclusive of any rights or remedies which the
parties may otherwise have at law or in equity.
10.4. Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of separate counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
10.6. Notices. Any notice, request, instruction or other communication to be
given hereunder by any party to another shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt,
(ii) on the first business day following the date of dispatch if delivered by
Federal Express or other nationally reputable next-day courier service, or
(iii) on the third business day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive
such notice,
(a) If to the Company:
Valero Energy Corporation ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇
Attention: General Counsel Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq. Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) if to Acquiror or Sub:
PG&E Corporation
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
10.7. Entire Agreement. The Reorganization Agreements including the Annexes
and Schedules thereto, the Interim Services Agreements including the Annexes
and Schedules thereto and the Confidentiality Agreement constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof and thereof. Any disclosure by the
Company, Acquiror or Sub in any portion of their respective disclosure
schedules shall be deemed disclosure in each other portion of such disclosure
schedule.
10.8. Certain Obligations. Whenever any Reorganization Agreement, the
Interim Services Agreement or the Assignment and Assumption Agreements
requires any of the Subsidiaries of any party to take any action, such
Agreement will be deemed to include an undertaking on the part of such party
to cause such Subsidiary to take such action.
10.9. Assignment. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement
without the express written consent of each other party hereto in its sole and
absolute discretion.
10.10. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
10.11. Severability. If any provision of the Reorganization Agreements or
the application thereof to any Person or circumstance is determined by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions thereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any
manner adverse to any party. Upon any such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
10.12. No Third Party Beneficiaries. Nothing contained in this Agreement or
any other Reorganization Agreement is intended to confer upon any Person or
entity other than the parties thereto and their respective successors and
permitted assigns, any benefit, right or remedies under or by reason of the
Reorganization Agreement; provided, however, that VRM is an intended third
party beneficiary of the obligations of Acquiror specified in Section 6.2(b),
and is entitled to enforce the same to the same extent as if a party hereto.
10.13. Annexes and Schedules. All Annexes hereto and the Company Disclosure
Schedule (collectively, the "Schedules") attached hereto or referred to herein
are hereby incorporated in and made a part of this
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Agreement as if set forth in full herein. Matters reflected on the Schedules
are not necessarily limited to matters required by this Agreement to be
reflected on such Schedules. Such additional matters are set forth for
informational purposes only and do not necessarily include other matters of a
similar nature. Capitalized terms used in any Schedule but not otherwise
defined therein shall have the respective meanings assigned to such terms in
this Agreement.
10.14. No Representations or Warranties Acquiror and Sub acknowledge that
none of the Company or any of its Subsidiaries, any of their affiliates
(including the Retained Companies) or any other Person has made any
representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding any of the Company, VRM, VRM's
Subsidiaries, the Retained Companies, the Retained Business or the Retained
Assets not included in the Reorganization Agreements, and none of the Company,
any of its Subsidiaries or Affiliates or any other Person will have or be
subject to any liability to Acquiror or any of its Subsidiaries, any of their
affiliates or any other Person resulting from the distribution to Acquiror or
Sub, or Acquiror's or Sub's use of, any such information. Acquiror and Sub
further acknowledge that, except as expressly set forth in the Reorganization
Agreements, the Company and VRM have not made, and hereby expressly disclaim
any representation or warranty, and there are no representations or warranties
of any kind, expressed or implied, with respect to any of the Company, VRM,
VRM's Subsidiaries, the Retained Companies, the Retained Business or the
Retained Assets.
10.15. Tax Sharing Agreement. With respect to Tax matters, if there is a
conflict between this Agreement and the Tax Sharing Agreement the Tax Sharing
Agreement shall control.
10.16. Consent to Jurisdiction. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of (i) the state courts of the State of
New York, County of New York and (ii) the United States District Court for the
Southern District of New York for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated
hereby (and agrees not to commence any action, suit, or proceeding relating
hereto except in such courts). Each of the parties hereto further agrees that
service of any process, summons, notice or document hand delivered or sent by
registered mail to such party's respective address set forth in Section 10.6
will be effective service of process for any action, suit or proceeding in New
York, County of New York with respect to any matters to which it has submitted
to jurisdiction as set forth in the immediately preceding sentence. Nothing in
this Section, however, shall affect the right of any party hereto to serve
legal process in any other manner permitted by law. Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the state courts of the State of New
York, New York County or (ii) the United States District Court for the
Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first
hereinabove written.
VALERO ENERGY CORPORATION
By______________________________________
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
PG&E CORPORATION
By______________________________________
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: General Counsel
PG&E ACQUISITION CORPORATION
By______________________________________
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
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