EXHIBIT 99.1

Exhibit 99.1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY

AQUILA, INC. (f/k/a UTILICORP )
UNITED INC.), )
)
Plaintiff, )
)
v. ) C.A. No. 19497
)
QUANTA SERVICES, INC., )
JAMES R. BALL, JOHN R. COLSON, )
VINCENT D. FOSTER, LOUIS C. )
GOLM, JERRY J. LANGDON, )
GARY A. TUCCI, JOHN R. WILSON, )
QUANTA SERVICES, INC. STOCK )
EMPLOYEE COMPENSATION TRUST, )
and WACHOVIA BANK, N.A., )

Defendants. )


MEMORANDUM OPINION

SUBMITTED: MAY 7, 2002
DECIDED: MAY 10, 2002

Alan J. Stone, Esquire, Megan E. Ward, Esquire, Yvette C. Fitzgerald,
Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; Scott A.
Edelman, Esquire (argued), Thomas A. Arena, Esquire, Daniel Perry, Esquire,
Kylie Davidson, Esquire, MILBANK, TWEED, HADLEY & McCLOY LLP, New York, New
York; ATTORNEYS FOR PLAINTIFF.



Kevin G. Abrams, Esquire (argued), Srinivas M. Raju, Esquire, Peter B. Ladig,
Esquire, Kelly A. Green, Esquire, John D. Hendershot, Esquire, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Andrew C. Houston, Esquire
(argued), Stephen R. DiPrima, Esquire, Matthew H. Baughman, Esquire,
WACHTEL, LIPTON, ROSEN & KATZ, New York, New York; ATTORNEYS FOR
DEFENDANTS QUANTA SERVIES, INC., JAMES R. BALL, JOHN R. COLSON, VINCENT D.
FOSTER, LOUIS C. GOLM, JERRY J. LANGDON, GARY A. TUCCI, AND JOHN R. WILSON.

Cathy L. Reese, Esquire, BLANK ROME COMISKY & McCAULEY LLP, Wilmington,
Delaware, ATTORNEY FOR THE DEFENDANTS QUANTA SERVICES, INC. STOCK EMPLOYEE
COMPENSATION TRUST AND WACHOVIA BANK, N.A.

LAMB, Vice Chancellor



I. INTRODUCTION

This lawsuit challenges actions taken by a Special Committee of the
board of defendant Quanta Services, Inc. ("Quanta") in connection with a
proxy contest initiated by plaintiff and insurgent shareholder Aquila, Inc.
("Aquila"). Aquila, formerly known as Utilicorp United, Inc., is a Delaware
corporation based in Kansas City, Missouri, and is a multi-national energy
services business. Quanta is a Delaware corporation based in Houston, Texas,
that builds and repairs infrastructure for various utility companies,
including Aquila. For all purposes relevant to this litigation, Quanta has
effectively been managed by a seven-member Special Committee of its board of
directors. The individuals named as defendants in this action -- James R.
Ball, John R. Colson, Vincent D. Foster, Louis C. Golm, Jerry J. Landgon,
Garry A. Tucci, and John R. Wilson (collectively, the "Director
Defendants")--are all of the non-Aquila-affiliated members of Quanta's board
and are the seven members of the Special Committee. Three of the seven
Director Defendants are members of Quanta's management.(1) On March 13,
2002, the Special Committee approved the creation

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(1) Colson is Quanta's CEO; Tucci is a Senior Vice-President of Quanta
and President of Potelco, a Quanta subsidiary; and Wilson is a Senior
Vice-President of Quanta and President of PAR Electrical Contractors, Inc.,
another Quanta subsidiary. The other four Director Defendants, including
Foster, the non-executive Chairman of Quanta's board, appear to be
independent.

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of a Stock Employee Compensation Trust ("SECT"). The SECT is also a party to
this lawsuit, as is its trustee, Wachovia Bank, N.A. ("Wachovia").

On February 8, 2002, Aquila announced its intention to nominate an
opposing slate of directors at Quanta's upcoming annual meeting. At that
time, Aquila owned approximately 38% of Quanta's outstanding shares. In the
following weeks, the Special Committee met several times to consider its
strategy for the proxy contest, untimately adopting the SECT on March 13.
The SECT is a vehicle by which Quanta has designated eight million newly
issued shares of common stock (representing approximately 10% of Quanta's
outstanding shares before the adoption of the SECT) for the payment of
benefits to its employees over the next 15 years. The terms of the SECT
allow certain not-director employees of Quanta to vote these shares. The
effects of this voting provision are to dilute Aquila's voting power and to
increase Quanta management's chance of success in the proxy contest.
Accordingly, Aquila has moved for a preliminary injunction to preventing the
voting of the SECT shares at Quanta's annual meeting on May 23, 2002.

II. FACTS

On June 30, 1999, Aquila and Quanta announced that they were forming
a strategic partnership that would involve a large investment by Aquila in
Quanta.

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Several months later, on September 21, 1999, the two companies entered into a
Securities Purchase Agreement ("SPA") pursuant to which Aquila purchased
1,860,000 shares of Quanta's Series A Convertible Preferred Stock for $186
million. In connection with the SPA, the parties entered into a variety of
other agreements. Aquila obtained the right to nominate two members of
Quanta's board as long as Aquila's fully diluted ownership of Quanta remained
below 30%, and three members of Quanta's board if Aquila's ownership
exceeded that threshold. Aquila also obtained the right to acquire up to
49.9% of Quanta's shares on a fully diluted basis, which meant that Aquila
would be able to acquire a majority of Quanta's then-outstanding shares. The
SPA provided that Quanta "would not adopt any Stockholders Rights Plan that
could have the effect of reducing [Aquila's] Fully Diluted Ownership Ratio
below 49.9%."

After making its initial investment, Aquila continued to buy Quanta
shares on the open market and in private transactions with, among others,
Quanta officers and directors. By September 2001, Aquila owned approximately
36% of the voting power of Quanta's stock, and on September 28, 2001, Aquila
stated in a Schedule 13D filed with the Securities and Exchange Commission
that it intended, through its open market purchases, to "increase its
percentage of ownership of [Quanta] to a percentage that will enable it to
enjoy the benefits of

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financial statement consolidation for accounting purposes," or in other words
to acquire a number of shares sufficient to allow Aquila to control the
policies and direction of Quanta. Aquila sought this relationship not to
change the direction or management of Quanta, but instead for its financial
and tax benefits.

By October 8, 2001, Aquila had increased its voting power to 38.5%.
The non-Aquila-affiliated members of Quanta's board, concerned at least in
part about the destabilizing effects Aquila's acquisition of control might
have on Quanta's employees, responded by proposing a standstill agreement and
attempting to negotiate a lower limit on Aquila's ownership than provided for
in the SPA. These negotiations were unsuccessful and were terminated on
November 15, 2001. That same day, Quanta amended its poison pill so that it
would be triggered if Aquila's ownership level exceeded 39%. This amendment
is the subject of arbitration, currently scheduled for next week, to
determine whether it violates the terms of the SPA. On November 18, 2001,
Quanta announced the formation of the Special Committee, which consisted of
all Quanta directors unaffiliated with Aquila (I.E., the Director
Defendants). The Special Committee was authorized to consider and adopt
responses to Aquila's control-related initiatives.

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The parties resumed negotiations in January 2002. These negotiations
were also unsuccessful and, on February 8, 2002, Aquila filed an amended
Schedule 13D stating that Aquila had "advised Quanta that it intends to
present an opposition slate of nominees for election as directors at
Quanta's 2002 annual meeting of stockholders." The Schedule 13D also noted
that Aquila might cause Quanta to repurchase 20 to 25% of Quanta's shares, an
action that would increase Aquila's ownership percentage without spending any
of Aquila's money, and that Aquila would "support a broad-based retention
program directed at Quanta's key employees, including certain executive
management employees." In a press release issued on February 10, 2002, Quanta
announced its intent to "vigorously oppose" Aquila in the proxy contest.

Quanta's management and Special Committee immediately began
considering their options with respect to Aquila's announcement. Colson,
Quanta's CEO, arranged a meeting between Quanta management and potential
advisors Goldman Sachs & Co. ("Goldman") and Wachtell, Lipton, Rosen & Katz
("Wachtell"). Goldman and Wachtell presented a variety of options to
management on February 11, 2002. One of those options was the SECT, which
offered several benefits to Quanta including the stabilization of Quanta's
employee workforce and the dilution of Aquila. That option was presented to
the

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full Special Committee at a meeting the next day, February 12, 2002, which
was also attended by representatives of Goldman and Wachtell, along with
representatives of the proxy solicitation firm MacKenzie Partners, Inc.
("MacKenzie"). At this point, the record evidence pertaining to that meeting,
as well as later meetings of the Special Committee, consists of deposition
testimony, draft minutes, and handwritten notes taken by Wachtell attorneys.

Both the minutes and the notes reflect that the February 12 meeting
began with a presentation by Wachtell about the relevant legal principles
governing the Special Committee's conduct in the proxy contest. Wachtell
informed the Director Defendants that this court would closely scrutinize
any actions affecting voting in the proxy contest and that the Director
Defendants would need to establish a reasonable, independent business purpose
for any such actions. The Special Committee next discussed the timing and
process of the proxy contest and amended Quanta's poison pill. The notes, but
not the minutes, show that the Defendant Directors next had a "discussion
concerning percentages" and considered their chances of success in the proxy
fight. The MacKenzie representatives estimated that Quanta would have to
obtain roughly 5.75 votes for each vote obtained by Aquila in order to
prevail, a number that would be "very hard" to achieve. According to
deposition testimony, several members of the

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Special Committee were even more pessimistic, expecting that Quanta would
lose the proxy contest. The notes also reveal, however, that "you can get
3/4/5" to 1, apparently suggesting that Quanta might succeed at that lower
ratio.

The Special Committee then discussed the SECT. The parties disagree
about the context of that discussion, with Aquila claiming that the focus was
on how to address Quanta's grim prospects in the proxy contest and Quanta
arguing that the focus was on stabilizing Quanta's workforce. The record does
reflect some concern about employees, although at least one director, Tucci,
acknowledged at deposition that "it wasn't a big discussion."(2) The
handwritten notes of the meeting indicate that a Goldman representative
explained the SECT and its effect on Quanta's shareholders. At this point,
the notes reflect a comment that the SECT was "likely to be attacked as vote
rigging." Significantly, there was no discussion of alternative voting
provisions for the SECT that would avoid this problem. Instead, the Special
Committee continued discussing alternatives that would "maximize [the] odds
of winning [the] proxy contest."

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(2) Tucci Dep. at 19-20.

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The Special Committee next met telephonically on March 5, 2002,
again with its advisors present. The purpose of the March 5 call was to
update the Special Committee on several defensive actions that were being
considered. The minutes show that the meeting began with a brief discussion
of management's general concern about employee reaction to the proxy contest.
The meeting then turned quickly to a presentation by Goldman and Wachtell
about the SECT and about other possible employee retention measures.
According to the minutes, this presentation and the ensuing discussion made
little reference to the dilutive effect of the SECT other than noting in
response to a question that "a legal challenge to the SECT was possible" for
that reason. The handwritten notes, however, reveal that the Special
Committee's advisors recommended that it "consider [a] series of steps to
stabilize [the] employee situation [and] level [the] playing field a bit."
The notes then indicate that "courts will look at" the SECT and that the
Special Committee "need[ed] to be sensitive to Del[aware] concerns."

On March 13, 2002, the Special Committee met again to consider and
adopt several defensive measures. At that meeting, the Special Committee
amended Quanta's poison pill yet again and authorized Goldman to explore
other strategic options for Quanta, among other things. Most of the March 13

8




meeting, however, focused on Quanta's employees. The Defendant Directors
discussed employee stability, with Colson describing a "great deal of
turmoil" among Quanta employees. It is not clear from the record at this
point precisely how much turmoil the proxy contest had actually created, but
the record suggests that at least some employee issues had arisen. The real
concern was apparently that one or more senior managers might leave, causing
their top lieutenants to go with them. To address this concern, the Special
Committee adopted a new severance plan and, after lengthy discussions,
approved new employment agreements for 36 key executives that included
lucrative change of control provisions. Later in the March 12 meeting, after
discussing and approving the SECT, the Special Committee also considered and
adopted an executive deferred compensation stock plan.

The discussion of the SECT at the March 12 meeting was extensive.
Wachtell lawyers described the operation and benefits of the SECT, noting the
dilutive effect that the SECT would have on Aquila and Quanta's other
shareholders. The Special Committee and its advisors discussed the vote
dilution, emphasizing that Quanta was not amending its poison pill to prevent
Aquila from regaining its original voting percentage through additional
purchases of Quanta stock, and also discussed the employee-related and
credit-related

9




benefits of the SECT.(3) At the end of this discussion, the Special Committee
unanimously approved the adoption of the SECT.

According to Quanta, the SECT was approved because it was good for
Quanta employees and showed a commitment to those employees. Aquila notes,
however, that the Special Committee neither solicited the views of the
employees nor retained any compensation consultants, as Quanta had done in
connection with several employee benefit programs in the past. Aquila also
points out that Quanta has done very little to inform its employees about the
SECT, undercutting Quanta's claim that the purpose of the SECT was to ensure
employee retention by quelling employee concerns stemming from the proxy
contest. Quanta responds that experts were unnecessary because the SECT is
not a new compensation plan and that it is awaiting the outcome of this
proceeding to broadcast news of the SECT.

In any event, the Special Committee adopted the SECT at the March 13
meeting. The SECT allows Quanta to place a significant block of shares in
trust to be released over the next 15 years for Quanta's use in connection
with a variety of employee benefit plans. The SECT purchased eight million
shares of

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(3) There is some evidence in the record that the Special Committee
expected that the adoption of the SECT would marginally improve credit
agencies' view of Quanta.

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previously unissued stock from Quanta with a note for $132 million and a
trivial amount of cash (roughly $80) representing the par value of the stock.
Quanta agreed to forward cash to the SECT periodically to allow the SECT to
make the required payments on the note. If any payments come due without
Quanta advancing the SECT the necessary cash, those payments are to be deemed
forgiven. Whenever payments on the note are made or forgiven, a block of
shares is released from the trust and made available for allocation by
Quanta. Released shares must be allocated to one of several specific employee
benefit plans. Quanta retained the right to dissolve the SECT at any time.
The effect of dissolution or of a change of control of Quanta would be that
any unreleased shares would be sold, with the proceeds first to pay off the
note and then to be allocated to the employee benefit plans.

Unallocated SECT shares are to be voted by the trustee in accordance
with confidential instructions from participants in Quanta's Employee Stock
Participation Program ("ESPP"). The ESPP is Quanta's broadest employee stock
program and is open to all full-time Quanta employees. All ESPP participants
(excluding Quanta directors) in the one-year period terminating ten days before
the shareholder meeting direct the voting of unallocated SECT shares. The
trustee weights each participant's instruction by the percentage of


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total ESPP share purchases made during the relevant time period by that
participant. In other words, employees buying more shares through the ESPP will
vote more SECT shares.

The effect of this voting provision is to increase the voting power of
Quanta employees at the expense of Quanta's shareholders, each of whose voting
power is diluted by 10%. Aquila's ownership and voting power, for example, were
diluted from approximately 38% to approximately 34%. This was no surprise to
Quanta's Special Committee, which was well aware of this dilutive effect even
though it never considered any other voting arrangement. Aquila contends that
this voting provision is unrelated to the business reasons for adopting the SECT
and that the SECT shares should be voted, if at all, in proportion to the votes
of all Quanta shareholders. Quanta argues that giving the employees the right to
vote the SECT shares is consonant with the purposes of the SECT, that the
dilutive effect on Aquila's voting power is DE MINIMIS, and that there is no
harm because Aquila will likely win the proxy contest anyway. Aquila has moved
for a preliminary injunction preventing the voting of the SECT shares at
Quanta's annual meeting on May 23, 2002.


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III. DISCUSSION

Preliminary injunctive relief will be granted only where the moving
party demonstrates a reasonable probability of success on the merits,
irreparable harm if the injunction is not granted, and a balance of equities in
favor of granting the relief.(4) Moreover, a preliminary injunction is an
extraordinary remedy, which will not issue unless it has been earned and will be
denied where the remedy sought is excessive in relation to, or unnecessary to
prevent, the injury threatened.(5) This "extraordinary remedy ... 'is granted
only sparingly and only upon a persuasive showing that it is urgently necessary,
that it will result in comparatively less harm to the adverse party, and that,
in the end, it is unlikely to be shown to have been issued improvidently'"(6)

Aquila argues that the voting of the SECT shares must be enjoined for
two reasons. First, it contends that the SECT shares still belong to Quanta and
thus cannot be voted because of Section 160(c) of the DGCL, which prohibits the
voting of


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(4) SI MANAGEMENT L.P. V. WININGER, 707 A.2d 37, 40 (Del. 1998);
UNITRIN, INC. V. AMERICAN GENERAL CORP., 651 A.2d 1361, 1371 (Del. 1995);
REVLON, INC. V MACANDREWS & FORBES HOLDINGS, INC., 506 A.2d 173, 179
(Del. 1986).

(5) INVANHOE PARTNERS V. NEWMONT MINING CORP., 533 A.2d 585, 600 (Del.
Ch. 1987), OFF'D, 535 A.2d 1334 (Del. 1987).

(6) CANTOR FITZGERALD, L.P. V. CANTOR, 724 A.2d 571, 579 (Del. Ch.
1998) (quoting Donald J. Wolfe, Jr. & Michael A. Pittenger, CORPORATE AND
COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY Section 10-2(a)).

13


shares of capital stock that belong to the issuing corporation. Aquila argues
that an order enjoining the voting of the unallocated portion of the 8 million
shares issued to the SECT is appropriate under Section 160(c) to prevent the
defendants from using Quanta's own shares to dampen the rights of a large
stockholder to determine the composition of the corporation's board. For the
reasons discussed below, the record on this motion is not sufficiently developed
for the court to formulate a dependable view of the applicability of Section
160(c)'s voting strictures to the unallocated SECT shares.

Second, Aquila argues that the adoption of the SECT, with its dilutive
voting provision, was not a permissible defensive measure under the standards
articulated in UNOCAL CORP. V. MESA PETROLEUM CO.(7) and BLASUIS INDUSTRIES,
INC. V. ATLAS CORP.(8) The record relating to the adoption and operation of the
dilutive voting feature of the SECT is adequate to support a finding that Aquila
has shown a probability of success on the merits of its fiduciary law claims.
The director defendants' authorization of the SECT was taken in the context of a
proxy fight and other takeover related activity and is subject to scrutiny under

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(7) 493 A.2d 946 (Del. 1985).

(8) 564 A.2d 651 (Del. Ch. 1988).

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UNOCAL and UNITRIN.(9) Aquila has shown a reasonable probability that the
decision to authorize the SECT--with its dilutive voting feature--cannot be
sustained when examined under those authorities.

Nevertheless, because the court concludes that Aquila is not threatened
with imminent, irreparable harm, and that the balance of hardships weighs in
favor of Quanta, the application for a preliminary injunction will be denied.

A. DOES SECTION 160(c) APPLY?

Section 160(c) provides:

Shares of its own capital stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in
the election of directors of such other corporation is held, directly
or indirectly, by the corporation, shall neither be entitled to vote
nor be counted for quorum purposes. Nothing in this section shall be
construed as limiting the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary
capacity.

The parties present two different approaches to Section 160(c). Quanta
contends that the cases interpreting Section 160(c) focus on who votes the
shares at issue, arguing that the SECT shares need not be sterilized because
they are voted by certain non-director employees of Quanta and not by Quanta
itself, by its board, or by any of its directors. Aquila, to the contrary,
claims that the language of the

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(9) UNITRIN, INC. V. AMERICAN GEN'L CORP., 651 A.2d 1361 (Del. 1995).

15


statute and the cases interpreting the statute focus instead on the various
economic and property interests in the contested shares, arguing that the
SECT shares "belong to" Quanta and therefore may not be voted by anyone. Both
of these approaches find some support in the relevant case law.

Quanta relies on common law cases predating Section 160(c) and on HAFT
V. DART GROUP CORP.(10) to support its voting-focused view of the statute.
According to Quanta, the critical question is whether the directors of a
corporation can control the voting of shares owned directly or indirectly by
the corporation in order to ensure their own election. The SECT does not
implicate this concern, it says, because the trustee, Wachovia, votes the
SECT shares in accordance with confidential instructions from non-director
employees of Quanta. In other words, Quanta contends, the SECT shares need
not be sterilized under this interpretation of Section 160(c) because they
are not being voted by Quanta or its directors.

Aquila argues that Quanta's approach ignores the plain language of
Section 160(c), which on its face sterilizes any shares "belonging to" the
issuing corporation, and suggests instead that the court should consider
various indicia of

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(10) Del. Ch., C.A. No. 14685, Allen, C., mem. op. at 20-21 (Mar. 14,
1997) ("The central evil that both the cases upon which statutes such as
Section 160(c) are premised and to which the statute itself is directed, is
the use of the corporation's own capital to allow incumbent corporate
directors to control the voting of the corporation's stock.").

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ownership when determining whether shares are sterilized by the statute.(11)
Aquila notes that in both HAFT and SPEISER V. BAKER,(12) this court followed
the ownership-focused view and considered a variety of factors to determine
whether the shares at issue belonged to the issuing corporations. The
economic factors considered in those cases included the source of capital
used to acquire the shares at issue, the various economic and residual
interests in those shares, the equity ownership of the issuing corporation in
the entity holding those shares, and the accounting treatment of those shares.

Neither approach is entirely complete or correct. The language of the
statute clearly focuses on who owns the shares; nevertheless, an important
factor to consider in making that determination is who votes the shares.
Applying all of

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(11) Aquila's appeal to the plain language of the statute is
compelling. Neither party contends, for example, that Quanta could grant
anyone a proxy to vote treasury shares. CF. HAFT, mem. op. at 20 ("[I]t seems
clear that, while the existence of the irrevocable proxy [in favor of Herbert
Haft] did not in fact threaten the type of injury that Section 160(c) was
directed against, nevertheless the plain meaning of the statutory words
'belonging to' would prevent that stock from being voted [after it was
acquired by the issuing corporation]."). At the same time, however, the
precise meaning of Section 160(c)'s "belonging to" language is less than
clear. Consequently, courts interpreting the statute have typically reverted
to considerations of the policy underlying Section 160(c) to resolve close
cases. SEE, E.G., SPEISER V. BAKER, 525 A.2d 1001, 1007-11 (Del. Ch. 1987)
(focusing on the literal terms of Section 160(c) and then, when those terms
were not clear, evaluating the issues presented in light of the purpose of
the statute); HAFT, mem. op. at 20, 21-22 (relying on the plain language of
the statute to decide one Section 160(c) claim and then considering the
principles upon which the statute is based when forced to interpret the
statute to decide a second Section 160(c) claim).

(12) 525 A.2d 1001.

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the relevant factors leads me to conclude that this is a very close case.
From an economic perspective, it is unclear who owns the SECT shares.
Quanta's employees hold the upside potential of the SECT shares, the SECT
shares can never return to Quanta even if the trust is dissolved, and Quanta
is obliged to give or sell the shares (or money in lieu of sold shares) to
its employees through benefit plans once the shares are released from the
trust. At the same time, Quanta bears all of the downside risk associated
with the SECT shares, Quanta determines how those shares will be allocated to
satisfy Quanta's obligations, and Quanta can dissolve the trust at any time.
Moreover, no particular employee can claim any present ownership interest in
any of the unallocated shares, and the shares are subject to claims by
Aquila's creditors. Other factors are similarly inconclusive, such as the
ambiguous accounting treatment of the SECT shares.(13) The determination of
who owns the SECT shares for purposes of Section 160(c) can only be made
after several issues--such as how exactly the SECT operates, what the
economic reality underlying both the transaction and its accounting treatment
is, and which employees vote the SECT shares--are developed more fully at

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(13) The SECT shares are treated as outstanding shares of Quanta for
balance sheet purposes, but not for earnings per share purposes. The reason
for the different treatment is, at this point, unclear.

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trial. At this preliminary stage, however, I cannot conclude on the record
before me that Aquila has established a likelihood of success on the merits of
its Section 160(c) claim.

B. FIDUCIARY DUTY ANALYSIS

There is no question that the centerpiece of this litigation--the
SECT--is a defensive mechanism adopted in response to Aquila's actions that
were perceived as threatening by Quanta's Special Committee.(14)
Nonetheless, the terms of the SECT, including its voting mechanic, are
neither preclusive nor coercive, as those terms are commonly understood in
our law. Instead, even viewed most critically as a response to Aquila's large
head start in the proxy contest, the 10% dilution caused by the SECT makes it
more difficult (but not impossible) for Aquila to win its proxy contest and,
thus, more likely (but far from certain) that the members of the Special
Committee will be returned to office in the election. In the circumstances,
in scrutinizing the actions of the Special Committee in

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(14) Aquila argues that the SECT is a response to the announcement
of its intention to wage a proxy contest to replace the Quanta board of
directors and that its voting mechanism should be examined solely in that
context. The directors suggest that the court should view their actions more
broadly as a response to Aquila's "takeover attempt," by which they mean to
include Aquila's "creeping tender offer" and its announced plan to pursue the
objective of acquiring a majority of Quanta's outstanding shares. In this
view, the effect of the SECT's voting provisions on the proxy contest is
merely incidental to and consistent with a broader purpose and is DE MINIMUS.

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adopting the SECT, the court will not apply the strict "compelling
justification" test found in BLASIUS.(15) Instead, the court will examine the
decision of the Special Committee to adopt the SECT under the familiar
standard of UNOCAL.(16)

Of course, as recognized in BLASIUS,(17) UNITRIN,(18) STROUD,(19)
and other decisions, the courts of this State are particularly vigilant in
protecting against "legal strategies . . . to frustrate . . . a shareholder
vote."(20) And, the court is "mindful of the special import of protecting the
shareholders' franchise within UNOCAL's requirement that a defensive response
be reasonable and proportionate."(21)

Applying these principles to this case requires me to examine
whether the record supports a conclusion that, at the final hearing, the
director defendants will be able to sustain their initial burden of
satisfying both the reasonableness and proportionality tests of UNOCAL. As
stated in UNOCAL, those tests require the directors to show, as a condition
to the application of a business judgment rule

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(15) 564 A.2d 651 (Del. Ch. 1988).

(16) 493 A.2d 946 (Del. 1985).

(17) 564 A.2d 651.

(18) 651 A.2d 1361, 1378-79 (Del. 1995).

(19) STROUD V. GRACE, 606 A.2d 75, 92 n.3 (Del. 1992).

(20) UNITRIN, 651 A.2d at 1379.

(21) ID.

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standard of review, the following: (1) that the board of directors had
reasonable grounds for believing that a danger to corporate policy and
effectiveness existed; and (2) that the board's defensive response was
reasonable in relation to the threat posed.(22) The first element is
satisfied by evidence of the directors' good faith and reasonable
investigation.(23) Here, where a majority of the members of the Special
Committee that authorized the SECT are outside, independent directors, such
evidence of good faith and reasonable investigation is "materially
enhanced."(24) The second element is satisfied where a "board of directors'
defensive response is not draconian (preclusive or coercive) and is within a
'range of reasonableness.'"(25) In those circumstances, a court will not
substitute its judgment for that of the board.(26)

The validity of the SECT may be seen to turn on whether the voting
mechanic included in it is examined separately, or instead, passes under the
radar screen of judicial review due to its characterization as merely a
normal or ordinary feature of SECTs having merely incidental effects on
voting rights.


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(22) 493 A.2d at 955.

(23) ID.

(24) ID.

(25) UNITRIN, 651 A.2d at 1388.

(26) ID.

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UNOCAL/UNITRIN require that this court examine "the justification for each
contested defensive measure and the results achieved thereby."(27) Moreover, the
court should also scrutinize all inextricably related defense measures as
a collective, and assess the reasonableness of the whole. Here, this means
that the voting mechanic of the SECT must be justified on its own terms, not
merely as a "normal" or "ordinary" part of a SECT plan.

Looking at the first prong of the UNOCAL/UNITRIN analysis, the
Special Committee argues that it conducted a reasonable investigation and
concluded, in good faith, that Aquila's actions and announced intentions
destabilized Quanta's employee base and thereby threatened to diminish its
value. And, while the factual record is hotly disputed by Aquila, there is
some record evidence (most notably the testimony of the directors) to support
a conclusion that the Special Committee reasonably perceived that employee
unrest threatened some harm to Quanta. Thus, while Aquila may ultimately
succeed in proving that the concern about employee stability was merely a
pretext to justify the dilutive issuance, the record does not permit me to
draw such an inference at this time, especially in light of the "material
enhancement" I must accord the evidence adduced by these

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(27) ID. at 1387.

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outside, independent directors.(28)

The second prong of the test is much more difficult for the
defendants to satisfy because there is little or no relationship between the
threat of employee instability on which they rely and the adoption of the
dilutive voting provision. The powerful relationship is between that dilutive
provision and the threat that Aquila will win the proxy fight. But, for
obvious reasons, the Special Committee makes no effort to justify the
inclusion of the voting mechanic in the SECT by its dilutive effect on
Aquila. Instead, the defendants argue that voting provision is similar to
ones found in most SECTs, that there is an "undeniable logic to having those
who are likely to be the ultimate beneficiaries of the SECT be the ones to
control the voting of such shares," and that it has a minimal dilutive effect
on voting. On this last point, they further argue that the SECT's effect on
the proxy contest was within a range of reasonableness because: (1) Aquila
still maintains

- ------------------------
(28) Aquila's argument about the pretextual nature of the "threat"
of employee instability advanced to justify the SECT finds support in the
record. SECTs are marketed as "defensive devices" not because they calm
employee concerns but, rather because they have the obvious potential to
place a relatively large block of stock in friendly hands. Like ESOPs, such
plans "allow incumbents to place large blocks of voting stock in their
employees' hands. These employees generally vote for management in a proxy
contest.... The sale of stock to an ESOP during a joint tender offer and
proxy contest will be closely scrutinized by the courts." Randall S. Thomas &
Catherine T. Dixon, ARANOW & EINHORN ON PROXY CONTESTS FOR CORPORATE CONTROL
20, 42 (3d ed. 2001).

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a commanding lead, and (2) the adoption of the SECT has not materially
improved Quanta's chance of success.

As mentioned earlier, Delaware courts applying UNOCAL'S requirement
that a defensive response be reasonable and proportionate are obliged to show
special vigilance for protecting the shareholder franchise. That special
vigilance requires that the voting feature of the SECT be analyzed and
justified on its own terms, as a distinct defensive measure.(29) It also
would also seem to require, at a minimum, that the defendants be able to show
that the dilutive voting provision of the SECT was closely related to their
decision to respond to the threat of employee instability and substantially
advanced that objective. Certainly, such a provision, having a material
effect on voting rights and adopted in the midst of an announced proxy
contest, cannot escape judicial scrutiny as a mere incidental or ordinary
term of some previously unreviewed defensive device.

As it is, the record of the Special Committee's deliberations is
devoid of any evidence that the committee made any judgment about the "fit"
between the dilutive voting mechanic and the threat they had identified. For
example, the record of the Special Committee's deliberations does not reveal
that it ever

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(29) UNITRIN, 651 A.2d at 1386-87.

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considered whether some different voting mechanism would be consonant with
both their defensive strategy in dealing with employee unrest and the strong
policy of Delaware law protecting the shareholder franchise. In this regard,
it must be recalled that the terms of the SECT were set by the Special
Committee (or its legal advisors) and did not involve any negotiation with a
third party purchaser. Thus, the structure of the voting mechanic was
completely within the committee's control. The decision to have those shares
voted by persons who do not own them necessarily raises substantial questions
about the propriety of the Special Committee's purpose in doing so. For
example, could the Special Committee have provided, instead, that the
unallocated SECT shares be voted in proportion to how all shares other than
those owned by Aquila are voted? While such a provision might not be illegal
PER SE,(30) the Special Committee would surely face difficult obstacles in
satisfying its UNOCAL/UNITRIN burden in justifying such a measure as a
reasoned and proportionate measure if it were adopted in the face of an
announced proxy solicitation by a dissident shareholder.(31)

In the circumstances, I conclude, on the basis of the record before
me at this preliminary stage, that the defendants will not be able to meet
their initial

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(30) BLASIUS, 564 A.2d at 660-62; UNOCAL, 493 A.2d at 957-58.

(31) STROUD, 606 A.2d at 92 n.3.

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burden under UNOCAL of showing that their actions were reasonable in relation
to the threat posed by Aquila's activities.(32)

C. IRREPARABLE HARM AND BALANCE OF EQUITIES

To demonstrate irreparable harm, a plaintiff must present an injury
"of such a nature that no fair and reasonable redress may be had in a court
of law" and must show that "to refuse the injunction would be a denial of
justice."(33) The alleged injury must be imminent and genuine, as opposed to
speculative.(34) In this case, although the plaintiff has succeeded in
showing a probability of success on the merits of one of its claims, it has
failed to establish the likelihood of irreparable harm or that the equities
of the situation favor the issuance of an injunction. I am led to these
conclusions for several reasons.

First, Aquila still owns 34% of the voting power against a much
smaller percentage ownership held by management. Even if I assume that every
share of SECT stock will be voted for the board's slate of directors, Aquila
still carries a 2:1 advantage into the contest, and only needs approximately
12% more shares

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(32) This result is consistent with decisions of the court in PACKER V.
YAMPOL, Del. Ch., C.A. No. 8432, Jacobs, V.C. (Apr. 18, 1986), and WNH
INVESTMENTS, LLC V. BALTZEL, Del. Ch., C.A. No. 13931, Ballck, V.C. (Apr. 28,
1995), enjoining the voting of shares issued for entrenchment purposes.

(33) KOHLS V. DUTHIE, 765 A.2d 1274, 1289 (Del. Ch. 2000) (internal
quotation marks omitted).

(34) CANTOR FITZGERALD, L.P. V. CANTOR, 724 A.2d 571, 578 (Del. Ch.
1998).

26


voted in its favor (or approximately 29% of the other shares likely to vote) to
win. By contrast, management will need to attract approximately 71% of the
other shares available, even assuming that 100% of the SECT shares are voted
for the management slate.(35) Thus, injunctive relief is not clearly needed
at this stage of the proceeding to prevent the improper dilution caused by
the SECT from depriving Aquila of victory.

Second, the preliminary finding made in this opinion that the voting
mechanism of the SECT is illegally dilutive should serve to dispel any
confusion among the stockholders over the status of the SECT shares or the
likelihood that those shares will be able to determine the outcome of the
election. In light of this, it is unclear what additional purpose would be
served by an injunction at this time. In view of the findings made in this
opinion, if Aquila loses the contest by a margin greater than the SECT
shares, there will be no reason to believe that the mere existence of the
SECT shares played a material role in the proxy solicitation.

Finally, the possibility that, in the absence of an injunction, the
vote of the SECT shares might prove to be outcome determinative does not
threaten Aquila

- ------------------------
(35) These figures are based on the assumption that no more than 92% of
the eligible shares will be voted at the meeting.

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with irreparable harm, even if the vote of those shares temporarily should
delay Aquila in its election objective. Rather, as in any post-election
proceeding, the parties will be afforded the opportunity for a prompt final
hearing on the merits of the case, and final injunctive relief will be
available to seat Aquila's directors if Aquila's claims are determined to be
meritorious at trial.

At this time, it also appears that the balance of equities favors
denying the injunction and that no denial of justice will result there from.
This is so because, in the event the SECT shares prove to be determinative of
the election, practical considerations suggest that Aquila's slate should be
seated only after the election contest is resolved and the issue of the
validity of those shares is finally decided. If I entered a preliminary
injunction today, preventing the counting of those shares, it might
interfere with the orderly procession of the claims in this litigation.

IV. CONCLUSION

For all the foregoing reasons, the motion for a preliminary injunction
IS DENIED. IT IS SO ORDERED.

/s/ Stephen P. Lamb
-----------------------------
Vice Chancellor

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