MidAmerican Energy Holdings Company
000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, Xxxx 00000
September 17, 2008
Xx. Xxxx X. Xxxxxxxx III
Chairman, President and Chief Executive Officer
Constellation Energy Group, Inc.
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Dear Mayo:
This letter agreement sets forth the agreement among MidAmerican Energy
Holdings Company or its affiliate (collectively, "Purchaser"), and Constellation
Energy Group, Inc. (the "Company"), pursuant to which the parties will pursue a
proposed transaction which includes the principal terms described in Exhibit A
annexed hereto (the "Proposed Transaction").
1. Publicity; Public Filings. Purchaser and the Company will consult with each
other before issuing, and provide each other the reasonable opportunity to
review, comment upon and concur with, any press release or other public
statements with respect to this letter agreement or the transactions
contemplated hereby, and shall not issue any such press release or make any such
public statement prior to such consultation, unless required by applicable law
or the rules of a national securities exchange. In the event that any party
concludes that it is required by law or relevant stock exchange rules to make a
public statement with respect to this letter agreement or the transactions
contemplated herby or make any public filing with respect thereto, including any
filing with the Securities and Exchange Commission, such party will immediately
provide to the other parties hereto for review a copy of any such press release,
statement or filing, and will not issue any such press release, or make any such
public statement or filing, prior to such consultation and review, unless
required by applicable law or the rules of a national securities exchange.
2. Definitive Agreement; Diligence Access. (a) Purchaser and the Company will
immediately commence good faith negotiations with a view to agreeing upon a
definitive merger agreement, definitive preferred stock investment agreement and
articles supplementary and other definitive agreements relating to the Proposed
Transaction and related transactions on a basis consistent with the terms and
conditions set forth on Exhibit A and which are otherwise mutually acceptable to
the parties in their respective sole discretion. It is the parties intention to
work expeditiously toward execution of a definitive merger agreement, the other
definitive agreements and definitive ancillary documents as soon as reasonably
possible, and in any event prior to 5:00
p.m. (New York City time) on Friday, September 19, 2008. Purchaser agrees that
it will not require a financing condition in the definitive purchase agreement.
(b) Commencing immediately, the Company will, and will cause their respective
Representatives to, provide full and immediate access to their respective
properties, assets, records and employees for the purposes of allowing Purchaser
and its Representatives to conduct due diligence with respect to the business of
the Company and the related transactions, but only to the extent that the
Company may do so without violating applicable laws or violating any
non-waivable obligations to third parties. Purchaser's investigation shall be
conducted in a manner that minimizes interference with the operation of the
business of the Company.
3. Exclusivity. During the period commencing immediately on the date of
execution of this letter agreement and ending on the earlier of the date of
execution of a definitive merger agreement and 5:00 p.m. New York City time,
September 19, 2008 (the "Exclusivity Period"), none of the Company or any of its
subsidiaries, affiliates, officers, directors, employees, attorneys,
accountants, investment bankers and other agents or representatives
(collectively, "Representatives") will, directly or indirectly, solicit,
encourage, cooperate with, approve or permit any offers, bids or indications of
interest, or initiate or engage in negotiations with any person other than
Purchaser, with respect to the business of the Company or any part thereof or
any other transaction which would conflict with the intent of this letter
agreement, including without limitation any (i) direct or indirect acquisition
or purchase by any person or entity of more than 10% of the voting securities
of, or equity interest in, the Company or any of its material subsidiaries or
(ii) merger, consolidation or sale of all or substantially all of the assets of
the Company, or any recapitalization, liquidation, dissolution or similar
transaction involving the Company or any material subsidiary thereof
(collectively, "Alternative Transactions"). The Company and its Representatives
shall immediately cease any ongoing discussions or negotiations with any third
party with respect to any Alternative Transaction. Except as permitted by
Paragraph 2 of this letter agreement, none of the Company or its Representatives
shall furnish, or authorize or permit any of their respective Representatives to
furnish, any information concerning this letter agreement or the transactions
contemplated hereby to any person or entity or any non-public information
regarding the Company's business or any part thereof to any person or entity. In
the event that any person or entity should seek to initiate negotiations
relative to an Alternative Transaction or any other material transaction
regarding the Company's business or any part thereof, the Company shall
immediately notify Purchaser of such contact and the material terms and
conditions of any offer.
4. Fees and Expenses. Subject to the prior receipt of the Board Approval (as
defined below in Paragraph 5), by no later than 10:00 a.m. New York City time on
September 18, 2008, the Purchaser shall have received from the Company the sum
of $25,000,000, in cash by wire transfer of immediately available funds to the
account designated in writing by the Purchaser to the Company, which payment
shall be non-refundable under any and all circumstances. In exchange, the
Purchaser agrees that it will be responsible for its own costs and expenses in
connection with this letter agreement and the drafting, negotiation and
execution of the definitive agreements, including all fees and expenses of its
attorneys, accountants, consultants, investment bankers, finders or brokers.
- 2 -
5. Non-Binding Purchase and Sale Commitment; Termination. The parties
acknowledge and agree that they have not reached agreement upon, and this letter
does not reflect, all matters upon which agreement must be reached in order for
the proposed acquisition to be consummated. Moreover, this letter agreement does
not obligate either party to negotiate, execute or consummate a definitive
merger agreement or other definitive agreements relating to the Proposed
Transaction. A binding commitment with respect to the Proposed Transaction (or
any related transaction) will result only from the execution of a definitive
merger agreement, a definitive preferred stock investment agreement and other
ancillary definitive agreements with respect thereto, subject to such conditions
as may be contained therein, and remains subject to the prior approval of the
Company's board of directors and the exercise by the board of its fiduciary
obligations. Nonetheless, Paragraphs 1, 2, 3 and 4 and this Paragraph 5 of this
letter agreement are intended to constitute binding obligations of the parties
hereto. Except for Paragraph 4 and this Paragraph 5 of this letter agreement
which shall survive, this letter agreement shall terminate (i) in the event the
Board of Directors of the Company does not approve this letter agreement by 9:00
a.m. New York City time on September 18, 2008 (the "Board Approval") or (ii) in
the event the Board Approval is received, upon the expiration of the Exclusivity
Period, unless such period is mutually extended by the parties hereto. This
letter agreement shall be governed by and construed in accordance with the laws
of the state of New York applicable to agreements made and to be performed
within such state.
[Signature Page Follows]
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Please confirm that you are in agreement with the foregoing by signing the
enclosed copy of this letter agreement and returning it to the undersigned
before 11:59 p.m., New York City time, September 17, 2008.
Very truly yours,
MIDAMERICAN ENERGY HOLDINGS COMPANY
By:/s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: President and Chief Executive Officer
Accepted and Agreed as of September17, 2008:
CONSTELLATION ENERGY GROUP, INC.
By:/s/ Mayo X. Xxxxxxxx III
-------------------------------------------------------
Name: Mayo X. Xxxxxxxx III
Title: Chairman, President and Chief Executive Officer
- 4 -
Exhibit A
---------
Principal Transaction Terms
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CONVERTIBLE
PREFERRED STOCK:
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Issuer: Constellation Energy Group, Inc., a Maryland
corporation ("CEG" or the "Company")
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Purchaser: MidAmerican Energy Holdings Company
("Purchaser")
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Type of Security: Series A Convertible Preferred Stock, par
value $0.01 per share (the "Series A
Preferred Stock").
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Securities to be Purchased: Purchaser would invest an aggregage of
$1 billion (the "Invested Amount") in
exchangefor shares of Series A Preferred
Stock at purchase price of $100,000 per
share upon the execution of the definitive
purchase agreement and the receipt of any
required regulatory approvals.
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Terms of Series A Preferred Dividends
Stock: ---------
8% per annum payable in cash, cumulative and
compounding quarterly, payable when and as
authorized by the Board of Directors of the
Company (the "Board of Directors") and prior
and in preference to any other series or
class of stock of the Company; restriction on
payment of dividends on capital stock in any
year unless all dividends on the Series A
Preferred Stock have been paid in full. Such
dividends shall be payable on the date prior
to the payment date of the Company's regular
quarterly dividend.
Mandatory Conversion
--------------------
Upon the occurrence of a Conversion Date (as
defined below), the Series A Preferred Stock
shall automatically convert into: (i) a
number of shares of the Company's Common
Stock equal to 19.9% of the Company's
outstanding Common Stock on the date the
Series A Preferred Stock Purchase Agreement
is executed and (ii) $1 billion aggregate
principal amount of the Company's 14% Senior
Notes having the terms described below under
"Terms of 14% Senior Notes". "Conversion
Date" shall mean the first to occur of: (i)
the date that is 6 months following the
Purchaser's exercise of the Limited Due
Diligence Termination Right (as defined
below) if the Company has not redeemed the
Series A Preferred Stock by such date, (ii)
the date the Merger Agreement is terminated
(other than upon exercise of the Limited Due
Diligence Termination Right or due to a
breach of the agreement by the Purchaser) and
(iii) the drop dead date of the Merger
Agreement,
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including any extension thereof by the
Company or the Purchaser.
Treatment of Dividends on Conversion
------------------------------------
Upon conversion of the Series A Preferred
Stock, any accrued but unpaid dividends
thereon would be paid to the holder of the
converted shares in cash.
Liquidation Preference
----------------------
Upon the occurrence of a Liquidation Event
(as hereinafter defined), the holders of
Series A Preferred Stock would be entitled to
receive, in preference to the holders of the
Common Stock and the holders of any other
capital stock of the Company, an amount in
cash equal to the Invested Amount plus all
accrued but unpaid dividends thereon (the
"Liquidation Preference").
"Liquidation Event" would mean, (i) any
liquidation, dissolution or winding up of the
Company or (ii) a consolidation, merger,
reorganization or other form of acquisition
of the Company (including through a stock
purchase) or a sale of all or substantially
all of its assets, except in cases where the
stockholders of the Company immediately prior
to such transaction own more than 50% of the
voting stock of the Company or, if
applicable, the resulting or surviving
corporation, immediately following such
transaction; provided, however, that the
consummation of the transactions contemplated
by the Merger Agreement shall not be deemed
to constitute a Liquidation Event.
Redemption at Option of Holder
------------------------------
At any time on or after the second
anniversary of the initial issuance date of
the Series A Preferred Stock, the holders of
the Series A Preferred Stock would be
entitled to require the Company to redeem the
Series A Preferred Stock at an aggregate
redemption price equal to the Liquidation
Preference of the Series A Preferred Stock.
Redemption at Option of the Company
-----------------------------------
During the 6 month period following
Purchaser's exercise of the Limited Due
Diligence Termination Right, the Company
shall have the right to redeem the Series A
Preferred Stock at an aggregate redemption
price equal to the Liquidation Preference of
the Series A Preferred Stock.
Voting Rights
-------------
Except as set forth below, holders of Series
A Preferred Stock would not be entitled to
vote on any matters presented to the holders
of Common Stock.
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Without the approval of the holders of a
majority of the outstanding shares of Series
A Preferred Stock, the Company would not, and
would not permit any subsidiary to:
1. in the case of the Company, alter or
amend the preferences, privileges or
rights of the Series A Preferred Stock
or create any class of shares senior to
or pari passu with the Series A
Preferred Stock in any respect;
2. liquidate or dissolve or file a
voluntary petition for bankruptcy or
adopt any plan for any of the foregoing;
3. amend the Company's or any subsidiary's
Charter or Bylaws or equivalent
organizational documents;
4. increase the amount of the Company's
regular quarterly cash dividend, pay any
special dividend or distribution or
otherwise repurchase or redeem any
equity securities, other than as
required by the terms of equity
securities outstanding on the date of
issuance of the Series A Preferred Stock
or in the case of the Company, authorize
or issue any shares of capital having a
right to dividends (other than Common
Stock) or redemption;
5. permit the Company or any of its
subsidiaries to incur any indebtedness
for borrowed money, other than the
incurrence by the Company of senior
unsecured debt ranking pari passu with
the Company's existing senior unsecured
debt in the ordinary course of business
consistent with past practice and the
Company's current business plan and
Baltimore Gas & Electric Company ("BGE")
may issue new debt consistent with both
its past practices and regulatory
approvals;
6. take any action that require common
shareholder approval if the dividend has
not been paid for two consecutive
quarters, excluding the election of
directors and the ratification of the
Company's independent auditors; or
7. other mutually agreed covenants.
Adjustments
-----------
The number of shares of Common Stock issuable
upon conversion of the Series A Preferred
Stock shall be appropriately adjusted to give
effect to any stock split, recapitalization,
stock dividend or similar event.
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Information Rights: At any time that the Company is not required
to file periodic reports with the SEC, the
Company would be required to provide the
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Purchaser the following information:
1. consolidated unaudited monthly financial
statements prepared in accordance with
US GAAP (including an income statement,
balance sheet, and cash flow statement,
with comparisons to budget and prior
year) within 30 days of month-end,
consolidated unaudited quarterly
financial statements prepared in
accordance with US GAAP (including an
income statement, balance sheet, and
cash flow statement, with comparisons to
budget and prior year) within 30 days of
quarter-end, and annual consolidated
audited financial statements within 90
days of fiscal year-end (certified by a
"Big 4" accounting firm);
2. customary notices of material events
(e.g., litigation, etc.); and
3. such other information and access as the
Investors may reasonably request.
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Registration Rights: At the expense of the Company, the
Purchaser would have the following demand and
piggyback registration rights as to the
Series A Preferred Stock (and the securities
issuable upon conversion thereof): up to two
(2) demand rights, unlimited S-3
registrations; and unlimited piggyback
rights; standard underwriting control
arrangements and lockup.
Contemporaneously with the issuance of the
Common Stock upon conversion of the Series A
Preferred Stock, the Company shall file and
as promptly as practicable thereafter have
declared effective, a resale registration
statement on Form S-3 (or any successor
form).
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Board of Directors; Board For so long as the Purchaser or its
Observer: affiliates owns at least 33.3% of the shares
of Series A Preferred Stock originally issued
to it or 50% of the shares of Common Stock
issued to Purchaser or its affiliates upon
conversion of the Series A Preferred Stock,
the Purchaser shall have the right to
nominate to the Board of Directors one
individual to the Board of Directors. The
size of the board will be increased as
necessary to provide for the foregoing board
seat, and the individual designated by the
Purchaser will be appointed to the Board of
Directors to occupy such seat. So long as the
Purchaser is entitled to nominate one member
to the Board of Directors, such nominee would
have the right to be a member of each
committee of the Board of Directors
established from time to time, subject to the
terms of applicable law. The Board of
Directors shall take all necessary actions to
cause the Purchaser nominee to be appointed
to the Board of Directors.
If the Purchaser chooses not to exercise its
right to nominate a member to the Board of
Directors, the Purchaser shall have the right
to designate one person as an observer, which
person would have
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the right to attend and participate in all
meetings of, and receive all material
distributed to, the Board of Directors,
subject to customary exceptions. Observer
rights extend to committees.
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Closing Conditions: The purchase of the Series A Preferred Stock
would be subject to customary conditions to
closing, including negotiation, execution and
delivery of definitive agreements setting
forth the foregoing terms and containing
customary representations, warranties,
covenants and conditions, including the
receipt of any required governmental consents
and approvals, the waiver by each executive
officer of the right to receive replacements
options pursuant to such executive officer's
severance agreements upon the consummation of
the Merger and the execution of the Merger
Agreement by each of the parties thereto.
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Transferability: The Series A Preferred Stock (and Common
Stock and 14% Senior Notes issued upon
conversion thereof) shall be freely
transferable, subject to compliance with
applicable securities laws.
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Terms of the 14% Senior Notes Issuer
------
The 14% Senior Notes shall be issued by the
Company.
Guarantors
----------
The 14% Senior Notes shall be guaranteed by
the Company's subsidiaries, other than BGE.
Interest Rate
-------------
The principal amount of the 14% Senior Notes
shall accrue interest at an annual rate of
14%. During the continuance of an Event of
Default, interest shall accrue at a rate 3%
greater than otherwise applicable. Interest
shall be payable monthly in cash.
Maturity Date
-------------
The 14% Senior Notes shall mature and be due
and payable in full on the first anniversary
of the original issuance date of the notes.
Ranking
-------
The 14% Senior Notes shall rank pari passu
with the senior most unsecured debt of the
Company.
Covenants
---------
The 14% Senior Notes will include negative
covenants restricting the Company from
incurring senior or pari passu debt and the
Company's subsidiaries from incurring any
debt, or the Company or its subsidiaries from
making restricted payments, engaging in
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fundamental changes (i.e., mergers, sales of
assets, etc.) and other customary
restrictions; provided, however, that the
Company may refinance debt maturing within 6
months and the Company's subsidiaries may
refinance existing debt, in each case, in
principal amounts and at rankings not to
exceed the existing principal amount or
rankings of the debt refinanced and Baltimore
Gas & Electric Company may issue new debt
consistent with both its past practices and
regulatory approvals. The 14% Senior Notes
will include customary affirmative covenants
like information covenants.
Events of Default
-----------------
Customary events of default including a cross
default on debt of the Company and its
subsidiaries.
Change of Control Offer
-----------------------
Upon a change of control (other than
resulting from the Merger (as defined
below)), the Company shall be required to
offer to purchase the Notes at 101% of the
outstanding aggregate principal amount
thereof plus any unaccrued but unpaid
interest thereon.
Expenses and Indemnification
----------------------------
Customary provisions providing for
reimbursement of expenses and indemnification
of the Holder.
Governing Law and Jurisdiction
------------------------------
New York law and New York courts
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MERGER AGREEMENT
----------------
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Structure: A wholly owned subsidiary of Purchaser shall
merge with and into the Company with the
Company as the surviving corporation (the
"Merger").
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Merger Consideration: $26.50 per share of Common Stock. All
outstanding preferred stock of the Company,
other than the Series A Preferred Stock,
shall be redeemed upon the closing of the
Merger.
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Representations and Warranties: The Merger Agreement will contain
representations and warranties reasonably
acceptable to Purchaser.
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Closing Conditions: The Merger Agreement will contain customary
closing conditions reasonably acceptable to
Purchaser. The Merger will not be subject to
a financing condition. Closing conditions
will include (i) the senior unsecured debt of
the Company must be rated investment grade
with no less than a stable outlook by
Xxxxx'x, S&P and
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Fitch, (ii) that as of the closing date the
Purchaser would not be entitled to exercise
the Limited Due Diligence Termination Right
(assuming such right was exercisable as of
the closing date, the determination period
runs from the June 30, 2008 to the closing
date and that an adverse net economic change
in excess of $400 million shall be deemed to
be material for purposes of the closing
condition) and (iii) the absence of a
material adverse effect.
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Regulatory Approvals: The Company and the Purchaser will agree to
cooperate to obtain all required regulatory
approvals; provided, however, that in no
event shall the Purchaser or Company agree
to, without the prior written consent of the
other party (which consent may be withheld in
such party's sole discretion), (i) capital
expenditures, (ii) rate reductions or (iii)
actions otherwise, individually or in
aggregate, having an adverse effect on either
the Purchaser or the Company, in each case in
excess of an amount deemed acceptable to the
Purchaser in its reasonable discretion.
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Non-Solicitation; Special From and after the date of the Merger
Meeting Agreement, the Company shall be bound by a
non-solicitation/no shop clause reasonably
acceptable to Purchaser. Therefore, if the
Company receives an unsolicited bona-fide
acquisition proposal (to be defined in the
Merger Agreement) prior to obtaining
stockholder approval for the Merger, which
constitutes a Superior Proposal (to be
defined in the Merger Agreement), the Company
may engage in discussions with and share
information with the proposing party. The
Company shall promptly notify the Purchaser
of the material terms of any such proposal
(including the identity of the party making
the proposal) and keep the Purchaser informed
on a current basis as to any significant
changes or developments with respect to any
proposal or other written or oral inquiries.
The Company may not terminate the Merger
Agreement in order to accept a Superior
Proposal prior to the holding of the
stockholder meeting to approve the
Merger and the other transactions
contemplated by the Merger Agreement.
Following a stockholder vote rejecting the
Merger and assuming stockholder approval of
the Merger has not been obtained, the Company
may terminate the Merger Agreement in order
to accept a Superior Proposal, but only if
(i) the Company nor its representatives have
breached the non-solicitation covenants, (ii)
the Company has provided the Purchaser with
5-business days advance notice in writing of
its intent to do so and such Superior
Proposal remains a Superior Proposal at the
end of such 5-business day period and (iii)
the Company has paid the Termination Fee to
the Purchaser.
The Company shall be required to call and
hold a Special Stockholders Meeting as
promptly as practicable following the
execution of the Merger Agreement for the
purposes of obtaining
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stockholder approval of the Merger and the
other transactions contemplated by the Merger
Agreement. The Company shall file the
preliminary proxy statement relating to the
Special Stockholders Meeting as promptly as
practicable (but in any event within 30 days)
following the execution of the Merger
Agreement.
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Covenants: The Company will agree to operating covenants
during the pendency of the Merger Agreement
reasonably acceptable to Purchaser, including
a restriction on the payment of dividends and
a prohibition on the issuance of capital
stock.
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D&O Indemnification; The Purchaser will agree to continue the
Insurance: indemnification and exculpation provisions
currently contained in the Company's articles
of incorporation or bylaws and shall agree to
continue the current D&O policy for the
benefit of the Company's officers and
directors for a period of 6 years following
the closing of the Merger; provided, however,
that the Purchaser shall not be required to
pay premiums in excess of 150% of the current
premiums paid by the Company.
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Termination Fee: In consideration for the purchase of the
Series A Preferred Stock and the execution of
the Merger Agreement, in the event the Merger
Agreement is terminated for any reason,
including without limitation, upon a
withdrawal of the Board's recommendation of
the transactions contemplated by the Merger
Agreement, the occurrence of the drop dead
date, a termination to accept a Superior
Proposal, a breach of the Merger Agreement by
the Company or otherwise, other than upon
exercise of the Limited Due Diligence
Termination Right or due to a breach of the
agreement by the Purchaser, the Company shall
pay a termination fee of $175 million to the
Purchaser contemporaneously with the
termination of the Merger Agreement.
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Limited Due Diligence For a period of 14 days following the later
Termination Right of the execution of the Merger Agreement and
the date the Company and the Purchaser agree
that the Purchaser and its representatives
have been given full access to the Company's
books and records relating to the retail and
wholesale businesses, trading records and
appropriate personnel, the Purchaser shall
have the right to terminate the Merger
Agreement if the Purchaser determines, in its
sole discretion, that since June 30, 2008
either the retail and/or wholesale businesses
or assets have materially deteriorated. The
parties agree that an adverse change in the
net economic value of such businesses or
assets in excess of $200 million shall be
deemed to be material for purposes of the
Limited Due Diligence Termination Right.
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Non-Survival: The representations and warranties shall not
survive the closing of the Merger.
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Remedies: The Purchaser shall be entitled to seek
specific performance of the Company's
obligations under the agreement. The
Company's sole and exclusive recourse against
the Purchaser and its affiliates shall be
limited to a right to offset against any
obligations under the Series A Preferred
Stock or the securities issuable upon
conversion thereof.
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Drop Dead Date: 9 months following the execution of the
Merger Agreement, which date may be
extended by the Purchaser or the Company for
up to 3 months.
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Governing Law for Merger: Maryland
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